Learning, Earning, and Investing Investment Analysis

Learning, Earning, and InvestingLearning, Earning, and InvestingInvestment AnalysisInvestment Analysis

Funding for this workshop is provided by:

National Council on Economic Education US Dept of Education

University of Illinois ExtensionThe Moody’s Foundation

InstructorsInstructors

Dr. Angela Lyons

Director, UIUC-Center for Economic Education

University of Illinois Urbana-Champaign

Jennifer Hunt

Consumer and Family Economics Educator

University of Illinois Extension

You will receive…You will receive…

• Curricula with lessons and activities to use in the classroom

• 6 CPDUs

• Certification to reproduce and replicate workshop materials

• Network of colleagues to share experiences

• Resources available at U of I Extension

Setting the Stage….Setting the Stage….

Why Is Saving and Investing Why Is Saving and Investing Education Important?Education Important?

Increasing Consumer ResponsibilitiesIncreasing Consumer Responsibilities

• Movement towards the privatization of social security.

• Over 92% of pensions today are defined contribution plans, not defined benefit plans.

Financial World Has Become More ComplexFinancial World Has Become More Complex

• The number of financial services offered to consumers has increased.

• There has also been an increase in the number of financial products that are offered.

• Credit-scoring technology has improved.

People Are Involved in the Financial MarketsPeople Are Involved in the Financial Markets

• Millions of small investors have increased their net worth by participating in the stock and bond markets.

• Millions of other investors depend on income from owning stocks and bonds.

Importance of Financial EducationImportance of Financial Education

Many Americans, especially young adults, lack the basic knowledge and skills needed to make informed financial decisions and manage their investments effectively.

It’s Hard to Learn What You Are Not TaughtIt’s Hard to Learn What You Are Not Taught

• Financial education is a growing national priority.

• Stock market simulations and games are very popular.

• But young people can’t learn financial skills unless they are taught explicitly.

Several studies of financial education programs, especially those with specific objectives such as increasing savings or decreasing debt, have succeeded in improving the financial behaviors of young people and other consumers.

Where Do You Find Data?Where Do You Find Data?

The Federal Reserve Boardhttp://www.federalreserve.gov/

Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore. 2003. “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances.” Federal Reserve Bulletin.

Learning, Earning and InvestingLearning, Earning and InvestingAn OverviewAn Overview

• 23 lessons

• High school and middle school

• Complete lesson plans

• Web site (http://lei.ncee.net)

• Accompanies stock market simulations or games

• Linked to standards: NCEE, NCTM, Jump$tart

• Field tested and reviewed

Table of ContentsTable of Contents

1. Why Save?

2. Investors and Investments

3. Invest in Yourself

4. What Is a Stock?

5. Reading the Financial Pages: In Print and Online

6. What Is a Bond?

7. What Are Mutual Funds?

8. How to Buy and Sell Stocks and Bonds

Theme 1: Basics of Financial Investing

9. What Is a Stock Market?

10. The Language of Financial Markets

11. Financial Institutions in the U.S. Economy

Theme 2: The Markets

12. Building Wealth Over the Long Term

13. Researching Companies

14. Credit: Your Best Friend or Your Worst Enemy?15. Why Don’t People Save? 16. What We’ve Learned

Theme 3: Financial Planning

17. How Financial Institutions Help Businesses Grow18. How Are Stock Prices Determined?19. The Role of Government in Financial Markets20. The Stock Market and the Economy:

Can You Forecast the Future?21. Lessons from History: Stock Market Crashes22. Investing Internationally: Currency Value Changes23. Investing Involves Decision Making

Theme 4: The Markets and the Economy (High School only)

LessonsLessons

• Description

• Key concepts

• Objectives

• Time required

• Materials

• Procedure

• Visuals

• Activities

• Closure

• Assessment (multiple-choice and essay)

* Glossary terms for all lessons (pp. 323-332)

Key FeaturesKey Features of theof the LEI Web SiteLEI Web Site

About the Materials:• Table of Contents• Sample Lessons• FAQs• Order Information

Resources:• Interactives• Related Web Links• Related Lessons• Financial Calculators• Glossary• Visuals on PowerPoint

Web Site:http://lei.ncee.net

Table of Contents:LessonsConceptsNational Standards

Resources:InteractivesInvestment Web linksRelated LessonsVisualsStock Market SimulationsWorkshop Leader’s Guide

