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National Council of Economic Education
Carolyn ShirkVice President
849 Tame Deer DriveWinfield, PA 17889
Cell: 570-975-5149
Who we are….
ECONOMICSPennsylvania at www.economicspa.org
NCEE at www.ncee.net
SMG Advisors
Welcome & Welcome & IntroductionsIntroductionsWelcome & Welcome & IntroductionsIntroductions
Teacher Survey FindingsTeacher Survey Findings
90% said that students were encouraged to learn more about the curriculum being taught with the SMG Program.
94% agree that the SMG Program helps them teach basic academic skills such as math, language arts, and social studies, in exciting ways.
Teacher Survey FindingsTeacher Survey Findings
96% agree that the SMG Program increases students’ ability to apply basic skills to life decisions.
98% found that their students’ understanding of the importance of saving and investing improved using the SMG Program.
What Teachers like about SMGWhat Teachers like about SMG
generates enthusiasm in hard-to-motivate students
helps meet educational standards across many required disciplines
combines the spirit of competition with learning
promotes cooperation and group autonomy among students
creates interest in current events
teaches economic concepts sharpens skills in mathematics,
especially in fractions and basic computations
incorporates easily into most classes Is FUN!
What Teachers like about SMGWhat Teachers like about SMG
Started in the late 1970’s by a University of Buffalo professor
Over 500,000 students compete nationally each year and over 40,000 students in Pennsylvania compete each year
Nationally sponsored by the Foundation for Investor Education
History of the GameHistory of the Game
EconomicsPennsylvaniaEconomicsPennsylvania is the is the licensed distributor of the Stock licensed distributor of the Stock Market Game Program in PAMarket Game Program in PA
Administrative offices and support of SMGP of PA provided by Temple University Fox School of Business and Management
SMG Interdisciplinary SMG Interdisciplinary BenefitsBenefits
Language Arts: Research, Vocabulary, Presentations, Reading Comprehension
Social Studies: Current Events, Government Policy, Economic Concepts, Cultural Issues, History of our Economy
Business Education: Consumer Spending, Decision Making, Record Keeping, Financial PlanningMathematics: Fractions, Decimals, Percentages, Ratios, Basic Computation
SMG Interdisciplinary SMG Interdisciplinary BenefitsBenefits
Technology: Spreadsheets, On-line Research, Presentations, Word Processing
Real-time stock market simulation
Played on the internet from any computer
The game runs for ten weeks in the fall, spring, and late spring. A new whole year game is also available.
SMG BasicsSMG Basics
Transactions are made at the SMG WorldWide site at: www.smgww.org
Trades are processed in 5 – 20 minutes
SMG RulesSMG Rules
Each team begins with a hypothetical $100,000
Teams should have one to five players
SMG BasicsSMG Basics
Teams may buy, sell, short sell, or short cover their stocks
Invest in common stocks, mutual funds and ETFs traded on the three major exchanges: American, New York, and NASDAQ Stock Exchanges
SMG BasicsSMG Basics
A 2% brokers fee is charged for each buy or sell – limits day trading issue
Stocks valued at less than $5.00 per share may not be bought
Teams may borrow up to $100,000 to purchase stocks on margin -- interest is charged
SMG BasicsSMG Basics
Stock and cash dividends and splits are automatically computed into team portfolios
Portfolios are updated and available on a daily basis
Rankings are updated every weekend
Teams will not appear in the rankings until a trade is made
SMG RulesSMG Rules
2% annual rate of interest is earned on cash balance
7% annual rate of interest is paid on negative cash balances (borrowed money)
SMG RulesSMG Rules
Trades are made based on prices at time of order (market order).
Trades entered after 4:00 p.m. will are made at the next day’s opening price.
You may trade only stocks and mutual funds that have traded within the last 7 days.
Portfolios are not liquidated at the end of the game and should not be liquidated at the end of the game
The team with the highest portfolio equity at the end of the game wins
Portfolio equity in the tenth week is used for final rankings
SMG BasicsSMG Basics
Buying:Buying:
Must be for a minimum of 100 shares
May set a maximum purchase price limit
Called a “Long” position
Ticker symbols are available online
General InformationGeneral Information
Buying:Buying:
No “penny” stocks
Must have closing price of at least $5.00 per share
Most brokers will not allow margin purchases of stocks below $5.00
General InformationGeneral Information
Selling:Selling: Must already own the stock
Must be for a minimum of 100 shares (unless selling the only remaining shares)
ex: If you bought 120 shares, then sold 100, you may then sell the remaining 20.
