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Stock Market Game Sample Lesson Plan

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Go to statistics Canada website and in a table record the values of some of the ... way to easily compare one stock with another (presumable from the same industry) ... – PowerPoint PPT presentation

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Title: Stock Market Game Sample Lesson Plan


1
Stock Market Game Sample Lesson Plan
  • Prepared By
  • Sara Tonks, B.sc, MBA

2
Stock Market Game
  • Objective
  • To help get a better understanding of stock
    markets, how they work, what factors influence
    them, and their volatile nature. As well,
    students will learn some rudimentary, but
    important, approaches to picking stocks for an
    investment portfolio.
  • Note many of the concepts presented in this
    lesson plan can be further expanded into future
    lessons.

3
Stock Market Game
  • Teachers Preparation
  • Go to statistics Canada website and in a table
    record the values of some of the common leading,
    coincident and lagging indicators (noted below)
    over a number of periods.
  • Have students bring in the stock listings section
    of the newspaper (Globe and Mail). Or
    alternatively, copy a section of the listing,
    including the section of How to read stock
    listings.
  • visit Investopedia to get definitions of common
    investing terms.

4
Stock Market Game
  • Teachers Notes
  • Start the lesson with some interesting stories
    about stocks and the stock market, such as some
    of the big scandals and some of the big winners
    (Scandals BreX, Enron, Worldcom. Winners
    Microsoft, )

5
Stock Market Game
  • What is a stock?
  • Stock is ownership of a company. When you
    purchase stock or shares of a company your are
    becoming a part-owner of it. As owners of the
    company, shareholders are entitled to the
    earnings of the firm.

6
Stock Market Game
  • What is a stock continued
  • Some profitable companies pay out some or all of
    these earning to shareholders as dividends, while
    other firms will re-invest the earnings to grow
    the company. The underlying assumption being the
    shareholder will enjoy greater earnings in the
    future if the company grows.

7
Stock Market Game
  • Continued
  • Investors will pick shares in companies that are
    profitable (and are expected to stay profitable)
    or in companies that are expected to become
    profitable.

8
Stock Market Game
  • Possible Discussion
  • What makes a company profitable?
  • Name some companies that have good products (or
    popular products) and probable have good sales?
  • If you wanted to own any of these companies,
    which would you choose (top three ranking, for
    example)?

9
Stock Market Game
  • Factors affecting stock prices
  • Now start to examine some factors that can affect
    stock price. This will lead to a discussion of
    the categories of stocks (Cyclical, or
    defensive), the business or economic cycle, and
    diversification.

10
Stock Market Game
  • Discussion
  • What are some possible factors that affect the
    product sales of a firm?
  • Product is a fad - in style or out of
    style(examples..)
  • Product is poor/good quality (Example class
    action suite against Maytag on faulty front load
    washer Mercedes Benz)
  • People can no longer afford to buy the product.

11
Stock Market Game
  • Continued
  • With the last point lead a discussion on what
    types of products and services are not bought
    when people have less money to spend.

12
Stock Market Game Activity One
  • Activity One
  • Have students work in groups and list 5 products
    they would no longer purchase if their household
    income was drastically cut, and 5 products they
    would continue to buy.

13
Stock Market Game
  • From this activity lead a discussion on what are
    cyclical stocks and what are defensive stocks.
    Cyclical stocks prices move with the business
    cycle increase during boom-times, and decrease
    during slow-downs or recessions. Defensive
    stocks tend not to fluctuate significantly as a
    result of changes in business cycle.

14
Stock Market Game
  • Continued
  • Examples of firms with cyclical stocks are those
    in the automotive, airline, travel,
    entertainment, and fashion industries. Examples
    of firms with defensive stocks are utility firms,
    those that sell consumable products (food, and
    personal hygiene products for example).

15
Stock Market Game
  • Economic indicators or businesscycle indicators
  • Stock market investors, engaged in active trading
    (or investing) closely watch economic or business
    cycle indicators in an attempt to predict
    economic changes that will affect the stock
    markets. These investors will move their money
    to minimize losses and maximize profits.

16
Stock Market Game
  • Continued...
  • Generally the business cycle indicators are
    grouped into three categories Leading
    Indicators, Coincident Indicators, and Lagging
    Indicators.

17
Stock Market Game
  • Continued...
  • Leading indicators tend to peak before the entire
    economy. The most important leading indicators
    include housing starts, manufacturers new
    orders (especially for durables), spot commodity
    prices, and money flows. Statistics Canada
    combines a series of ten leading indicators into
    a single index the Composite Leading Indicator.

18
Stock Market Game
  • Continued...
  • Coincident indicators change at approximately the
    same time and in the same direction as the
    economy. These indicators include GDP,
    industrial production, personal income, and
    retail sales.
  • Lagging indicators tend to change after the
    economy has changed. The most common ones are
    private sector plant and equipment spending,
    unemployment rate, labour costs, levels of
    inventories, and inflation.

19
Stock Market Game Activity Two
  • Activity Two
  • Give to the students the indicator data you have
    collected, have them use that data to suggest the
    stage of the business cycle. Group work is
    suggested followed by class discussion.

20
Stock Market Game
  • Why invest in the stock market?
  • Investors typically can earn more money buying
    stocks than they can by having the money sit in a
    savings account at the bank. Why? At this point
    introduce the notion of Risk and Reward, or risk
    and return.