InteractivesInteractives

• Compound Interest Calculator

Illustrates graphically the dramatic effect that compounding can have on investments over time

• Word Search

Features a word search activity to introduce key financial terms

• Chessboard of Financial Life

Illustrates the power of compounding interest

• Reading the Financial Pages

Focuses on several components presented on the financial pages of the newspaper

• NCEE’s Historical Stock Market Simulation

Features a simulation in which students invest $10,000 using the Callan Periodic Table of Investment Returns

Quick Recap: LEI Session 1Quick Recap: LEI Session 1

Lesson 4: What is a Stock?Lesson 4: What is a Stock?

Lesson 7: What are Mutual Funds?Lesson 7: What are Mutual Funds?

Lesson 12: Building Wealth for the Long-TermLesson 12: Building Wealth for the Long-Term

Lesson 15: Why Don’t People Save?Lesson 15: Why Don’t People Save?

Lesson 5Lesson 5

Reading the Financial Pages:Reading the Financial Pages:In Print and OnlineIn Print and Online

Stocks, Mutual Funds, and BondsStocks, Mutual Funds, and Bonds

• Financial pages provide basic information about stocks, mutual funds, and bonds.

• Financial pages also include general articles about the world of business and finance, government activities, and the activities of companies and industries.

• The purpose of this lesson is to teach students how to read financial tables for stocks, mutual funds, and bonds.

3 Major US Stock Exchanges3 Major US Stock Exchanges

• NYSE

New York Stock Exchange (www.nyse.com)

• NASDAQ

National Association of Securities Dealers Automated Quotation System (www.nasdaq.com)

• AMEX

The American Stock Exchange (www.amex.com)

Activity 1: Reading a Stock Table (p.58)Activity 1: Reading a Stock Table (p.58)

Key Terminology (Visual 1, p. 55)

• 52-Week High and LowHighest and lowest price of stock in the most recent 52-wk period.

• Stock (SYM)Name of the company and stock symbol.

• DIV Dividend - Annual payment per share to stockholders; usually paid quarterly.

• YLD % Yield – The dividend calculated as a percentage of the closing price; the return on your invested money that comes from dividends.

• P/E ratioPrice/Earnings Ratio – Stock price divided by the company’s annual earnings per share.

• VOLVolume – Shares traded the previous day.

• CLOSE Closing price – Price of the stock at the end of the previous trading day.

• NET CHGNet change in the stock price from the close of the previous trading day.

Activity 2: Reading a Mutual Fund Table (p.61)Activity 2: Reading a Mutual Fund Table (p.61)

Key terminology for each fund (Visual 2, p. 56)

• NAVNet asset value per share of the fund at the close of trading day; the value of a share of the fund; calculated by adding up the value of the stocks, bonds, and other assets in the fund, subtracting fund’s liabilities and dividing the result by the number of fund shares available.

• NET CHGChange in the NAV from the previous trading day.

• YTD % RETYear-to-date percentage change in the fund value.

• 3-YR % RETPercentage change in the fund value over three-year period.

Activity 3: Reading a Bond Table (p.63)Activity 3: Reading a Bond Table (p.63)

Key Terminology (Visual 3, p. 57)

• CUR YLDCurrent Yield – Annual interest payment as a percentage of the current bond price.

• VOLTrading day volume ( # of bonds bought and sold).

• CLOSEClosing price of the bond.

• NET CHGNet change in bond price in dollars and cents.

Activity 4: Tracking Stocks Online (p.65-Activity 4: Tracking Stocks Online (p.65-66)66)

• Students pick a stock and track it over several days or weeks.

• Students choose a Web site to find information about their stock.

http://finance.yahoo.com

http://www.msnbc.com

click on “Business”

Other Web sitesOther Web sites

• http://www.usatoday.com

• http://www.bloomberg.com

• http://cbs.marketwatch.com

• http://money.cnn.com

Subscriptions:

• http://online.wsj.com

• http://www.chicagotribune.com

Activity 5: Scavenger Hunt (p. 67-68)Activity 5: Scavenger Hunt (p. 67-68)

Students are sent on a scavenger hunt, where they use the financial tables in newspapers and Web sites to become familiar with how to locate information on specific stocks, bonds, and mutual funds.