May set a minimum selling price limit
General InformationGeneral Information
Setting a “limit” priceSetting a “limit” price A limit order is an order that sets the maximum or
minimum at which you are willing to buy or sell a particular stock.
you want to buy stock ABC, which is trading at $12, you can set a limit order for $12.50. This guarantees that you will pay no more than $12.50 to buy this stock.
you own stock ABC and it is trading at $15, you could place a limit order to sell it at $14.50. This guarantees that the stock will be sold at a price greater than or equal to $14.50 but not below.
Best for overnight or weekend trades. The limit trade is executed only once.
Please Note:
For real time trading price limits are generally not needed except for trades entered after the market close.
General InformationGeneral Information
Short Selling:Short Selling: Short selling starts with
borrowing a stock from your broker
You sell the borrowed stock hoping to buy it back at a lower price and return (short cover) it to your broker for a profit
All rules for buying still apply
General InformationGeneral Information
Short Covering:Short Covering: Must have already short sold
the stock
May set a maximum price limit
All other rules for selling apply
General InformationGeneral Information
Example: Short Selling and Example: Short Selling and CoveringCoveringExample: Short Selling and Example: Short Selling and CoveringCovering
I am borrowing the stock from the broker (2% brokerage fee) and selling it. Now I’ve got cash.
I feel that IBM stock is going to go down and want to short sell the stock.
General InformationGeneral Information
When stock price is at its lowest, I short cover by buying the stock back in the stock exchange at the low price and returning it to the broker (2% brokerage fee). I keep what I didn’t spend.
I get the difference between the high price and the low price minus the brokerage fees.
Example: Short Selling and Example: Short Selling and CoveringCoveringExample: Short Selling and Example: Short Selling and CoveringCovering
General InformationGeneral Information
Long Positions:Long Positions:
A Long Position is a stock you own.
Ex: If a team owns 100 shares of McDonalds, their long position is 100 shares.
= Value of Long Position
# of shares
X current price per share
General InformationGeneral Information
Short Positions:Short Positions:
A Short Position is a stock you borrowed from the broker and sold
# of shares
X current price per share
= Value of Short Position
General InformationGeneral Information
Equity:Equity:
Total Value of Long and Short Positions
+ Cash Balance
= Equity
General InformationGeneral Information
Buying on Margin:Buying on Margin:
You may borrow funds using the stock in your portfolio as collateral for the loan
Interest charged at 7%
General InformationGeneral Information
Borrowing on MarginBorrowing on Margin At the beginning of the game, teams have $200,000
of purchasing power, 50% of which is collateralized by your initial cash portfolio of $100,000
50% of value of long and short position is required as collateral (margin requirement) Initial Margin Requirement = 50%
Margin requirement is subtracted from Equity
Remainder is matched dollar for dollar for total buying power
Margin Call:
If the Total Equity in your portfolio falls below 30% of the value of your long + short positions, your team will receive a “margin call”.
SMG will automatically liquidate a portfolio that falls below the 30% rule until the minimum margin requirement of 30% is met.
SMG Assessment Ideas:SMG Assessment Ideas:
ARTICLES from web, newspapers or magazines on corporations
NOTES that state why
GLOSSARY of terms with definitions
HEADLINES with a brief paragraph explaining the impact the story will have on the market
JOURNAL of TV coverage of market activities
BIBLIOGRAPHY of readings GRAPH showing changes in
the value of a stock
SMG Assessment Ideas:SMG Assessment Ideas:
SMG Assessment Ideas:SMG Assessment Ideas:
BASIC DATA about a corporation 52-week high and low P-E ratio Location Amount of debt Average number of shares trading daily Company plans for the future S&P ranking, etc
WORKSHEETS that track the initial purchase, price, broker’s fee, selling price, and profit or loss
Suggested Team RolesSuggested Team RolesEntire TeamResearch all holdingsIdentify possible stocksCollect company informationGive rationale for making a tradeCaptainConduct team meetingsDetermine consensusEnter transactions on game site
Economic Research Coordinator Researches fundamental economic
data: current events, overall economy...
News about industries Provide reports to team
Record Keeper, Transaction Reporter, Charter, and more....
