Why bother with the stock market?

Firstly, think about why do we need banks?

To move money around from those who have “too much”

and give it to those who have “too little”

Individual A(has money to

deposit)

Bank

Individual B (needs a loan)

The depositor is getting interest on his cash

The bank is making a profit as; It pays the depositor a small amount It charges the borrower a big amount It keeps the difference!

The borrower gets the money he needs

Individual A needs a place to invest…

The broker (shopkeeper) gets paid to oversee the transaction…

Company B needs more money to develop and expand…

Individual A(has money to

invest)

Broker

Company B (needs money

to expand)

The investor owns a portion of a company and has her money invested

The broker is making money through overseeing the transaction and exchange of funds

The company gets the money it needs

2003: £12.24 million (Bought by Man Utd)

2008: £80 million(Sold by Man Utd)

Difference: £67.76 million

Return:(Selling Price-Buying Price) X 100

Buying Price

Return:(80 – 12.24) X 100

12.24

=553.36% in 5 years= More than 100% per year!!!

He worked harder

He scored goals

He showed promise and

potential

He won every award out

there!

He drew more attention to

himself

He got offered more money

He was in higher demand

Example: Coca Cola

Buy shares in Coca Cola in

1962 at $1.95

Sell today at $48.47

Difference: $46.52

Return: (48.47 – 1.95) X 100

1.95

= 2385.64% over

> 50% per year!!!

Coca-Cola do market

research

They develop “Coke”

They advertise “Coke”

They sell millions of

bottles per week

They take in huge

sales and profit

The company’s overall

value goes up

Option ADo we check the performance of

hundreds of thousands of companies that make up the shop?

Option BDo we take a sample of companies and

use these as a benchmark?

Answer: OPTION B!!!

Make a list of the biggest 100 companies

Find the average price of this list

This is an example of an index

Let’s call this the FTSE 100 (Footsie 100)

FTSE = Financial Times Stock Exchange

Tomorrow, do the same

Is the average price bigger or smaller?

Has the market moved up or down?

Make a list of the biggest 500 companies

The bigger the company, the bigger the weight

Find the weighted average price of this list

Let’s call this index S&P 500 (Standard & Poor)

Tomorrow, do the same Has the market moved up or down?

At home in Ireland, the equivalent is the ISEQ =

Irish Stock EQuity Overall Index

www.iseq.ie

Has the FTSE 100 moved up or down?

Has the S&P500 moved up or down?

Has the ISEQ moved up or down?