Lesson 13Lesson 13

Researching CompaniesResearching Companies

Visual 1: Thinking Economically Visual 1: Thinking Economically About Researching StocksAbout Researching Stocks

• Recognize that you cannot know it all.

• Select a few companies to research. Then follow their progress closely.

• Find a few good place to get stock information.

• Stop looking for new information when you think the benefits received from more information are less than the costs of additional research.

Visual 2: Surprises are RareVisual 2: Surprises are Rarein the Securities Marketsin the Securities Markets

• Many individuals spend a great deal of time and effort trying to find companies whose stock prices might increase faster than average for the market.

• Many financial institutions – brokerage companies, banks, life insurance companies – spend even more time and effort trying to identify companies whose stock prices might increase faster than average for the market.

• It is difficult to earn unusual gains in the stock market because most of the information about most companies is already known.

• People who earn above-average returns from their stock are usually surprised. But it is hard even for experienced investors to find surprises in the market.

Visual 3 Visual 3 An Example: LeBron JamesAn Example: LeBron James

• LeBron James joined the NBA out of high school. He is known for his ability to jump, pass, involve teammates and score.

• Some regard LeBron James as the Michael Jordan of the future.

• Could you make big money today by purchasing Nike stock, thinking that its value might be enhanced by the LeBron James connection?

Fundamental Analysis of Company Performance Fundamental Analysis of Company Performance (Analysis of Financial Statements - “The Basics”)(Analysis of Financial Statements - “The Basics”)

Factors to pay close attention to:

• Share Price

• Price/Earnings Ratio

• Annual Revenue or Sales

• Earnings Per Share

Activities 1 & 2 (p. 187-188)Activities 1 & 2 (p. 187-188)

Comparing different methods for selecting stocks:

• Pick stocks at random

• Focus on companies you know or that seem popular

• Research a company’s financial information

• Seek expert advice

Look for the “basics” of the company:

• Headlines and press releases• Financial statements• Prospectus and annual reports

NEWS AND INFO

HeadlinesCompany Events

Articles about companies and industries

SOUTHWEST AIRLINES (LUV)

“Passenger jet slides off runway at Chicago airport”

FINANCIALS

Income StatementBalance Sheet

Cash Flow

COMPANY PROFILE

Company WebsiteKey StatisticsCompetitors

Industry

Technical Analysis of Company Performance Technical Analysis of Company Performance

• Method that predicts a stock’s price movements and future market trends by studying charts of past market activity, which take into account the stock’s price and trading volume.

• Uses financial charts, tables, and ratios to predict future movements in a stock's price.

• Factors used to identify trading opportunities: 1) price, 2) volume, and 3) moving averages

TECHNICAL ANALYSIS

200-Day Moving AverageP/E RatioVolume

Lesson 18Lesson 18

How are Stock Prices How are Stock Prices Determined?Determined?

Visual 10: Laws of Supply and Demand Visual 10: Laws of Supply and Demand Applied to Financial MarketsApplied to Financial Markets

• The law of demand states (regarding stocks) that buyers choose to purchase more shares at lower prices and fewer shares at higher prices.

• The law of supply states (regarding stocks) that sellers choose to sell more shares at higher prices and fewer shares at lower prices.

• An equilibrium price exists when the quantity of shares demanded at that price equals the quantity of shares being supplied.

• Stock prices change as a result of changes in the supply and demand for shares of the stock in question. Shifts in supply and demand can establish new equilibrium prices.

Activity: Stock Price Simulation GameActivity: Stock Price Simulation Game

• Students use knowledge of supply and demand to participate in a stock market simulation, which shows how the price of a share of stock is determined in a competitive market.

• Divide the class into buyers and sellers. Distribute BUY and SELL cards and score sheets. Assign one student to be keeper of the cards and another to record the transactions.

• Clear a space that will serve as the TRADING FLOOR. When the MARKET IS OPEN, buyers and sellers meet on the trading floor and try to agree to a price for one share of stock.

• Buyers start the game with one BUY card on their score sheet. The goal is to buy at the lowest price they can. If the price they pay is equal to the price on their BUY card, buyer breaks even. If less than, there is a gain. If more than, there is a loss.

• Sellers start the game with one SELL card on their score sheet. The goal is to sell at the highest price they can. If the price they pay is equal to the price on their SELL card, seller breaks even. If more than, there is a gain. If less than, there is a loss.