Team RolesTeam Roles
Team Fees: 10 Week Games:Grades 4-12 $15
College $15
Youth Groups $18
Adult or Yearlong $25
Team Fees: Year Long Game:All groups $25
New Advisor Fee: $25 Eliminated
SMG CostsSMG Costs
True or False
1. Stocks are items found in the storeroom of a grocery store.
2. Only rich people invest in the stock market.
3. Most stocks on the stock market are sold by the United States Government.
4. If the stock market goes up 30 percent one year, it will fall by 30 percent in the next year.
Investment BasicsInvestment Basics
5. Any stock that goes up in price must eventually come back down.
6. Bears, Bulls, and Pigs are found in the stock market.
7. Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U.S. government.
8. Stock markets are open on business days around the clock, around the world.
Investment BasicsInvestment Basics
9. Sometimes companies buy their own stocks on the stock market.
10. It is hard to buy a good stock today because all the good ones have already been purchased.
11. Buying stocks is a sure way to make money.
12. Corporations sell new issues of stock on the New York Stock Exchange.
Investment BasicsInvestment Basics
13. “Insider” stock trading means that trading stocks takes place inside a building.
14. People can buy stocks on the internet.
15. When the stock market goes up, it causes the economy to grow.
From Learning from the Market, © National Council on Economic Education, New York, NY
Investment BasicsInvestment Basics
Insured Savings Accounts Savings Bonds Certificates of Deposit Treasury Bonds Corporate Bonds Mutual Funds Stocks ETFs Collectibles Commodities
Different Types of Investments:Different Types of Investments:Investment BasicsInvestment Basics
The RISK to RETURN Relationship:
The RISKIER the Investment -
The HIGHER the Return
Investment BasicsInvestment Basics
The Difference Between Stocks, Bonds, and Mutual Funds
Stocks:You own a piece of the company
You make money if the company does well
Bonds:You loan money to a corporation or government
You earn the interest
Mutual Funds & ETFs:You own one portion of a collection of stocks, bonds, or other securities
Investment BasicsInvestment Basics
The Three Main Markets:
NYSENYSE::
NNew YYork SStock EExchange Oldest, largest, best-known stocks
NASDAQNASDAQ:: (NNational AAssociation of SSecurities DDealers AAutomated QQuotations) Large, mid-sized, and small growth companies
AMEXAMEX::
AAmerican SStock ExExchange Mid-sized growth companies
Investment BasicsInvestment Basics
Large: Often have high prices Low risk of failure Some pay regular dividends
Small: Potential for growth is greater
Generally prices are lower
The Difference BetweenThe Difference Between LargeLarge and and SmallSmall Companies:Companies:
Investment BasicsInvestment Basics
Common Stocks:Common Stocks: Pay dividends based on performance
of the company Have higher risk but may have higher
reward
Preferred Stocks:Preferred Stocks: Dividend amount is preset Dividends are paid on preferred
stocks before common stocks Have lower risk but may limit reward
Investment BasicsInvestment Basics
Over-The-Counter StocksOver-The-Counter Stocks A security which is not traded on an
exchange, usually due to an inability to meet listing requirements. For such securities, brokers/dealers negotiate directly with one another over computer networks and by phone. The NASD carefully monitors their activities.
Be very wary of some OTC stocks, the OTC:BB (Bulletin Board) stocks are either penny stocks or may hold bad credit records.
Stock Splits:Stock Splits: More shares are created at a
lower price per share Stockholders profit if stocks go
up Indicated with an (s) in the
paper
Ex: Dell $109 $54
Investment BasicsInvestment Basics
Mutual fundsMutual funds
Closed-ended funds may be traded just like the stocks traded on the NYSE, NASDAQ and American Stock Exchanges.
Open-ended mutual funds can also be traded but cannot be short sold or short covered.
Gumpper – SMG
Open vs Closed-end FundsOpen vs Closed-end Funds An open-end fund issues and redeems shares
on demand, whenever investors put money into the fund or take it out. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, since net asset value (NAV) is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself.
For a closed-end fund, the share price is determined not by the total value of the assets it holds, but by investor demand for the fund (like an ETF).
Other Terminology:
Blue ChipsBlue Chipsthe largest and most profitable stocks
Bull MarketBull Marketa market that is rising
Bear MarketBear Marketa market that is falling
Investment BasicsInvestment Basics
Why long Why long term term investing is investing is the best the best route?route?
Investment BasicsInvestment Basics
P/E or Price-Earnings P/E or Price-Earnings RatioRatioP/E or Price-Earnings P/E or Price-Earnings RatioRatio Trailing P/E: Latest closing price of
the stock to the latest available annual earnings per share of the firm.
More earnings per share given stock price results in a lower PE ratio and a better buy.
