Lesson 4: Ride the bubble 1

Business Lesson 4

Ride the bubble

Aim: to understand how share prices are affected by people’s expectations

What affects share prices other than dividends?

Lesson 4: Ride the bubble 2

For starters…

> Last lesson we learned that normally a dividend increase leads to a price increase (and a dividend decrease leads to a price decrease). Look through celebrity Data and find 3 exceptions.

> Extension: why do you think these exceptions occurred?

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By the end of today, you will be able to

• explain how expectations affect share prices.

• explain what a price bubble is.• come up with a trading strategy

based on taking advantage of price bubbles.

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Remember your mission

• This week we’ll learn one way to accomplish your mission: to take advantage of price bubbles.

? Think back to last week’s lesson. What affects share prices? ? Extension: can you think of factors we didn’t discuss last

week?

To make as much money as possible by investing imaginary money in celebrity

shares.

To make as much money as possible by investing imaginary money in celebrity

shares.

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Dividends aren’t everything

• Often share prices change even though the potential dividend hasn’t.

• Some reasons this occurs:– people expect dividends to go up eventually… so

demand increases now– people expect people to expect prices to go up… so they

too ‘jump on the bandwagon’ and demand increases– people invest in shares with low dividend yields because

their strategy focuses on capital gains

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Spot the difference

? What’s changed about our diagram this week?

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What’s in it for me?

• When share prices rise a lot but dividends don’t keep up a bubble is created.

• A bubble describes a rapidly rising price that some investors feel is unfounded.

? Why do you think the term ‘bubble’ is used (hint: what happens when a bubble gets too big?)?

? Extension: how can you benefit from bubbles? Can you find one to take advantage of?

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Extension activity/homework

>Complete the worksheet on expectations This will help you ride a bubble (but don’t forget to get off)!

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Invest!

>Find what you think to be a bubble and invest in that celebrity.

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Celebwork

Bring in your favourite press source of celebrity news next lesson (and, of course, don’t forget to follow the news).