• Students buy (or sell) as many shares of stock as they can in the allotted time. But the price of a transaction must always be in multiples of 5 ($5, $10, $15, $20 and so on).

• As soon as a stock is bought (sold), students record the transaction on their score sheets. In addition, SELLER reports the negotiated price to the recorder.

• They then turn in their BUY (or SELL) card, receive a new card, and begin the negotiation process again.

• Students have 5 minutes to make transactions and then the TRADING FLOOR IS CLOSED.

• The game is played in three 5-minutes rounds. The goal is to make as much money as you can by the end of the game.

Lesson 23Lesson 23

Investing Involves Decision MakingInvesting Involves Decision Making

Visual 1: Visual 1: Types of Investment RiskTypes of Investment Risk

• Risk of principal: The risk that some or all of the original deposit or investment may be lost.

• Market risk: The risk that the forces of supply and demand or unforeseen events may affect the value of an investment adversely.

• Interest-rate risk: The risk that interest rates will change. For example, an investor may hold a fixed-rate investment such as a bond. If the bond holder decides to sell the bond before maturity and market interest rates are higher than what the bond is earning, the price of the bond will be lower.

• Inflation risk: The risk that the return on an investment will not keep pace with inflation, and the saver’s purchasing power will fall.

Very High RiskJunk bonds,

options

High RiskGrowth stocks, growth funds,

aggressive-growth mutual funds

Moderate RiskIncome funds, balanced mutual funds,

bond funds, municipal bonds, corporate bonds, blue-chip stocks

Very Low RiskTreasury bills, CDs,

money markets funds, savings accounts

Visual 2: Visual 2: Risk PyramidRisk Pyramid

Visual 3: Visual 3: Elements of a Financial Plan Elements of a Financial Plan

• Financial goals

• Net worth statement

• Income and expense record

• Insurance plan

• Saving and investment plan

Focus of this lesson:

Saving and investment plans

Visuals 4 & 6: Visuals 4 & 6: Five-Step Decision Making Model (p. 315, 317)Five-Step Decision Making Model (p. 315, 317)

1. State the problem

2. List criteria

3. List alternatives

4. Evaluate alternatives

5. Make a decision

An Activity:

Using the Decision-Making Grid

Activity 2 (p. 319): Activity 2 (p. 319): Important Things to Know About Your ClientsImportant Things to Know About Your Clients

1. How much does the client have in savings?

2. Is the client able to save each month without borrowing?

3. Is the client responsible for people who are financially dependent?

4. How much risk is the client willing to take in order to pursue a higher rate of return?

5. How close is the client to retirement?

6. Does the client expect his or her savings to generate current income?

7. Is the client primarily hoping for growth?

8. Would the client benefit from tax-deferred or tax-exempt investments?

Activities 3 & 4 (p. 320-322):Activities 3 & 4 (p. 320-322): Using the Decision-Making Model for InvestingUsing the Decision-Making Model for Investing

• In this lesson, students become financial planners and offer advice to four hypothetical clients.

• Divide class into groups of 3-5 students. Each group represents a financial planning firm.

• Students use the completed “Decision-Making Model for Investing” to make recommendations to their clients (p. 320). Students choose no more than 3 alternative investments for each client.

• They recommend what percentage of savings each client should place in the 3 investment alternatives. They list the most important choice first and explain each recommendation.

Other LEI LessonsOther LEI Lessons

Lesson 8: How to Buy and Sell Stocks and Bonds(The Stock Market Play)

Lesson 9: What is a Stock Market?(Meet the Stock Markets)

Lesson 10: The Language of Financial Markets(Language of Financial Markets Bee)

Lesson 16: What We’ve Learned(The Flyswatter Review)

Helpful ResourcesHelpful Resources

University of Illinois Extension

Consumer and Family Economics

www.ace.uiuc.edu/cfe

National Council on Economic Education

www.ncee.net

Illinois Council on Economic Education

www.econed-il.org

University of Illinois Extension Consumer and Family Economics

www.ace.uiuc.edu/cfe

NCEEwww.ncee.net

Summary and QuestionsSummary and Questions

www.stockmarketgame.org

The Stock Market Game™ ProgramThe Stock Market Game™ Program