National Council of Economic Education Carolyn Shirk Vice President 849 Tame Deer Drive Winfield, PA 17889 Cell: 570-975-5149

National Council of Economic Education

Carolyn ShirkVice President

849 Tame Deer DriveWinfield, PA 17889

Cell: 570-975-5149

Sponsored By: Sponsored By:

Who we are….

ECONOMICSPennsylvania at www.economicspa.org

NCEE at www.ncee.net

SMG Advisors

Welcome & Welcome & IntroductionsIntroductionsWelcome & Welcome & IntroductionsIntroductions

First National Bank

Center for Economic

Education

Stock MarketStock MarketGameGameProgramProgram

Teacher Survey FindingsTeacher Survey Findings

90% said that students were encouraged to learn more about the curriculum being taught with the SMG Program.

94% agree that the SMG Program helps them teach basic academic skills such as math, language arts, and social studies, in exciting ways.

Teacher Survey FindingsTeacher Survey Findings

96% agree that the SMG Program increases students’ ability to apply basic skills to life decisions.

98% found that their students’ understanding of the importance of saving and investing improved using the SMG Program.

What Teachers like about SMGWhat Teachers like about SMG

generates enthusiasm in hard-to-motivate students

helps meet educational standards across many required disciplines

combines the spirit of competition with learning

promotes cooperation and group autonomy among students

creates interest in current events

teaches economic concepts sharpens skills in mathematics,

especially in fractions and basic computations

incorporates easily into most classes Is FUN!

What Teachers like about SMGWhat Teachers like about SMG

What is the What is the Stock Market Stock Market Game Game ProgramProgram

(SMGP) ?(SMGP) ?

Started in the late 1970’s by a University of Buffalo professor

Over 500,000 students compete nationally each year and over 40,000 students in Pennsylvania compete each year

Nationally sponsored by the Foundation for Investor Education

History of the GameHistory of the Game

EconomicsPennsylvaniaEconomicsPennsylvania is the is the licensed distributor of the Stock licensed distributor of the Stock Market Game Program in PAMarket Game Program in PA

Administrative offices and support of SMGP of PA provided by Temple University Fox School of Business and Management

Stock Market Stock Market Game Game Interdisciplinary Interdisciplinary ApplicationsApplications

SMG Interdisciplinary SMG Interdisciplinary BenefitsBenefits

Language Arts: Research, Vocabulary, Presentations, Reading Comprehension

Social Studies: Current Events, Government Policy, Economic Concepts, Cultural Issues, History of our Economy

Business Education: Consumer Spending, Decision Making, Record Keeping, Financial PlanningMathematics: Fractions, Decimals, Percentages, Ratios, Basic Computation

SMG Interdisciplinary SMG Interdisciplinary BenefitsBenefits

Technology: Spreadsheets, On-line Research, Presentations, Word Processing

Stock Stock MarketMarket

Game Game BasicsBasics

Real-time stock market simulation

Played on the internet from any computer

The game runs for ten weeks in the fall, spring, and late spring. A new whole year game is also available.

SMG BasicsSMG Basics

Transactions are made at the SMG WorldWide site at: www.smgww.org

Trades are processed in 5 – 20 minutes

SMG RulesSMG Rules

Each team begins with a hypothetical $100,000

Teams should have one to five players


Teams may buy, sell, short sell, or short cover their stocks

Invest in common stocks, mutual funds and ETFs traded on the three major exchanges: American, New York, and NASDAQ Stock Exchanges


A 2% brokers fee is charged for each buy or sell – limits day trading issue

Stocks valued at less than $5.00 per share may not be bought

Teams may borrow up to $100,000 to purchase stocks on margin -- interest is charged


Stock and cash dividends and splits are automatically computed into team portfolios

Portfolios are updated and available on a daily basis

Rankings are updated every weekend

Teams will not appear in the rankings until a trade is made

SMG RulesSMG Rules

2% annual rate of interest is earned on cash balance

7% annual rate of interest is paid on negative cash balances (borrowed money)

SMG RulesSMG Rules

Trades are made based on prices at time of order (market order).

Trades entered after 4:00 p.m. will are made at the next day’s opening price.

You may trade only stocks and mutual funds that have traded within the last 7 days.

Portfolios are not liquidated at the end of the game and should not be liquidated at the end of the game

The team with the highest portfolio equity at the end of the game wins

Portfolio equity in the tenth week is used for final rankings


How Does How Does the the Competition Competition Work?Work?

