Economics & Essential Skills

 

 

 

 

 

 

 

back to the
WH & Essential Skills
home page

 

Current Events

Course Objectives and Syllabus

Stocks

The stock market is an everyday term we use to talk about a place where stocks and bonds are "traded" meaning bought and sold. For many people, that is the first thing that comes to mind for investing. The goal is to buy the stock, hold it for a time, and then sell the stock for more than you paid for it.

How long do you hang on to stock? Investors who hold stock for 15 years or more usually succeed in the market. Stocks are long-term investments. But there are no guarantees. There is risk.

What are stocks?
Stocks are units of ownership in a company.

Companies sell stock to get money to

  • Research better ways to make things
  • Create new products
  • Improve the products they have
  • Hire more employees
  • Enlarge or modernize their buildings

So just as the federal government sells bonds to raise money, businesses raise money by selling stock.

How it works
When you buy stock, you become a shareholder, which means you now own a "part" of the company. If the company's profits go up, you "share" in those profits. If the company's profits fall, so does the price of your stock. If you sold your stock on a day when the price of that stock falls below the price you paid for it, you would lose money.

Stock prices can rise and fall
In the stock market, prices rise and fall every day. When you invest in the stock market, you are hoping that over the years, the stock will become much more valuable than the price you paid for it.

 

 

 

 

 

 

 

 

 

 

 

 

The bar chart above shows the DJIA (Dow Jones Industrial Average) total yearly return for close to 100 years. A regular line graph of this data seemed useless to me; I think the bar/column chart works better. What can we learn from this graph? Initially, about all I could conclude from this extensive performance history was:
 

  • Stock market returns vary a lot from year to year
  • The market goes up a lot more often than it goes down, but you can sometimes lose money
  • The down years are often isolated, "one-off" events, and usually smaller than the up years -- kinda like speed bumps
  • While most down years seem to result in "minimal" losses, a few resulted in substantial losses of more than 20%

One last thing: Remember that paradigms are mental models that filter incoming data and "Past performance is no guarantee of future results."

Wall Street plays an interesting role in the national psyche. Just look at how the Stock Market plays a central role in iconic popular culture.

 

The book, and then movie, The Wolf of Wall Street is a prime example. It's got the classic Hollywood plot: Good vs. Evil, money, sex, drugs, and it's set in an exotic locale, the island of Manhattan.

 

Before Jordan Belfort there was Gordon Gekko saying things like, "Greed is good." As well as:

 

"The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation... You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the heck we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you." Pretty heavy! How much of what fictional Gordon Gekko said is true?

 

 

Homework
Introduce yourself to the Florida Stock Market Game!

 

 

Success comes in cans, failure in can'ts.
- Author Unknown

 

 

Opportunity is always knocking. The problem is that most people have the self-doubt station in their head turned up way too loud to hear it.
- Brian Vaszily

 

 

Opportunity dances with those who are already on the dance floor.
- Jackson Brown

 

 

 

People often say that motivation doesn't last. Well, neither does bathing - that's why we recommend it daily.
- Zig Ziglar

 

 

 

Life is not about how fast you run, or how high you climb, but how well you bounce.
- Unknown