Forward P/E: based on forecasting net year’s future expected earnings.
What stocks should I What stocks should I buy?buy?
Investment BasicsInvestment Basics
PE RatioPE RatioPE RatioPE RatioExample: ABC Stock – 20 P/E Ratio
Indicates that ABC is selling for 20 times the company’s earnings
What stocks should I What stocks should I buy?buy?
Investment BasicsInvestment Basics
PE RatioPE RatioPE RatioPE Ratio
So, if more earnings per share given the stock price results in a lower PE ratio and a better buy.
Is Toyota or Apple the better buy? Apple: Selling at 40 times earnings. Toyota: Selling at 9 times earnings.
Gumpper – SMG
•Beta = % change in stock return / % change in market return.
•Beta = 1 means that the stock and market change by the same percentage.
•Larger beta means a larger change than the market on any given day.
•Positive and negative betas show direction of stock relative to market
Beta: a measure of volatility
Where to get more informationWhere to get more informationWhere to get more informationWhere to get more information
American Stock Exchange- www.amex.com NASDAQ- www.nasdaq.com NYSE- www.nyse.com CNNfn- www.cnnfn.com CNBC- www.cnbc.com EDGAR Database of Corporate Information-
www.sec.gov/edgarhp.htm Yahoo! Finance- http://finance.yahoo.com Google Finance -
http://finance.google.com/finance
EPS: Earnings per share
P/E Ratio
ROE: Return on Shareholders’ Equity
Beta
5-year Sales and Earnings History
Company Size
Relative Industry Strength
Criteria for Selecting Criteria for Selecting StocksStocks
52 WeekHigh
52WeekLow
Stock
Div Yield %
P/E Ratio
Sales 100s
EPS High
Low
Close
Net Change
49 39 ABC
1.30
3.25% 20 3314 2 40 39 40 ----
80 49 BBA .40 .53% 26 73016 2.92 77 75 76 + 1
66 38 CCI 1.20
1.87% 9 77723 7.11 66 63 64 + 1
18 13 LLY 1.78
11.12%
7 13101 2.28 16 16 16 ----
13 8 XYZ ---- 0% 62 6 .16 10 10 10 - 1
Stock Table Stock Table
$2.00BBA 76 / 26 = $2.92CCI 64 / 9 = $7.11LLY 16 / 7 = $2.28XYZ 10 / 62 = $0.16
Highest and lowest price a share of the stock has sold for in the past 52 weeks.
Example ABC: High was 49
Example ABC: Low was 39
52 Week High/Low52 Week High/Low
DivDiv Annual Dividend per Share of
Stock Based on the rate of the Last
Quarterly Payout Annualized Data Example ABC: $1.30 per
share Example: XYZ: $0 per share
Yield PercentageYield Percentage
Known as Dividend Yield
A Measure of the Income Produced
by the Stock
Is the Amount of the Dividend
divided by the Price of the Stock
Yield PercentageYield Percentage
Achieved by Dividing the Annual
Dividend by the Day’s Closing Price
Example: ABC 1.30/40 = .0325
or as a percentage: 3.25%
P/E RatioP/E Ratio
PRICE- EARNINGS RATIO
– Ratio: latest closing price of the stock to the latest available
annual earnings per share of the firm
– Trailing P/E: is what is reported in the financial section of newspapers
– Forward P/E: based on forecasting net year’s future expected earnings
P/E RatioP/E Ratio Example: ABC – 20 P/E Ratio
– Indicates that ABC is selling for 20 times the company’s earnings
Example: XYZ – P/E Ratio is 62
– Indicates that XYZ is selling for 62 times the company’s earnings
Sales 100sSales 100s
This represents the volume of transactions on the trading day
Bought or Sold
Presented in hundreds, simply multiple by 100
Example: ABC – 3314Indicates that 331,400 shares
traded
High/LowsHigh/Lows
This represents the highest andlowest selling price of the stock
for the day.
Example: ABC – high of 40 low of 39
Net ChangeNet Change
This lists the net change between the closing price for the stock for the day and the closing price on the
previous trading day
Example: BBA: Today’s Close: 76
Net Change: + 1 Previous Day: 75
Earnings per ShareEarnings per Share
A means of valuing common stock.
Part of a firm’s profit that is allocated to each outstanding share of common stock.
Can be a good indicator of fiscal health
Earnings per ShareEarnings per Share
Many investors carefully watch this number
In general, higher earnings per share means better dividend and overall
stock performance.
