Why bother with the stock market?
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)
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
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)
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
2003: £12.24 million (Bought by Man Utd)
2008: £80 million(Sold by Man Utd)
Difference: £67.76 million
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!!!
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
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!!!
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
Option ADo we check the performance of
hundreds of thousands of companies that make up the shop?
Option BDo we take a sample of companies and
use these as a benchmark?
Answer: OPTION B!!!
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?
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?
At home in Ireland, the equivalent is the ISEQ =
Irish Stock EQuity Overall Index
www.iseq.ie
Has the FTSE 100 moved up or down?
Has the S&P500 moved up or down?
Has the ISEQ moved up or down?