17 : Stocks and Shares

Aims ;
o Considers the uses of stocks and shares and ways of talking about price changes
o Discuss different possible investment
Lead-in
If you have money to invest, what are the advantage and disadvantage of :
 Putting it under the mattress  Buying a painting (Matisse, Van Gogh,
 Buying a lottery ticket etc)
 Taking it all to Las Vegas or Monte  Investing in property or real estate
Carlo  Buying bonds
 Depositing in Bank  Buying stocks or shares
 Buying gold  Investing in a hedge fund
 Giving it away?

Reading: Stocks and shares

Match up the half-entences below, which make up a text about stock and shares.
1. Sucessful companies can issue stock and shares (certificates representing part ownership of
the company)
2. Offering these stock for sale to financial institutions and the geeral pulic changes the
business
3. Selling stock for the first time is called an IPO or initial public offering in the US
4. Companies use an investment bank to find buyers, and to underwrite the stock issue,
5. Stocct and shares are also known as equityor equities; the most cammon form
6. After shares have been issued they can be traded on the secondary market at
7. Some stock exchanges have automatic computerized trading sytems that match up buyers and
saller; others have market makers-
8. Stocck prices rise and fall dapending on supply and demand,
9. Consequently the nominal value of a share – the price written on it – is rarely the same as its
market price –
10. Companies either distribute part of their profits to shareholders as an annual dividend,
11. Stocck markets are measured by stock indexes (or inndices),
12. A period during which most stock (and the stock index) are rising is called a bull market,

A. and flotation or an IPO in Britain.

B. and one in which most of them fall in value is a bear market.
C. the stock exchanges on the which the company is listed quoted.
D. from a private to apublic company, and is called going public.
E. i.e. how many sallers and buyers there are.
F. i.e. to guarantee to by the stock if there are not enough other buyers.
G. is called cammon stock in the US, and ordinary shares in Britain.
H. or keep the profits in the company, which also causes the value of the stock to rise.
I. the price it is currently being traded at on the stock exchanges.
J. to raise capital to expand their operations.
K. traders in stocks who quote bid (buying) and offer (selling) prices.
L. which show changes in the average prices of a selected group of important stocks.

1. J 2. F 3. A 4. H 5. G 6. C 7. D 8. I 9. L 10. B 11. E 12. K

Discussion
1. Many economicts argue that it is (theoretically) impossible to regulary outperform the stock
market, as all available information is already factored into a company’s sgare price. So
analysing a company’s finances, or trying to discover or predict patterns in price movements,
is a waste of time. What implications does this have for investors?
2. Imagine that you have just come from a secret metteng of a company’s board of directors,
which has made a decision that you know will financially ruin some close friends of yours
unless they can sell some shares before the board’s decision becomes known. You are having
3. How can you make money from a falling stock market (whwn prices are going down)?
Listening : A financial news report 2.3
Listen to an extract from a financial market report on an American radio station. The newsreader
mentions the prices of the following securities, currencies and commodities. In each case, does
she say that the price has risen, fallen, or stayed almost the same?
Risen Fallen Unchanged
British and American usage
The Dow-Jones The terms stocks and
The S&P 500 stockholders are used in the
The NASDAQ USA, and shares and
shareholders in Britain. In
Shares In Germany Britain, stock can also mean
Shares In France securities such as government
Shares In Britain bonds. The terms stock
Shares In Japan exchange, stock market and
stockbroker are used in all
Shares In Australia English-speaking countries.
The dollar against the euro The most common type of
The dollar against the pound equity is called common stock
The dollar against the yen in the US, and ordinary shares
in Britain. Some companies
Gold
also have preference shares
Oil
Vocabulary
Rather than endlessy repeating the words ‘rose’ and ‘fell’ , financial journalist use a
large number of verbs and phrases to descrive the movement of security prices. Classify the
following sentences, according to whether you think the verb or expression means :
A. To rise after previously falling
B. To rise a little
C. To rise a lot
D. To fall a little
E. To fall a lot