Teams compete within a geographic region and on six levels

Grades 4-6 Grades 7-8 Grades 9-12 Post-Secondary Youth Groups Adult

SMG LevelsSMG Levels

General General InformationInformation

Buying:Buying:

Must be for a minimum of 100 shares

May set a maximum purchase price limit

Called a “Long” position

Ticker symbols are available online

General InformationGeneral Information

Buying:Buying:

No “penny” stocks

Must have closing price of at least $5.00 per share

Most brokers will not allow margin purchases of stocks below $5.00


Selling:Selling: Must already own the stock

Must be for a minimum of 100 shares (unless selling the only remaining shares)

ex: If you bought 120 shares, then sold 100, you may then sell the remaining 20.

May set a minimum selling price limit


Setting a “limit” priceSetting a “limit” price A limit order is an order that sets the maximum or

minimum at which you are willing to buy or sell a particular stock.

you want to buy stock ABC, which is trading at $12, you can set a limit order for $12.50. This guarantees that you will pay no more than $12.50 to buy this stock.

you own stock ABC and it is trading at $15, you could place a limit order to sell it at $14.50. This guarantees that the stock will be sold at a price greater than or equal to $14.50 but not below.

Best for overnight or weekend trades. The limit trade is executed only once.

Please Note:

For real time trading price limits are generally not needed except for trades entered after the market close.


Short Selling:Short Selling: Short selling starts with

borrowing a stock from your broker

You sell the borrowed stock hoping to buy it back at a lower price and return (short cover) it to your broker for a profit

All rules for buying still apply


Short Covering:Short Covering: Must have already short sold

the stock

May set a maximum price limit

All other rules for selling apply


Example: Short Selling and Example: Short Selling and CoveringCoveringExample: Short Selling and Example: Short Selling and CoveringCovering

I am borrowing the stock from the broker (2% brokerage fee) and selling it. Now I’ve got cash.

I feel that IBM stock is going to go down and want to short sell the stock.


When stock price is at its lowest, I short cover by buying the stock back in the stock exchange at the low price and returning it to the broker (2% brokerage fee). I keep what I didn’t spend.

I get the difference between the high price and the low price minus the brokerage fees.

Example: Short Selling and Example: Short Selling and CoveringCoveringExample: Short Selling and Example: Short Selling and CoveringCovering


Long Positions:Long Positions:

A Long Position is a stock you own.

Ex: If a team owns 100 shares of McDonalds, their long position is 100 shares.

= Value of Long Position

# of shares

X current price per share


Short Positions:Short Positions:

A Short Position is a stock you borrowed from the broker and sold

# of shares

X current price per share

= Value of Short Position


Equity:Equity:

Total Value of Long and Short Positions

+ Cash Balance

= Equity


Buying on Margin:Buying on Margin:

You may borrow funds using the stock in your portfolio as collateral for the loan

Interest charged at 7%


Borrowing on MarginBorrowing on Margin At the beginning of the game, teams have $200,000

of purchasing power, 50% of which is collateralized by your initial cash portfolio of $100,000

50% of value of long and short position is required as collateral (margin requirement) Initial Margin Requirement = 50%

Margin requirement is subtracted from Equity

Remainder is matched dollar for dollar for total buying power

Margin Call:

If the Total Equity in your portfolio falls below 30% of the value of your long + short positions, your team will receive a “margin call”.

SMG will automatically liquidate a portfolio that falls below the 30% rule until the minimum margin requirement of 30% is met.

SMG Assessment Ideas:SMG Assessment Ideas:

ARTICLES from web, newspapers or magazines on corporations

NOTES that state why

GLOSSARY of terms with definitions

HEADLINES with a brief paragraph explaining the impact the story will have on the market

JOURNAL of TV coverage of market activities

BIBLIOGRAPHY of readings GRAPH showing changes in

the value of a stock



BASIC DATA about a corporation 52-week high and low P-E ratio Location Amount of debt Average number of shares trading daily Company plans for the future S&P ranking, etc

WORKSHEETS that track the initial purchase, price, broker’s fee, selling price, and profit or loss

Suggested Team RolesSuggested Team RolesEntire TeamResearch all holdingsIdentify possible stocksCollect company informationGive rationale for making a tradeCaptainConduct team meetingsDetermine consensusEnter transactions on game site

Economic Research Coordinator Researches fundamental economic

data: current events, overall economy...

News about industries Provide reports to team

Record Keeper, Transaction Reporter, Charter, and more....

Team RolesTeam Roles

$$

Team Fees: 10 Week Games:Grades 4-12 $15

College $15

Youth Groups $18

Adult or Yearlong $25

Team Fees: Year Long Game:All groups $25

New Advisor Fee: $25 Eliminated

SMG CostsSMG Costs

What if I need

help during the

game?