21
Stock Market Game
  • Continued
  • Explain there are two ways investors make money
    from purchasing stocks capital gains, and
    income.
  • Show calculations for capital gain, and dividend
    yield, and return on investment.

Stock Market Game Lesson Plan 1
22
Stock Market Game
  • Main investment objectives of the typical
    investor
  • Preservation of capital, income, and capital
    growth. (Explain what these terms mean)

23
Stock Market Game
  • Diversification
  • Dont put all your eggs in one basket In
    general terms explain the theory behind portfolio
    diversification and support it with a simple
    exercise

24
Sample Exercise
  • Exercise
  • Bill invested 100,000 in stocks. He bought
  • 500 shares of Winbig Corporation at 100 a share
    and
  • 500 shares of Cheeseball Corporation at 50 a
    share and
  • 15,000 shares of Flybynite Corporation for 5 a
    share.

25
Sample Exercise
  • Exercise Continued
  • Brandon also invested 100,000 in stocks. He
    bought
  • 500 shares of Bigbank Corporation at 100 a
    share
  • 100 shares of Winbig Corporation at 100 a share
  • 200 shares of Oldsteady Corporation at 50 a
    share
  • 200 share of Oilman Corporation at 50 a share
  • 4000 shares of Flybynite Corporation for 5 a
    share.

26
Sample Exercise
  • Exercise Continued.
  • After a year the stock prices per share were?
  • Bigbank 150
  • Winbig 170
  • Cheeseball 60
  • Oldsteady 80
  • Oilman 75
  • Flybynite 0

27
Sample Exercise
  • Exercise Continued
  • Calculate the value of Bills and Brandons stock
    portfolios?

28
Stock Market Game Activity Three
  • Activity Three
  • Pick some stocks and ask the students to record
    the price. as shown on the stock market listing.

29
Picking stocks
  • Looking at the financial health of a company
  • The financial statements of firms are usually
    available to see from the firms website.
    Another place to find concise and comparative
    financial information about public companies is
    the Globe and Mails Report on Business website.

30
Picking stocks continued
  • When trying to establish the financial health of
    a firm there are key ratios to consider. They
    are grouped as liquidity, debt (or leverage),
    profitability, and value ratios. Some of the
    common ratios are

31
Ratio analysis
  • Liquidity
  • Working capital ratio current assets/current
    liabilities
  • Quick ratio (current assets
    inventories)/current liabilities

32
Ratio analysis
  • Debt
  • Debt/Equity Total outstanding debt (short
    long term)/book value of shareholders equity
  • Interest coverage (net earnings equity income
    minority interest of subsidiaries all income
    taxes total interest charges)/interest charges
  • Asset Coverage Total assets deferred charges
    intangible assets (current liabilities less
    (short term debt current portion of long term
    debt))/(total debt/1000)

33
Ratio analysis
  • Profitability
  • Gross margin net sales cost of goods sold/net
    sales
  • Net profit margin net earnings equity income
    minority interest of subsidiaries/net sales
  • Net return on invested capital net earnings
    total interest charges(after tax)/invested
    capital
  • Inventory turnover cost of goods sold/inventory
  • In days 365/inventory turnover

34
Ratio analysis
  • Value
  • Earnings per common share Net earnings
    preferred dividends/number if common shares
    outstanding
  • Price Earnings ratio current market price of
    common share/earnings per share
  • Dividend yield (indicated annual dividend per
    share/current market price per share) x 100.

35
Picking stocks continued
  • When looking at ratios compare ratios of same
    company over time, to look for trends and compare
    the ratios of one company to those of competing
    companies in the same industry

36
Things to consider
  • 52 week high/low compared to yesterdays closing
    if significantly different, why?
  • Volume of trades high/low, why?
  • Yield

37
Things to consider continued
  • PE ratio (explain what it is and how it is used)
    PE ratio is stock price divided by most recent
    earnings data of the company. The ratio is one
    way to easily compare one stock with another
    (presumable from the same industry). A low PE
    can indicate a stable and mature company (the
    price of the stock reflects the earnings
    expected), where as a high PE is more likely an
    indication of an emerging or expected growth
    company (the price of the stock reflects the
    markets expectation of good future earnings).

38
Things to consider continued
  • Key ratios (is the company profitable, is there
    value in the investment, is the leverage high or
    low, is the liquidity high or low compared to
    other companies in the same industry)
  • Economic indicators what stage is the business
    cycle
  • What is the relationship of the firm with the
    business cycle (cyclical or defensive)

39
Things to consider continued
  • What are your investment objectives? Looking for
    growth (capital gain), income (dividends),
    willing to bear more risk for greater return, or
    need to preserve capital and therefore minimize
    risk.

40
Things to consider continued
  • The balanced portfolio includes the investments
    from three major classes cash and cash
    equivalents fixed income securities (bonds and
    preferred shares) and common shares. The
    proportion of each type of investment in the
    portfolio will be determined by the investment
    objectives of its owner.

41
Stock Market Game Activity Four
  • Activity Four
  • Taking the above factors into consideration, have
    the students pick a portfolio of stocks from
    those listed on the SMG site in preparation to
    play the stock market game.
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