The Stock Market Game

Economics and the Stock Market Micro vs. Macro Economics

Going from a good idea to a corporation

Microeconomics Microeconomics studies the behavior of the

consumer, household, or firm. Scarcity and choice Utility and profit maximization

How do we allocate our budget, time? How do firms allocate resources to produce goods

and services? Efficiency

Micro and the Stock Market Look at one company:

How does this company make its product? Who buys the product? Does the company have good managers? Who supplies the company?

Look at one industry: How much competition in the industry? Is the industry young or old?

Macroeconomics Macroeconomics studies the economy as a

whole or as aggregates and attempts to predict or forecast changes in national output, unemployment, and inflation.

Macro and the Stock Market Look at the whole economy:

Inflation: Producer and Consumer Price Indices (PPI & CPI)

Employment: Unemployment Rate Interest Rates: Actions of the FED (discount rate) Productivity

Use information to estimate good times to buy and times to sell.

Going PublicFrom a Good Idea to a Corporation

Product idea: the “widget” Need funds to start business – find

investors “venture capitalists.” Each investor owns a stake or “share” of

the corporation and has limited liability.

Going from a good idea to a corporation

Suppose the company is doing well. You need more money – Go public, “initial public offering”

Going public: investment bank creates a prospectus and buys all shares of stock and resells them at a set price to the public

A “tombstone” is the public notice of an IPO

Investment Basics

Different Types of Investments: Insured Savings Accts

Savings Bonds Certificates of Deposit

Treasury Bonds Corporate Bonds

Mutual Funds Stocks

Collectibles Commodities

The Difference Between Stocks, Bonds, and Mutual Funds

Stocks You own a piece of the company You make money if the company does well

Bonds You loan money to a corporation or government You earn the interest

Mutual Funds: You own one portion of a collection of stocks, bonds, or

other securities

The Three Main Markets NYSE

New York Stock Exchange Oldest, largest, best-known stocks

NYSE MKT LLC (formerly AMEX) American Stock Exchange

Mid-sized growth companies

NASDAQ Large, mid-sized, and small growth companies

The Difference Between Large and Small Companies

Large: Often have high prices Low risk of failure Usually pay regular dividends

Small Potential for growth is greater than for larger

companies General prices are lower

Long Term InvestingThe Best Route

Stock Splits More shares are created at a lower price per

share, the investor has the same equity

Indicated with an (s) in the paper

Example: You own 100 shares of Dell at $30 per share. A 2-for-1 split of Dell stock means you have 200 shares at $15 per share

What Stocks

Should I Buy?

Normal vs. Inferior Goods Normal goods

Goods that you buy more during good economic times (gourmet foods, fresh veggies, individual entrees)

Inferior goods Goods that you buy less of when economy is good

(cheap soda, potatoes, pasta, canned beans) Stock traders watch this… If we’re experiencing

poor economic times, invest in inferior goods. If we are in good economic times, invest in normal goods.

How to Play the STOCK MARKET

GAME

SMG Basics Real-time stock market simulation Played on the internet from any computer Each team begins with $100,000 10-week trading period (10/08/12-12/14/12) Invest in most stocks and mutual funds

traded in the three major US exchanges Teams of 2 students

SMG Basics The team with the highest portfolio equity at

the end of the game wins

Portfolio equity in the tenth week is used for final rankings

SMG Rules Rules to note…

Transactions are made at the SMG WorldWide site at: www.smgww.org

Trades are made based on prices at time of order. If trades are made after 4:00 PM, then they are made at the next day’s opening price (at 9:30 AM).

Game week runs Monday thru Friday. Stock and cash dividends are automatically computer into

team portfolios Portfolios are updated and available on a daily basis. 5% interest is earned on cash balance. Rankings are updated every weekend.

Buying Stocks Ticker symbols available online Must be a minimum of 100 shares Must have a closing price of at least $5.00 per

share Must not exceed total number of shares actually

traded on the market that day May set a maximum purchase price limit, the

maximum you are willing to pay

Selling Stocks Must already own the stock Must be a minimum of 100 shares (unless

selling the only remaining shares) Ex: If you bought 120 shares, then sold 100, you may then sell

the remaining 20. Must not exceed total number of shares actually

traded on the market that day May set a minimum selling price limit. The sale will

not go through until the stock price reaches or exceeds the limit price.

Buying on Margin You may borrow part of the required funds using the stock in

your portfolio as collateral for the loan. If the Total Equity in your portfolio falls below 30% of the

value of your ‘long’ and ‘short’ positions, your team will receive a margin call. This figure is only relevant for teams that have borrowed money. Interest charged at 7% Initial Margin Requirement = 50% Margin call must be satisfied by 3rd week Maintenance requirements are calculated as % of total

value of long and short positions

Where to get more info… Internet

Yahoo! Finance: http://finance.yahoo.com The Street: www.thestreet.com NYSE: www.nyse.com CNNfn: www.cnnfn.com EDGAR Database of Corporate Information:

www.sec.gov/edgarhp.htm

GOODLUCK!