[email protected]

Pat SchoenigerAVP - Stock Market Game

Carolyn Shirk at [email protected]

or call 570-975-5149

Investment Investment BasicsBasics

Stock Stock Market IQ Market IQ QuizQuiz

Investment BasicsInvestment Basics

True or False

1. Stocks are items found in the storeroom of a grocery store.

2. Only rich people invest in the stock market.

3. Most stocks on the stock market are sold by the United States Government.

4. If the stock market goes up 30 percent one year, it will fall by 30 percent in the next year.


5. Any stock that goes up in price must eventually come back down.

6. Bears, Bulls, and Pigs are found in the stock market.

7. Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U.S. government.

8. Stock markets are open on business days around the clock, around the world.


9. Sometimes companies buy their own stocks on the stock market.

10. It is hard to buy a good stock today because all the good ones have already been purchased.

11. Buying stocks is a sure way to make money.

12. Corporations sell new issues of stock on the New York Stock Exchange.


13. “Insider” stock trading means that trading stocks takes place inside a building.

14. People can buy stocks on the internet.

15. When the stock market goes up, it causes the economy to grow.

From Learning from the Market, © National Council on Economic Education, New York, NY


Insured Savings Accounts Savings Bonds Certificates of Deposit Treasury Bonds Corporate Bonds Mutual Funds Stocks ETFs Collectibles Commodities

Different Types of Investments:Different Types of Investments:Investment BasicsInvestment Basics

The RISK to RETURN Relationship:

The RISKIER the Investment -

The HIGHER the Return


The Difference Between Stocks, Bonds, and Mutual Funds

Stocks:You own a piece of the company

You make money if the company does well

Bonds:You loan money to a corporation or government

You earn the interest

Mutual Funds & ETFs:You own one portion of a collection of stocks, bonds, or other securities


The Three Main Markets:

NYSENYSE::

NNew YYork SStock EExchange Oldest, largest, best-known stocks

NASDAQNASDAQ:: (NNational AAssociation of SSecurities DDealers AAutomated QQuotations) Large, mid-sized, and small growth companies

AMEXAMEX::

AAmerican SStock ExExchange Mid-sized growth companies


Large: Often have high prices Low risk of failure Some pay regular dividends

Small: Potential for growth is greater

Generally prices are lower

The Difference BetweenThe Difference Between LargeLarge and and SmallSmall Companies:Companies:


Common Stocks:Common Stocks: Pay dividends based on performance

of the company Have higher risk but may have higher

reward

Preferred Stocks:Preferred Stocks: Dividend amount is preset Dividends are paid on preferred

stocks before common stocks Have lower risk but may limit reward


Over-The-Counter StocksOver-The-Counter Stocks A security which is not traded on an

exchange, usually due to an inability to meet listing requirements. For such securities, brokers/dealers negotiate directly with one another over computer networks and by phone. The NASD carefully monitors their activities.

Be very wary of some OTC stocks, the OTC:BB (Bulletin Board) stocks are either penny stocks or may hold bad credit records.

Stock Splits:Stock Splits: More shares are created at a

lower price per share Stockholders profit if stocks go

up Indicated with an (s) in the

paper

Ex: Dell $109 $54


Mutual fundsMutual funds

Closed-ended funds may be traded just like the stocks traded on the NYSE, NASDAQ and American Stock Exchanges.

Open-ended mutual funds can also be traded but cannot be short sold or short covered.

Gumpper – SMG

Open vs Closed-end FundsOpen vs Closed-end Funds An open-end fund issues and redeems shares

on demand, whenever investors put money into the fund or take it out. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, since net asset value (NAV) is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself.

For a closed-end fund, the share price is determined not by the total value of the assets it holds, but by investor demand for the fund (like an ETF).

Other Terminology:

Blue ChipsBlue Chipsthe largest and most profitable stocks

Bull MarketBull Marketa market that is rising

Bear MarketBear Marketa market that is falling


Why long Why long term term investing is investing is the best the best route?route?


DJIA over last 33+ years:Investment BasicsInvestment Basics

P/E or Price-Earnings P/E or Price-Earnings RatioRatioP/E or Price-Earnings P/E or Price-Earnings RatioRatio Trailing P/E: Latest closing price of

the stock to the latest available annual earnings per share of the firm.

More earnings per share given stock price results in a lower PE ratio and a better buy.

Forward P/E: based on forecasting net year’s future expected earnings.

What stocks should I What stocks should I buy?buy?


PE RatioPE RatioPE RatioPE RatioExample: ABC Stock – 20 P/E Ratio

Indicates that ABC is selling for 20 times the company’s earnings

What stocks should I What stocks should I buy?buy?