Earnings per ShareEarnings per Share
Calculated by dividing the closing price on the day being consider by the P/E ratio.
Example: Today’s Close P/E Ratio 40.00 20
Earnings per Share:ABC – $2.00
Economics and the Economics and the Stock MarketStock MarketEconomics and the Economics and the Stock MarketStock MarketMicro vs. Macro economics and the
Stock Market
MicroeconomicsMicroeconomicsMicroeconomics studies the behavior
of the consumer, household, or firm. Scarcity and choice
• How do we allocate our budget, time?• How do firms allocate resources to produce
goods and services? Maximizing well being, happiness Maximizing profit Efficiency
Micro and the Stock MarketMicro and the Stock Market Look at one company:
How does this company make its product? Who buys the product? Does the company have good managers? Who supplies the company?
Look at one industry: How much competition is in the industry? Is the industry young or old?
This is what stock brokers and mutual fund managers get paid to do!
Applications:Industry ResearchBusinessWeek BlogMarketplaceGoogle FinanceMAC Vs PC
MacroeconomicsMacroeconomics
Macroeconomics studies the economy as a whole or as aggregates and attempts to predict or forecast changes in national output, unemployment, and inflation.
Macro and the Stock Macro and the Stock MarketMarket
Look at the whole economy: Inflation: Producer and
Consumer Price Indices (PPI & CPI)
Unemployment: Unemployment rate
Interest rates: actions of the Fed Productivity
Use information to estimate good times to buy equities and times to sell.
Applications:BLSEconomagicFed 101
When is the news good?When is the news good?When is the news good?When is the news good?
Example: decrease in the unemployment rate: Good: sign of a growing economy
increased consumer spending increased profits.
Bad: indication of future labor shortages increasing wages inflation fed increases interest rates decrease profits, slow growth.
Product idea: on-line financial services including banking, investments, retirement planning, estate planning, legal services, etc.
Need funds to start business - find investors “venture capitalists.”
Each investor owns a stake or “share” of the corporation and has limited liability.
Going Public: Going Public: From a Good Idea to a From a Good Idea to a CorporationCorporation
Going Public: Going Public: From a Good Idea to a From a Good Idea to a CorporationCorporation
Going public
Suppose the company is doing well. You need more money - go public, “initial public offering”
Going public: investment bank creates a prospectus and buys all shares of stock and resells them at a set price to the public
A “tombstone” is the public notice of an IPO
Going Public: Going Public: From a Good Idea to a From a Good Idea to a CorporationCorporation
Going Public: Going Public: From a Good Idea to a From a Good Idea to a CorporationCorporation
Going public
Important Points for Students Important Points for Students at the End of the Gameat the End of the Game
Diversification is critical Size of company, industry, culture and
more
Mutual Funds or getting professional advice
Investing is a Long-Term Proposition
Registering SMG Teams
Register online at www.smgww.org
Complete and mail the payment form (online PDF) to SMG of PA Headquarters
Choose this option when you
are ready to pre-register your
teams.
Choose this option when you
are ready to pre-register your
teams.
Gumpper – SMG
Pre-registration RemindersPre-registration Reminders You can print out the payment form (online)
to use for obtaining a PO # from your school (there is also one in the packet)
If you submit a PO# with your online pre-registration, team #s and passwords will be generated right away, otherwise SMG will wait for the check.
Your teams will earn interest on cash before the game begins
Free adult game as part of new advisor packet.
Inside SMG WORLDWIDE (Team Inside SMG WORLDWIDE (Team Pages)Pages)
The blue Trading tab contains all the functions necessary to compile research and make trades.
Account SummaryAccount Summary
Check Account Summary and Transaction Notes for the status of your account balance and the trades you have entered.
This team has used some of its “margin”
This team has used some of its “margin”
“Min Maintenance” is 30% of the team’s long + short value. If the teams
total equity were to fall below this number, they would receive a margin
call.
“Min Maintenance” is 30% of the team’s long + short value. If the teams
total equity were to fall below this number, they would receive a margin
call.
140,710 / (281,420 + 0) = 50%146,560.56 – 140,710 = 5,850.5684,426 / (281,420 + 0) = 30%
The math…..
“Short Sell” and “short cover” are the transactions used when taking a “short” position
on a stock. A short position earns a positive return when the stock price falls.
“Short Sell” and “short cover” are the transactions used when taking a “short” position
on a stock. A short position earns a positive return when the stock price falls.
Enter a Trade