The Language of the

Stock Market
Jessica Cox – General Financial Literacy
Vocabulary:
 Stocks

 Financial Risks

 Inflation

 Deflation

 Recession

 Diversification

 Reward
Why learn about stocks?
 The stock market is the core of
America’s economic system
 Stocks are a share of ownership in
the assets and earnings of a
company.
Stocks:

 A type of security that signifies

ownership in a corporation and
represents a claim on part of the
corporation's assets and earnings.
There are two main types of stocks
common and preferred.
Why Companies Issue Stock:

When a company would like to grow, it

issues stocks to raise funds and pay for
ongoing business activities
 Why companies like to issue stock:
 The company does not have to repay the money
 Paying dividends is optional
 Dividends are distributions of earnings paid to stockholders
Financial Risk:
 Is the possibility that shareholders will
lose money when they invest in a
company that has debt, if the
company’s cash flow proves
inadequate to meet its financial
obligations. When a company uses
debt financing, its creditors are repaid
before its shareholders if the company
becomes insolvent.
Reward:

 Concept that returns or yield from an

investment is proportional to risk.
Thus investors will demand a greater
reward where the risk of loss is
greater.
Risk versus Return:
 On average, stocks have a high rate of
return
 The increase or decrease in the
original purchase price of an
investment
 Higher rate of return = greater risk
 Uncertainty about the outcome of an
investment
Researching a Stock
Ticker Symbol:
 The ticker symbol is the stock symbol given to a
company by the exchange the company is traded on.

 The symbol can be made up of various letters and

amount of letters.

 Examples:
Disney – DIS
Google – GOOG
Microsoft – MSFT
Apple – APPL
Target - TGT
 How Well the Stock
Market is Doing Overall
Inflation:

 Is the rate at which the general level

of prices for goods and services is
rising and consequently the purchasing
power of currency is falling. Central
banks attempt to limit inflation, and
avoid deflation, in order to keep the
economy running smoothly.
Deflation:
 Is a contraction in the supply of
circulated money within an economy,
and therefore the opposite of
inflation. This is distinct from but
similar to price deflation, which is a
general decrease in the price level,
through the two terms are often
mistaken for each other and used
interchangeably.
Recession:

 Technical indicator of a recession is

two consecutive quarters of negative
economic growth as measured by a
country’s GDP.
 3 Basic Indicators:
 Dow Jones Industrial Average (“DOW”)
 Lists the 30 leading industrial blue chip stocks
 www.djindexes.com

 Standard and Poor’s 500 Composite Index

 Covers market activity for 500 stocks
 More accurate than DOW because it evaluates a greater variety of
stock
 www.standardandpoors.com

 National Association of Security Dealers Automated

Quotations (“NASDAQ”)
 Monitors fast moving technology companies
 Speculative stocks, show dramatic ups and downs
 www.nasdaq-amex.com
Ups and Downs:
 The term “bull market” means the
market is doing well because investors
are optimistic about the economy and
are purchasing stocks

 The term “bear market” means the

market is doing poorly and investors
are not purchasing stocks or selling
stocks already owned
Purchasing a Stock
Brokers:

 A Broker is a person who is licensed to

buy and sell stocks, provide
investment advice, and collect a
commission on each purchase or sale
 Purchases stocks on an organized
exchange (stock market)
 Over ¾ of all stocks are bought and
sold on an organized exchange
Organized Exchanges:
 Minimum requirements for a stock to
ensure only reputable companies are
used

 Each exchange has a limited number of

seats available which brokerage firms
purchase to give them the legal right to
buy and sell stocks on the exchange
New York Stock Exchange:

 New York Stock Exchange (NYSE)

 Oldest and largest, began in 1792
 Strictest company standards
requirements
 www.nyse.com
American Stock Exchange:

 American Stock Exchange

 Began in 1849
 2nd largest exchange
 It’s requirements are not as strict as
NYSE allowing younger, smaller
companies to list
 www.amex.com
NASDAQ:
 National Association of Securities
Dealers Automated Quotations
 Stocks are traded in an over the
counter electronic market
 Company requirements are not as
strict
 More volatile because companies are
young and new
 www.nasdaq.com
Supply versus Demand:
 The stock exchange is organized based
upon the laws of supply and demand
 Supply is the relationship of prices to
the quantities of a good or service
sellers are willing to offer for sale at
any given point in time
 Demand is the relationship of prices to
the quantities and the corresponding
quantities of a good or service buyers
are willing to purchase at any given
point in time.
When is the best time to
buy stocks?
BUY LOW
and SELL
HIGH