PE RatioPE RatioPE RatioPE Ratio

So, if more earnings per share given the stock price results in a lower PE ratio and a better buy.

Is Toyota or Apple the better buy? Apple: Selling at 40 times earnings. Toyota: Selling at 9 times earnings.

Gumpper – SMG

•Beta = % change in stock return / % change in market return.

•Beta = 1 means that the stock and market change by the same percentage.

•Larger beta means a larger change than the market on any given day.

•Positive and negative betas show direction of stock relative to market

Beta: a measure of volatility

Where to get more informationWhere to get more informationWhere to get more informationWhere to get more information

American Stock Exchange- www.amex.com NASDAQ- www.nasdaq.com NYSE- www.nyse.com CNNfn- www.cnnfn.com CNBC- www.cnbc.com EDGAR Database of Corporate Information-

www.sec.gov/edgarhp.htm Yahoo! Finance- http://finance.yahoo.com Google Finance -

http://finance.google.com/finance

EPS: Earnings per share

P/E Ratio

ROE: Return on Shareholders’ Equity

Beta

5-year Sales and Earnings History

Company Size

Relative Industry Strength

Criteria for Selecting Criteria for Selecting StocksStocks

How to Read the

Stock Market

Page

52 WeekHigh

52WeekLow

Stock

Div Yield %

P/E Ratio

Sales 100s

EPS High

Low

Close

Net Change

49 39 ABC

1.30

3.25% 20 3314 2 40 39 40 ----

80 49 BBA .40 .53% 26 73016 2.92 77 75 76 + 1

66 38 CCI 1.20

1.87% 9 77723 7.11 66 63 64 + 1

18 13 LLY 1.78

11.12%

7 13101 2.28 16 16 16 ----

13 8 XYZ ---- 0% 62 6 .16 10 10 10 - 1

Stock Table Stock Table

$2.00BBA 76 / 26 = $2.92CCI 64 / 9 = $7.11LLY 16 / 7 = $2.28XYZ 10 / 62 = $0.16

Highest and lowest price a share of the stock has sold for in the past 52 weeks.

Example ABC: High was 49

Example ABC: Low was 39

52 Week High/Low52 Week High/Low

StockStock

Varies by Newspaper

Either company abbreviation or ticker symbol

In A-Z order

DivDiv Annual Dividend per Share of

Stock Based on the rate of the Last

Quarterly Payout Annualized Data Example ABC: $1.30 per

share Example: XYZ: $0 per share

Yield PercentageYield Percentage

Known as Dividend Yield

A Measure of the Income Produced

by the Stock

Is the Amount of the Dividend

divided by the Price of the Stock

Yield PercentageYield Percentage

Achieved by Dividing the Annual

Dividend by the Day’s Closing Price

Example: ABC 1.30/40 = .0325

or as a percentage: 3.25%

P/E RatioP/E Ratio

PRICE- EARNINGS RATIO

– Ratio: latest closing price of the stock to the latest available

annual earnings per share of the firm

– Trailing P/E: is what is reported in the financial section of newspapers

– Forward P/E: based on forecasting net year’s future expected earnings

P/E RatioP/E Ratio Example: ABC – 20 P/E Ratio

– Indicates that ABC is selling for 20 times the company’s earnings

Example: XYZ – P/E Ratio is 62

– Indicates that XYZ is selling for 62 times the company’s earnings

Sales 100sSales 100s

This represents the volume of transactions on the trading day

Bought or Sold

Presented in hundreds, simply multiple by 100

Example: ABC – 3314Indicates that 331,400 shares

traded

High/LowsHigh/Lows

This represents the highest andlowest selling price of the stock

for the day.

Example: ABC – high of 40 low of 39

CloseClose

This represents the price of the last stock sold for the day

Example: ABC – closed at 40

Net ChangeNet Change

This lists the net change between the closing price for the stock for the day and the closing price on the

previous trading day

Example: BBA: Today’s Close: 76

Net Change: + 1 Previous Day: 75

Earnings per ShareEarnings per Share

A means of valuing common stock.

Part of a firm’s profit that is allocated to each outstanding share of common stock.

Can be a good indicator of fiscal health


Many investors carefully watch this number

In general, higher earnings per share means better dividend and overall

stock performance.


Calculated by dividing the closing price on the day being consider by the P/E ratio.