1.
2. Volkswagen shares rocketed after the
revelation that Porsche has upped its
stake in company to 74%.
3. The Sensex index of the Bombay
Stock Exchange crashed on Monday
on fears of a recession in the US.
4. Visa shot up yesterday on the NYSE
on its first trading day, rising as high
$69 a share.
5. The Footsie revived a little in
London in the afternoon, gaining 30
points in late trading.
6. After the strong gains of last week,
Asian shares slipped on fears of a
lomming recession.
7. In Milan, the S&P/MIB index
plummeted, after the unions called
for a three-day general strike next
week.
8. Leading shares were slightly weaker
in Switzerland, the Swiss Market
Index losing 20 points
9. Share prices recovered in Hong
Kong today, the Hang Seng finished
up ten points.
10. On the Sao Paulo exchange, the
Bovespa Index advanced a little, up
12 points.
11. Chinese shares jumped after a two-
thirds cit in a securities trading tax.
12. Even after the government bailout,
Citigroup is continuing to plunge,
now down to $1.95.
13. Most shares were a little stronger in
Madrid this morning, when the
exchange reopened after yesterday’s
public holiday.

Reading : Hedge funds

Hedge funds are private investment funds for wealthy investors that trade in securities and
derivatives, and try to get high returns whether markets move up or down.Read the
following extract from Geraint Anderson’s book Cityboy, which explains one of the major
strategies of hedge funds, and answer the questions.
 The rise of hedge funds began in earnest around 2001. By then stock markets had a been
in decline for around a year after the bursting of the tech bubble. With no end to the bear market
in sight investors wanted to make returns that were not geared to the performance og the stocks
market. They wished to make absolute return even if stock markets fell. They demanded what
Cityboys, in their never-ending mission to confuse the

general public, like to call ‘Alpha’ not ‘Beta’. Hence, hedge funds became increasingly
popular since, unlike conventional ‘long-only’ funds, they can ‘short’ shares. That is so say, they
can sell shares they don’t own by borrowing them off a conventional fund so that when the share
price falls the make a profit by buying them back at a cheaper price. As the bear market
continued cash began pouring into these funds. […]
As these hedge funds multiplied and grew, investment banks had no choice but to
prioritize them relative to their old, traditional long-only clients because some of these crazy
guys really like trading shares. Whilst your typical pension fun might, on average, hold on to a
share for a year or more I’ve seen certain hedge funds buy in the morning and sell orders in the
same stock within an hour!On certain days, one of the biggest hedge funds, GLG , has been said
to be behind five per cent of all the trades in the FTFE 100.

1. What does ‘the bursting of the tech bubble’ mean?

2. Anderson calls the people working in the financial industry ‘cityboys’.
What implied meanings does this word convey?
3. What is Anderson implying by ‘their never-ending mission to confuse
the general public’?
4. Explain in your own words how hedge funds make money by shorting
shares.
5. Why did ‘investment banks (have) no choice but to prioritize’ hedge
funds?
Vocabulary note

Alpha: A risk-adjusted
Role Play : Investing a client’s money
measure of the active
return on an Imagine that you are asset manager, investing money for a client. In
investment, i.e. the pairs or small groups, select ten different securities, and invest an
return that exceeds
normal compensation
imaginary €100,00 in them (or the equivalent in your local currency),
for the risk involved. A dividing up the sum as you wish. Your client does not particularly
high value for alpha want to take risks.
implies that stock or
funds has performed
better than would have
Choose several blue chips – shares in large, well as two
been excepted given its companies with a good reputation for quality and profitability – as
beta. well as two companies that have only been listed or quoted on a stock
Beta: A measure of the exchange for less than a year (this information can be found in the
elasticity or relative financial pages of newspapers and on financial websites). You can
volatility of a security:
choose companies on any major stock exchange, but remember that if
the rate at wich its
price moves up and
down compared to the
marker as a whole.
you buy stocks in foreign currencies there is a risk of exchange rate
movements.
A safe investment for part of the sum would be an index fund
or tracker fund or exchange-trade fund (ETF) that seeks to replicate
the perfomance of an entire market (e.g. the S&P 500) , so it won’t
lose (or gain) more than the market as a whole. Major banks sell
shares in funds like these (similar to the bond funds mentioned in
Unit 16). Another possibility, if you expected interest rates to fall in
the near future, would be to include some bonds in the porfolio.
Follow the progress of your porfolio in the financial press or on
the Internet. Depending on the length of your course, select a date to
make a short presentation reporting on the how well or badly the
porfolio has done, and attempting to provide reasons or explanations
for any price changes
Kelompok 17 : Stocks and Shares
- Muhammad Alwi (1910312310011)
- Muhammad Zulfikar Fauzi Amin (1910312210013)
- Muhammad Reza Nor Irfanhakim (1910312310007)
- Nor Khaffidin (1910312310037)