Charles Caes - The Stock Market

Published in 2012 by The Rosen Publishing Group, Inc. 29 East 21st Street, New Y ork, NY 10010 Copyright 2012 by The Rosen Publishing Group, Inc. First Edition All rights reser ved. No par t of this book may be reproduced in any for m without per mission in writing from the publisher , except by a reviewer . Librar y of Congress Cataloging-in-Publication Data Nor th, Charles. The stock market/Charles Nor th, Charles Caes. p. cm.(Dollars and sense: a guide to nancial literacy) Includes index. ISBN 978-1-4488-4717-4 (librar y binding) ISBN 978-1-4488-4723-5 (pbk.) ISBN 978-1-4488-4755-6 (6-pack) 1. Stock exchanges--Juvenile literature. 2. Finance, PersonalJuvenile literature. I. Caes, Charles J. II. T itle. III. Series. HG4553.N67 2012 332.64'2dc22 2011008260 Manufactured in the United States of America C P S I A C o m p l i a n c e I n f o rm a t i o n : B a t c h # S Y A : F o r f u r t h e r i n f o rm a t i o n , c o n t a c t R o s e n P u b l i s h i n g , N e w Y o r k , N e w Y o r k , a t - - - .

INTRODUCTION . Chapter o NE A . L OO k . A T.T he . S TOC k . M AR ke T . Chapter TW o U ND e RST ANDIN g . D I v ID e NDS.AND. Sp LITS . Chapter THREE Beh IND.T he . Q UOT e S . Chapter F o UR pRO f ITS.AND. L OSS e S . Chapter FIVE The . S TOC k . M AR ke T. T ODA y . g LOSSAR y . f OR . MOR e. IN f ORMA TION . f OR .f UR T he R . R e ADIN g . IND e X .

hen people refer to the stock mar - ket, they are actually referring to many organizations around the world that provide the means to buy and sell stock in public corporations. A public corporation is one that is not privately owned and in which the general public, including you and me, have the right and opportunity to invest. One rea - son why large corporations welcome investors is because it gives them the capital, or money , to run the business from day to day . More likely than not, when you buy stock it will be through a broker , who, in turn, trades for you on stock exchanges. So when you purchase stock, you rarely buy it directly from the com - pany that issued it. Y ou usually buy it from other investors like yourself. W h e n a c o r p o r a t i o n l i k e M i c r o s o f t o r M c D o n a l d s i s s u e s n e w s e c u r i t i e s , i t s e l l s t h e m d i r e c t l y t o i n v e s t - m e n t b a n k e r s . T h e s e i n v e s t m e n t b a n k e r s a r e u s u a l l y g i a n t b r o k e r a g e r m s , s u c h a s G o l d m a n S a c h s a n d C i t i g r o u p . A broker or brokerage is an intermediarysome - one in betweenthe seller and the purchaser of a security . In this case, what is being sold are shares of stock. The brokers help create the secondary markets through which you and I can trade stocks. The term

Inoducion secondary market means that the stocks are no longer pur - chased from the corporation that issued them. Now they are purchased from exchanges or businesses providing electroni - cally linked facilities all around the world. Most buying and selling of stock takes place in the second - ary markets. But there are plans by which you can buy stock directly from a company . In fact, your parents may work for a company that has a stock-purchase plan that allows them to have money taken from their paychecks every week in order to buy the company s stock.

ou probably like to go with your mom and dad to shop - ping malls. And why not? They are convenient marketplaces where many different types of stores can be found in the same location. Clothing stores! Candy stores! Bakeries! T oy stores! Even places to sit down and eat, like McDonald s! When people want to invest in a corporation, they go to another kind of marketplace. It is called the stock market. A stock market is just like a great mall, only instead of many stores, it has lists of companies in which people, including

a Loo Soc M The most recognizable stock exchange in the United States is the New Y ork Stock Exchange. Billions of stock transactions happen on the oor of the NYSE every day .

THE ST o CK MARKET you, can invest: McDonald s, Hershey s, Kmart, IBM, and thou - sands of other companies around the world. What does it mean to invest in a company? It means purchas - ing shares of stock in that corporation. Investors do so in hopes of selling that stock later for more than they paid for it. If they can sell their ownership in a corporation like McDonald s for $10,000 when they paid only $5,000 for that ownership, they will make a prot of $5,000 ($10,000 - $5,000 = $5,000). This is one form of what is called speculation in the stock market. Basically , specu - lation means to invest in a stock in the hopes of proting from a change in its selling price. That is not unlike what the owners of those stores in the mall do. They buy clothing or other goods from the people who make them and then try and sell them to you for more money than they paid for them. T HE Do W Jo NES I NDUSTRIA l A VERA g E Business news reports often state that the Dow was up today or the Dow Jones took a hit today . The Dow Jones Industrial A verage is a kind of index, or reference point, that gives an overall sense of how the stock market is doing. There is no way to quickly report the results of every company during the day , so the Dow is an average of the thirty most widely held and largest companies in the United States. The Dow does not indicate how every company that is traded on the New Y ork Stock Exchange (NYSE) performed. It is simply an average of some of the biggest of them.

a Loo Soc M I n s t e a d o f c l o t h i n g o r t o y s o r c a r s o r o t h e r g o o d s , s t o c k i n v e s t o r s b u y i n t o c o r p o r a t i o n s s u c h a s M c D o n a l d s o r t h e F o r d M o t o r C o m p a n y . T h a t m e a n s t h e y b u y a p a r t o f t h e c o r p o r a t i o n . T h e y b e c o m e o n e o f t h e o w n e r s o f t h e c o r p o r a - t i o n . T h e i r o w n e r s h i p i n a n y o f t h e s e c o r p o r a t i o n s w i l l b e r e p r e s e n t e d b y s h a r e s o f s t o c k . I f a c o r p o r a t i o n i s s u e s o n e m i l l i o n s h a r e s o f s t o c k a n d a n i n v e s t o r o w n s t e n t h o u s a n d s h a r e s , t h e n t h a t i n v e s t o r o w n s p e r c e n t o f t h e c o m p a n y ( , / , , = . ) . T .e xcans: . Wr . Stoc . Is . T radd Stock exchanges are where stock is traded. Stock exchanges are auction markets because the prices of the corporate stocks they list are determined solely by supply and demand. This means that if there are not enough shares of stock in a par - ticular company for all the people who want to buy some, the price of the stock will most likely go up. If there are too many shares of stock and not enough people to buy them all, then the price of the stock will probably go down. The price of the stock is not xed. The buy offer is called the bid price, and the sell offer is called the asking price. In essence, the stock is being auctioned off. There are many stock exchanges around the worldmore than Large and wealthy countries have many exchanges. The United States has several, including the New Y ork Stock Exchange. These alone account for billions of shares of stock being traded almost every day .