Upper School Technology Upper School Technology ElectiveElective

Common stock is stock held by the Common stock is stock held by the majority of the public. This type of stock majority of the public. This type of stock has voting rights, the right to dividends has voting rights, the right to dividends and liquidity, meaning that it is easy to and liquidity, meaning that it is easy to buy or sell the shares.buy or sell the shares.

Preferred stock holders have fewer rights Preferred stock holders have fewer rights than common stock but they are the first than common stock but they are the first receive dividends.receive dividends.

Dividend distribution is the way the Dividend distribution is the way the company distributes a portion of profits to company distributes a portion of profits to its shareholders.its shareholders.

As a stock holder you have limited As a stock holder you have limited liability. If the company loses a liability. If the company loses a lawsuit and must pay a judgment, lawsuit and must pay a judgment, the worse case scenario is that the the worse case scenario is that the stock becomes worthless and you stock becomes worthless and you lose your investment. You have no lose your investment. You have no personal liability. Your liability is personal liability. Your liability is limited to the value of your limited to the value of your investment.investment.

Stocks- when you purchase a share Stocks- when you purchase a share of a company’s stock, you own a part of a company’s stock, you own a part of the company. This stock comes of the company. This stock comes with voting rights and you may with voting rights and you may collect profits, if the company collect profits, if the company distributes them in the form of distributes them in the form of dividends.dividends.

StocksStocks

Market IndexesMarket Indexes

Dow Jones Industrial Average (pulse Dow Jones Industrial Average (pulse of the market)of the market)

Standard & Poors 500 (S&P 500)Standard & Poors 500 (S&P 500)

NASDAQNASDAQ

The numbers in the indexes The numbers in the indexes represent changes from an original represent changes from an original or base value. The number is not or base value. The number is not important, what is important is the important, what is important is the percentage of change over time.percentage of change over time.

This movement up or down give an This movement up or down give an indication of how the index is indication of how the index is performing.performing.

Dow JonesDow Jones

Dow Jones Industrial Average is the oldest Dow Jones Industrial Average is the oldest and most widely known index and the and most widely known index and the most widely quoted index.most widely quoted index.

Only 30 stocks are used to obtain the Only 30 stocks are used to obtain the average. Each represents one of the most average. Each represents one of the most influential companies in the United States influential companies in the United States with annual revenues in excess of $7 with annual revenues in excess of $7 billion.billion.

DOW only represents one fourth of the DOW only represents one fourth of the total market.total market.

Value changes are indicative of Value changes are indicative of investor confidence in the stocks. investor confidence in the stocks. This index does not represent small This index does not represent small or mid-sized companies at all.or mid-sized companies at all.

Standard & Poors 500Standard & Poors 500

S & P 500 is the most frequently S & P 500 is the most frequently used index by financial professionals used index by financial professionals as representative of the market. It as representative of the market. It includes 500 of the most widely includes 500 of the most widely traded stocks and leans towards traded stocks and leans towards larger companies. 70% of the larger companies. 70% of the market’s total value is more closely market’s total value is more closely represented than the DOW index.represented than the DOW index.

NASDAQNASDAQ

NASDAQ Stock Market Composite is made NASDAQ Stock Market Composite is made of more than 5000 stocks. It is heavily of more than 5000 stocks. It is heavily weighted in technology stocks. It is also a weighted in technology stocks. It is also a market cap. weighted-index.market cap. weighted-index.

Small and speculative companies in Small and speculative companies in NASDAQ make the index more volatile NASDAQ make the index more volatile than the DOW and S&P 500. It does not than the DOW and S&P 500. It does not represent the market but is a good represent the market but is a good indicator of where technology investors indicator of where technology investors are going.are going.

Market CapitalizationMarket Capitalization

Market Capitalization or mkt. cap. measuresMarket Capitalization or mkt. cap. measures the the size of the company. It is found by size of the company. It is found by multiplying the current stock price by the multiplying the current stock price by the number of outstanding shares.number of outstanding shares.

