1920s Boom & Crash The Stock Market. Origin of the term stock Comes from the early days when...

1920’sBoom & Crash

The Stock Market

Origin of the term “stock”Comes from the early days when corporations were called “joint stock” companies

“Stock” mean the total sum of goods or raw materials on hand for trade

Men “pooled” their “stock” such as ships, goods, employees, building to form a large business

Today the word “capital” is used to describe what once was called stock

What is a “share?”

A share is a “certificate” of partial ownership in a “joint stock” company

A share can be bought and sold

StockA certificate of ownership in a corporation

Definition of the

Stock MarketA place where stocks and bonds are bought and sold.

Economic growth

An extended period of time during which the economy expandsexisting businesses expand

new businesses are created

more jobs are created

RecessionA prolonged period in which the economy contracts

DepressionA recession that is especially long and severe

RecoveryEconomic contraction stops and expansion once again takes place

Recession

Recovery

Depression

Stock Market TerminologyGrowth

Rate

Time

Growth

The Bear Market

A market in which prices fall over a period of 6 months

The Bull Market

A market in which prices rise over a period of 6 months

They need money to:

StartRunExpand

Why do businesses sell stock?

Wendy’s wants to build more restaurants or add a buffalo wings to its menu. It takes money to buy land, build restaurants, and develop and advertise new menu items.

Example:

Where Wendy’s get money?

Use own capital ($)Borrow from bankSell stocks on the stock market

Why not use your own money?

Not enoughToo risky

Why not borrow from a bank?

High interest ratesStringent regulationsCollateral required to guarantee the loan

Why sell shares of stock?

Fewer regulationsShare risk with investors

•Savings account •Invest in Stock Market

How can you use your money to make

money?

Why a Savings Account?Earn interest Low riskGovernment Insurance - FDIC (Federal Deposit Insurance Corporation)

Invest in the Market?

Earn dividends - share of the profit

Speculate - buy low/sell high

RiskNo insurance

1920’s MarketNo government regulationsBuy on margin (Borrow $)Easy credit from banksSpeculation v. investments

1920’s Market Rise & Fall