Example: Today’s Close P/E Ratio 40.00 20

Earnings per Share:ABC – $2.00

Economics and the Economics and the Stock MarketStock MarketEconomics and the Economics and the Stock MarketStock MarketMicro vs. Macro economics and the

Stock Market

MicroeconomicsMicroeconomicsMicroeconomics studies the behavior

of the consumer, household, or firm. Scarcity and choice

• How do we allocate our budget, time?• How do firms allocate resources to produce

goods and services? Maximizing well being, happiness Maximizing profit Efficiency

Micro and the Stock MarketMicro and the Stock Market Look at one company:

How does this company make its product? Who buys the product? Does the company have good managers? Who supplies the company?

Look at one industry: How much competition is in the industry? Is the industry young or old?

This is what stock brokers and mutual fund managers get paid to do!

Applications:Industry ResearchBusinessWeek BlogMarketplaceGoogle FinanceMAC Vs PC

MacroeconomicsMacroeconomics

Macroeconomics studies the economy as a whole or as aggregates and attempts to predict or forecast changes in national output, unemployment, and inflation.

Macro and the Stock Macro and the Stock MarketMarket

Look at the whole economy: Inflation: Producer and

Consumer Price Indices (PPI & CPI)

Unemployment: Unemployment rate

Interest rates: actions of the Fed Productivity

Use information to estimate good times to buy equities and times to sell.

Applications:BLSEconomagicFed 101

U.S. Department of LaborBureau of Labor Statistics“Economy at a Glance” http://www.bls.gov

When is the news good?When is the news good?When is the news good?When is the news good?

Example: decrease in the unemployment rate: Good: sign of a growing economy

increased consumer spending increased profits.

Bad: indication of future labor shortages increasing wages inflation fed increases interest rates decrease profits, slow growth.

Product idea: on-line financial services including banking, investments, retirement planning, estate planning, legal services, etc.

Need funds to start business - find investors “venture capitalists.”

Each investor owns a stake or “share” of the corporation and has limited liability.

Going Public: Going Public: From a Good Idea to a From a Good Idea to a CorporationCorporation


Going public

Suppose the company is doing well. You need more money - go public, “initial public offering”

Going public: investment bank creates a prospectus and buys all shares of stock and resells them at a set price to the public

A “tombstone” is the public notice of an IPO



Going public

Important Points for Students Important Points for Students at the End of the Gameat the End of the Game

Diversification is critical Size of company, industry, culture and

more

Mutual Funds or getting professional advice

Investing is a Long-Term Proposition

Gumpper – SMG

Stock Market Game

Team RegistrationOnline Pre-registration

Registering SMG Teams

Register online at www.smgww.org

Complete and mail the payment form (online PDF) to SMG of PA Headquarters

www.smgww.org

• Click on “PREREGISTER NOW”

Payment FormPayment Form

Choose this option when you

are ready to pre-register your

teams.

Choose this option when you

are ready to pre-register your

teams.

For Free Promo,

complete all fields in bold.

For Free Promo,

complete all fields in bold.

FREE

Gumpper – SMG

Pre-registration RemindersPre-registration Reminders You can print out the payment form (online)

to use for obtaining a PO # from your school (there is also one in the packet)

If you submit a PO# with your online pre-registration, team #s and passwords will be generated right away, otherwise SMG will wait for the check.

Your teams will earn interest on cash before the game begins

Free adult game as part of new advisor packet.

Playing the Playing the Stock Market Stock Market GameGameOnline Demo

Login into SMG WORLDWIDELogin into SMG WORLDWIDEwww.smgww.org

Inside SMG WORLDWIDE (Team Inside SMG WORLDWIDE (Team Pages)Pages)

The blue Trading tab contains all the functions necessary to compile research and make trades.

Account SummaryAccount Summary

Check Account Summary and Transaction Notes for the status of your account balance and the trades you have entered.

This team has used some of its “margin”

This team has used some of its “margin”

“Min Maintenance” is 30% of the team’s long + short value. If the teams

total equity were to fall below this number, they would receive a margin

call.

“Min Maintenance” is 30% of the team’s long + short value. If the teams

total equity were to fall below this number, they would receive a margin

call.

140,710 / (281,420 + 0) = 50%146,560.56 – 140,710 = 5,850.5684,426 / (281,420 + 0) = 30%

The math…..

Account HoldingsAccount Holdings

“Short Sell” and “short cover” are the transactions used when taking a “short” position

on a stock. A short position earns a positive return when the stock price falls.

“Short Sell” and “short cover” are the transactions used when taking a “short” position

on a stock. A short position earns a positive return when the stock price falls.

Enter a Trade

Documents

National Council of Economic Education Carolyn Shirk Vice President 849 Tame Deer Drive Winfield, PA 17889 Cell: 570-975-5149