This weighted index gives more This weighted index gives more importance to larger companies. For importance to larger companies. For instance, changes in Microsoft stock will instance, changes in Microsoft stock will have a greater impact than almost any have a greater impact than almost any other stock in the market.other stock in the market.

Investing Investing

Investing is the proactive use of your Investing is the proactive use of your money to make more money. It is money to make more money. It is different from saving. Saving is passive. different from saving. Saving is passive. Savers are concerned with protecting their Savers are concerned with protecting their initial deposit or investment and less initial deposit or investment and less concerned with the return. Savings concerned with the return. Savings accounts are federally insured (FDIC), if accounts are federally insured (FDIC), if the bank the funds are deposited in the bank the funds are deposited in participates in the program. This insures participates in the program. This insures that savers’ funds are protected if the that savers’ funds are protected if the bank fails.bank fails.

In investing the focus is on the In investing the focus is on the return. There is risk involved in return. There is risk involved in investing. The risk can be investing. The risk can be conservative to very aggressive with conservative to very aggressive with various types of risks in between.various types of risks in between.

Stock characteristics that differ from Stock characteristics that differ from saving include ownership, upside saving include ownership, upside potential and risk.potential and risk.

Stock OwnershipStock Ownership Ownership, in that to buy a stock share is to buy Ownership, in that to buy a stock share is to buy

a piece of the company. As an owner, you have a piece of the company. As an owner, you have certain rights such as voting on important certain rights such as voting on important matters and participating in profits if the matters and participating in profits if the company issues dividends.company issues dividends.

Saving deposits do not provide part ownership of Saving deposits do not provide part ownership of the bank the funds are deposited into. If you buy the bank the funds are deposited into. If you buy a bank Certificate of Deposit (CD) you do not own a bank Certificate of Deposit (CD) you do not own part of the bank. You may own a US Treasury part of the bank. You may own a US Treasury bond but this is not to say that you own a piece of bond but this is not to say that you own a piece of the federal government.the federal government.

Upside PotentialUpside Potential

Upside Potential occurs when the stock Upside Potential occurs when the stock grows as the company grows, allowing you grows as the company grows, allowing you to participate in the growth of the to participate in the growth of the company. As the value of the company company. As the value of the company goes up, so does the value of your goes up, so does the value of your investment. If profits increase, you may investment. If profits increase, you may receive a bigger dividend check.receive a bigger dividend check.

For example, many of Microsoft’s initial For example, many of Microsoft’s initial employees are millionaires because the employees are millionaires because the value of their stock has drastically gone up value of their stock has drastically gone up in value.in value.

There is little or no chance of the There is little or no chance of the bank where you have your CD raising bank where you have your CD raising the interest rate after you’ve entered the interest rate after you’ve entered into a CD agreement.into a CD agreement.

RiskRisk Risk is inherent in owning stock. Since Risk is inherent in owning stock. Since

there is a potential for gain, there is a there is a potential for gain, there is a potential for loss. This is the good and bad potential for loss. This is the good and bad concept of investing in stocks.concept of investing in stocks.

You can lose your shirt when you decide to You can lose your shirt when you decide to invest in the stock market. But the invest in the stock market. But the prospect of an increased return on your prospect of an increased return on your initial investment is greater than a savings initial investment is greater than a savings account.account.

A savings account trades security for A savings account trades security for return, in other words, you get little for return, in other words, you get little for your money.your money.

Why do stock prices go up or Why do stock prices go up or down?down?

Stock prices go up because there are more Stock prices go up because there are more buyers than sellers and the buyers will bid buyers than sellers and the buyers will bid higher prices than the stock is currently higher prices than the stock is currently selling.selling.

Stock prices go down when there are more Stock prices go down when there are more sellers than buyers. The sellers will sellers than buyers. The sellers will accept lower bids for those shares in accept lower bids for those shares in order to sell them. order to sell them.

This is “Supply and Demand” in Economic This is “Supply and Demand” in Economic terms.terms.