Buy, Sell, or Hold? An Overview of Investing.

 Essential Question: “How do investing and the stock market work?”

Investigate: Buy, Sell, or Trade?

[Time Required: 10 minutes]

1. Open by downloading the activity sheet Know When to Hold ‘Em. Allow ten minutes to read the scenarios and determine what you believe the “seller” should do.
2. What final decision should the “seller” make? Should Jack hold, sell, or trade the comic book?
3. Using the answer key as a guide, understand that Jack bought the investment low and can now sell high, making it a great return on investment. Like Jack, when individuals invest money in the stock market they have to consider potential losses on investments. Review the terms and concepts on the answer key, including caveat emptor, meaning “buyer beware.”
4. What would you do in the same situation? Would you hold, sell or trade the comic book? What are the potential risks and benefits of each decision? Just like the scenario, investing in the stock market means analyzing different options and making calculated decisions by weighing risks and rewards. Buying, selling, holding and trading investments bring different levels of risk and reward, and so you need to educate yourself on potential losses and gains before making investment decisions. 

Student Preparation: The Stock Market

[Time Required: 25 minutes] 

1. One common investment strategy is to buy stocks. What do you know about the stock market? Buying a stock means that you are buying a share, or portion, of ownership of a company. A share has a dollar value, and there are many theories about how this dollar value is determined. We do know some of the factors that affect the price of a stock. One factor is how investors feel about a company and the products or services it provides. Another is supply and demand of that stock in the market. Stock price is also influenced by the price-to-earnings ratio, or P/E ratio of a stock, which is a measure of the price paid for a share compared to the annual profit earned per share.
2. How do investors choose stocks for purchase? What do investors do to help ensure they get a strong return on investment? How do they decide what stocks to pick? There are several factors investors may consider when assessing investment potential in stocks, including studying stock market reports, finding companies that match their values, observing trends and picking stocks from multiple industries to diversify investments.
3. Do you know what a stockbroker is? A stockbroker is a professional that helps investors buy, sell, and trade stocks on the stock exchange. There are three major stock exchanges in the U.S. and they include the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers Automated Quotations (NASDAQ). In addition to knowing the basic stock exchanges, tell your student that it’s also important to evaluate the performance of an investment based on a benchmark, or a standard. 
4. In the stock market, we call benchmarks an index and there are different types of indices that can be used to determine an investment’s performance. A stock market index is a hypothetical portfolio of stocks representing a particular market or portion of it. For example, the Standard and Poor’s 500 (S&P 500), measures the performance of 500 large company stocks chosen for their market size, liquidity, industry grouping and other factors. Another common index is the Dow Jones Industrial Average, which tracks the performance of 30 large companies.
5. How do you think investors make money from stocks? Stocks make money through capital gains and dividends, among other factors. Capital gain is when the value of a stock goes up. For example, if a stock increases from $50 to $55, the $5 increase is the capital gain. However, you don’t have to pay capital gains tax until you sell the stock. Dividends are when a company makes regular (quarterly or annual) or one-time payments of company profits to their shareholders, or owners of the stock.
6. There are specific rules and regulations for the stock exchange and that the government created the S. Securities and Exchange Commission (SEC) to help protect investors by maintaining a fair and equitable market.

Challenge: Investing in Stocks

[Time Required: 30 minutes] 

1. Understanding how to read a stock table is one way to analyze the stock market and make smart investment choices.
2. Download the student activity sheet Stock Up and review the NYSE’s How to Read Stock Tables found at practicalmoneyskills.com/HS33. Each of the terms found on the NYSE stock table including rate of return, which is the yield percent, and a stock’s high and low, which are the highest and lowest paid price for a stock. You will now answer a few questions about stock market basics and then read stock tables for five stocks of their choice. Allow twenty minutes to complete the activity.
3. Stock tables are important to consider when making investment decisions. What can we learn by studying stock tables? Why is it important to understand a stock’s high, low, yield, and dividend? 

Reflection

[Time Required: 5 minutes] 

Reflect in your notebook about how money can be made, and lost, through investments. What factors will you consider when investing your money and why?