The US Stock Market & Stock Market

Basics
What is the US stock market?
How do the features of this market work?
What are the positive and negative aspects of this
market system?
 What is a “stock market”?
•  A “stock market” is where a
business or company can sell
pieces of itself to individuals
•  “Stock” = A share of the
company’s earnings / capital

•  In the US:
•  New York Stock Exchange
(NYSE)
•  Dow Jones Industrial
Average (DJIA)
•  NASDEQ
•  S&P 500
European “stock markets” (1300’s – present)
The Buttonwood Agreement (1793)
The New York Stock Exchange Board (1817)
The New York Stock Exchange (1865-present)
Dow Jones Industrial Average (1893-present)
Iconic Highs and Lows (1920’s-1940’s)
S&P 500 (1957-present)
NASDEQ (1971-present)
The Great Recession & Occupy Wall
Street Movement (2000’s)
NYSE + Euronext (2007)
Why would a company want to sell itself
through stock?
•  Often companies need
capital to continue to
run
•  Borrow it? (Debt…)
•  Raise prices (Loss of
business…)

•  By issuing stock,
companies get capital
without debt or interest
 What benefit(s) does investing in stock
bring to a shareholder?
•  Benefits:
•  Extra income (“dividends”)
•  Easy to get rid of
•  Personal flexibility
•  Hope in the future
•  Personal taste / loyalty
•  Building credit for future
investments
•  Financial experience
•  Greed?.... (Gordon Gekko)
What is the most common form of stock?

•  Two (2) major types

of stock:
•  “Common” stock:
Ownership of single
share / flexible
dividend
•  “Preferred” stock: No
sole ownership / fixed
dividend & preferred
treatment
Stock Introduction: IPO (Initial Public Offering)
Stock Trading Floor: Stock Brokers
Stock Trading Floor: Financial Advisors
“The Chicken” Investors vs. “The Pig”
Investors
 What negative effects come along with
buying & selling of stocks?
•  Often investing in
stock can be risky
•  Loss of capital
•  Economic volatility
•  Personal /
Professional
Bankruptcy

•  Criminal element:
•  “Insider” information /
trading
William Duer: “the First Insider Trader” (1780’s)
Albert H. Wiggin’s profiting from the 1929
Stock Market Crash (1931)
R. Foster Winans & “Trading on the
News” (1982-85)
Jordan Belfort & “The Wolf of Wall
Street” (1987-1995)
ImClone Stock & Martha Stewart (2004)
Jeffrey Skilling & Enron Disaster (2006)
What sets the value of stock for a
company or stock-holder?
•  Stock’s price is based on
the value investors put in a
particular company
•  é Value = é Price
•  ê Value = ê Price

•  Factors:
•  Company earnings
•  World events
•  Market factors (“the
invisible hand”)
“The Bull” vs. “The Bear” Market