Moorhead Junior High (posted 07/98)
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(When you get there, click on NASDAQ Stock)
Inflation is decreasing the value of your money. What you can buy for a certain amount of money this year may cost you more money next year. For example, if the rate of inflation over the next year is 2.2%, a coat that would have cost you $100 this year will cost you $102.20 to buy next year. So if you are not going to buy something with your money right now, you might want to save or invest it in a place where its value can grow--or at least not lose any of its value.
To find out the current rate of inflation, you can visit the Consumer Price Index (CPI) webpage. Feel free to read through the information provided on that page--you do not have to just grab your answer and run! Get a feel for what the CPI is and how they calculate it. I would suggest using the most recent SAAR (what does this acronym stand for?) for "All items less food and energy" as your current rate of inflation.
Go to the Consumer Price Index web page now
For more information about CPI: http://stats.bls.gov/cpi1998g.htm
One possibility of many is to invest your money in the stock market. There are other, safer, places to put your money which will also help it to keep its value, but let's see what could happen if you are willing to tolerate some risk and invest in the stock market. Keep in mind, though, that you could lose some or all of your money. That's why it is a good idea to do some research first.
That depends on your attitude. View this as a Stock Market Game. The person with the most money at the end wins. You do want to beat the other players, right? Then it will pay to think carefully about which companies' stocks you should buy and which ones you should stay away from. Have you ever looked at the number of companies from which you can choose? You can go take a peak right now--but hurry back when you are ready for some advice!
Go look at some companies!
If you have ever looked at the stocks listing in the newspaper, you have noticed that each one lists several numbers with the company's name. For a quick explanation of those numbers, please go to the Definitions Page (borrowed from the Good News Bears website). Then come back to some more thoughts about what those numbers may mean.
Go to Definitions Page
Now that you have the general definition from the Definitions Page, let's take a minute to think about how the Price-Earnings Ratio (PE) might be useful to us. Paying a lower price but earning more money from it would give a low number for the PE ratio. Paying a higher price but earning less money for it gives a higher number for the PE ratio. So we could use the PE to compare various stocks. (Have you figured it out? Stocks with lower PE's have earned more money on average than stocks with higher PE's.)
For our Stock Market Unit, we will not be receiving dividends, so you can ignore the dividend and percentage yield numbers.
There are a couple ways to think about these numbers. You could figure out the percent increase of the stock's price and compare it to another stock's percent increase in price over the last year. Perhaps the stock that is increasing in price the fastest would be the best money maker within your ten week period as well. On the other hand, maybe the stock is growing unnaturally fast and may encounter a slower growth or even a drop in price to correct for this unusual growth during the ten weeks of your project. Some people prefer stocks that grow steadily and surely rather than radically and unpredictably with unexpected drops.
Can we really tell how the stock's price has been increasing by looking at just two numbers? It would be nice to have more numbers--or maybe even a graph that depicts its growth. There are various places where you can find more information about the stock's growth and about the company as well. If you are ready to go investigate a particular company, use one of the links provided. Another suggestion is to continue reading on for some more ideas and then check later for all the information you need at the same time, especially since these pages can take awhile to load depending on the time of day...
Go look at some companies!
Being informed about various companies can help you to make wise decisions regarding stock purchases and sales. First, take some time to read a little about a company in which you are interested. What is its history? How stable has the management been? Is there a particular reason that its stock is doing well or poorly right now? How often does the company produce new products? Are its products successful? Is the company making a profit? What does the company do with its profit?
Even after you have decided to purchase its stock, you should stay current on business news. Check the business sections of a daily newspaper for new developments in that company or in its industry. Has a new tax been added which will affect your company? Are there any other political decisions which may affect it? What is happening to the competing companies?
$100,000 is a lot of money. Are you going to spend it all on just one company's stock? What if it has a bad couple of months? You could lose much more money than if you had just hidden the money in a mattress and taken the inflation loss! Most experts recommend that you invest in a variety of stocks so that if one stock loses money, the others should make up for your loss. One way to do this is to choose stocks of companies that are in different industries. This also makes sense if you consider that you probably do not want to own stock in both Coca-Cola and Pepsi at the same time since they are competing with one another. An industry consists of a number of companies who are essentially competing against one another because they offer the same type of product or service.
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I bet you are getting anxious to check out some companies! Fill out a Stock Research worksheet for each company in which you are going to buy stock. You might even want to use the worksheets to help you compare two companies within the same or different industries to decide which one you really want. Happy researching!
Go look at some companies!
Once you have chosen your stock, you can check in again through the links above to get updates on your stock prices at any time. Please track the stock prices on a line graph for each company. You may decide to sell or buy stock once each week of the game; however, a completed Stock Research worksheet is required for each company in which you invest during the ten weeks. Please include explanations for your buying and selling decisions. Good luck!
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Dickneider, W. (1993). The stock market game guide: Classroom activities. New York, NY: Securities Industry Foundation for Economic Education.
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