Ask each of the questions below and in an open conversation, informal format, listen to their answers.
Afterwards, put forward an explanation like this:
- What is the stock market?
What is your favourite chocolate bar?
The stock market is like a big shop but where pieces of lots of different companies are available. In a similar way to bars of chocolate, there are all sorts and sizes. You can buy shares in a big company, small company, a company in the technology industry, a company who is a bank, a company that everybody knows, a company that very few people know about etc.)
The difference with the stock market shop is that rather than buying a bar of chocolate to eat it, you buy shares in a company so that you can sell them later at a profit.
2. What exactly is a share?
A share is a piece of a specific company. If you buy a share, you’re buying a piece of a company and as a result, you’re buying a share (i.e. a piece) of the company’s profits. You’re now a “shareholder” in that company.
For example, Emily might have a new business idea but needs money to get it started. She can’t sell anything until she gets money to buy supplies and pay employs. She doesn’t want to borrow the money in case her business idea doesn’t work out. Instead, she would like for somebody to give her 100,000 AED to get her started and in exchange, she will give them 20% of her company so that they become a shareholder in the business. That means that they own 20% of the company and are entitled to 20% of the profits.
If Emily makes a lot of money, the shareholder will make some money too. However, if Emily’s business loses the money, the shareholder will lose the money too.
Therefore, the shareholder is taking a risk that they may lose it all, but they could be rewarded if Emily makes a big success.
3. Can I buy shares in any company?
In theory, Emily says, you can buy shares in any company. However, if you want to buy shares in a private company, then you would need to approach and negotiate directly with the owner. This is called “private equity”.
Play the Dragons Den clip and ask:
- What was the product or service being pitched by the entrepreneur?
- Write down three questions the dragons asked the entrepreneur.
- How much money did the entrepreneur ask for in exchange for what percentage of the business?
- What offers were made by the dragons to the entrepreneur?
- If there was a deal agreed, what were the final terms of the deal?
(In other words, how much money was agreed for in exchange for what percentage ownership of the company?)
However, there are lots of companies listed on the stock market where you can buy their shares. In other words, some companies have made their shares available to anybody who would like to buy them. These companies are said to have “public equity”.
4. What’s the difference between Dragon’s Den and the stock market?
Public equity: shares in a company that is listed on a stock exchange.
For example, Coca-Cola, Sony, Disney and Bank of Ireland all have public shares available.
Ask them whether the below businesses are privately owned or publicly traded.
- The local corner shop
- Dubai Mall
Next, ask them to search online to find ten companies in the world that have shares that are available to buy on the stock market and their current share price.
5. What is a stock exchange?
Stock exchange: it’s a market in which shares are bought and sold.
Ask them to search online to find out the following:
1. What is the oldest stock exchange in the world and what year did it open?
2. What time does the New York stock exchange open and close?
3. How many stock exchanges are in the world?
4. What are the five largest companies on the Irish Stock Exchange?
5. What do the following letters stand for?
6. So, how exactly do I buy a stock? Do I have to drive to a stock exchange and wait in a queue with my money?
If you wanted to buy a KitKat or a Twirl chocolate bar, you wouldn’t travel to the headquarters of the company that makes them, you would go the local newsagent or pick one up in a supermarket.
In a similar way, you wouldn’t go directly to the stock exchange and try to buy them but go through a “stockbroker” in order to do so. The stockbroker is the shopkeeper of the stock market.
You would set up an account with a stockbroker and put some money into that account. He would get a username and password in order to log into that account.
Next, you would put in an order to buy some shares of a company and on your behalf, the stockbroker would contact the stock exchange to find somebody else who wants to sell those same shares.
7. After I buy stocks, how do I make money?
There are two key ways that investors make a return (i.e. make a profit). The first is through a dividend. Some companies pay their shareholders a certain amount of money out of their profits regularly.
Ask the group to search online for five stocks and investigate if they pay a dividend. If so, what is it?
The second is through a capital gain. If you buy a share today, then you hope that it will rise in price so that you can sell it at a higher level in the future.
Ask the group to look at the five stocks selected in that last exercise and find the share price five years ago (on NASDAQ or the Yahoo Finance web site).
8. Does a company’s share price always rise?
No, it doesn’t! A share can fall to zero or can reach for the stars!