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The Stock Market Demystified

The Stock Market Demystified. Why bother with the stock market?. Why is the stock market in existence?. Firstly, think about why do we need banks? To move money around from those who have “too much” and give it to those who have “too little”. Individual A (has money to deposit). Bank.

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The Stock Market Demystified

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  1. The Stock Market Demystified Why bother with the stock market?

  2. Why is the stock market in existence? Firstly, think about why do we need banks? To move money around from those who have “too much” and give it to those who have “too little” Individual A (has money to deposit) Bank Individual B (needs a loan)

  3. As a result, everybody is better off… • The depositor is getting interest on his cash • The bank is making a profit as; • It pays the depositor a small amount • It charges the borrower a big amount • It keeps the difference! • The borrower gets the money he needs

  4. Now think about the stock market Individual A needs a place to invest… The broker (shopkeeper) gets paid to oversee the transaction… Company B needs more money to develop and expand… Individual A (has money to invest) Broker Company B (needs money to expand)

  5. As a result, everybody is better off… • The investor owns a portion of a company and has her money invested • The broker is making money through overseeing the transaction and exchange of funds • The company gets the money it needs

  6. VIDEO OF RONALDO

  7. How can you make money? 2003: £12.24 million (Bought by Man Utd) 2008: £80 million (Sold by Man Utd) Difference: £67.76 million

  8. What DOES THAT MEAN? • Return: (Selling Price-Buying Price) X 100 Buying Price • Return: (80 – 12.24) X 100 12.24 =553.36% in 5 years = More than 100% per year!!!

  9. How did Ronaldo rise so much in price? • He worked harder • He scored goals • He showed promise and potential • He won every award out there! • He drew more attention to himself • He got offered more money • He was in higher demand

  10. How can you make money on stocks? Example: Coca Cola Buy shares in Coca Cola in 1962 at $1.95 Sell today at $48.47 Difference: $46.52 Return: (48.47 – 1.95) X 100 1.95 = 2385.64% over > 50% per year!!!

  11. How can you make money on stocks? Coca-Cola do market research They develop “Coke” They advertise “Coke” They sell millions of bottles per week They take in huge sales and profit The company’s overall value goes up

  12. The ISEQ INDEX OF IRISH SHARES IS…..

  13. How do we measure if the market is up or down? Option A Do we check the performance of hundreds of thousands of companies that make up the shop? Option B Do we take a sample of companies and use these as a benchmark? Answer: OPTION B!!!

  14. Benchmark in the UK • Make a list of the biggest 100 companies • Find the average price of this list • This is an example of an index • Let’s call this the FTSE 100 (Footsie 100) • FTSE = Financial Times Stock Exchange • Tomorrow, do the same • Is the average price bigger or smaller? • Has the market moved up or down?

  15. Benchmark in the US • Make a list of the biggest 500 companies • The bigger the company, the bigger the weight • Find the weighted average price of this list • Let’s call this index S&P 500 (Standard & Poor) • Tomorrow, do the same • Has the market moved up or down?

  16. Ireland? At home in Ireland, the equivalent is the ISEQ = Irish Stock EQuity Overall Index www.iseq.ie

  17. What has happened today? • Has the FTSE 100 moved up or down? • Has the S&P500 moved up or down? • Has the ISEQ moved up or down?

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