Become a Trader

Bekah Selby-Leach, Ph.D.

About Me

Hello! My name is Bekah Selby-Leach and I am a professor of economics at Emporia State University

  • Favorite Pet: Sammi, my 7 year old chihuahua
  • A Book I am Reading: Dave Dies at the End by David Wong

https://public.tableau.com/shared/ZHR4N56QB?:display_count=n&:origin=viz_share_link

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https://docs.google.com/spreadsheets/d/1DV1A7QcKZW8zLDH4e3hv25redAV0G9eOLWmdsbfyPTU/edit?usp=sharing ## Quick Discussion

  • What does it mean to “invest”?
  • Why should people invest?
  • Are there any reasons why people might not invest?

What is a Stock?

  • A company can choose to go “public” in order to raise money for growth
  • Their company is worth a certain amount (we call this “stock”)
  • The company will split up their stock into “shares”
    • For example, if a company is worth $100mil and they split it up into 100 shares, then each share is worth $1mil
  • A person who buys a share of a company is called a “shareholder”

  • As the company makes money, shareholders receive a piece of it (we call these “dividends”)
    • For example, if a shareholder owns 10% of the company and the company makes $100mil in earnings, the shareholder will earn $10mil in dividends (can be cash or additional stock)
  • People buy stocks through stock exchanges, often through companies called brokerages with help from traders

A company valued $100mil, the person with 50% of the shares owns $50mil.

A company valued $200mil, the person with 50% of the shares owns $100mil.

What do Traders Do?

  • Traders buy and sell on the behalf of an investor.
  • They typically make a commission from profits that their clients earn.
  • Typically these focus on short-term gains

Let’s Be A Trader!

Meet Robby

Robby is a client coming to you to invest $10,000 in the stock market.

  • He is looking to earn as much as he can in one year
  • He will check in with you every 4 months and you can make changes then

The Stocks

BigHope

  • They sell novelty ties
  • A new company that has been on the market less than 2 years
  • They saw a lot of growth to begin with, but their prices have been fairly up and down
  • They believe that they will grow over time, but they have not yet started to implement any changes
  • Other investors expect that the stock price for BigHope will be fairly unpredictable

RiseTall

  • This company provides advice to young people about becoming entrepreneurs
  • They have been in business for over three years
  • Analysts project that this company will experience long-term growth, but prices can change by very large amounts on a short-term basis

OldCompany

  • A company that sells fine vegan leather shoes
  • Prices seem to be constant on average, but with pretty large fluctuations
  • Analysts predict more of the same from this company

Activity 1

  • In your group, you will need to decide how to spend Robby’s $10,000 across these three companies.

  • You can only buy whole shares

  • Today’s prices are:

    • BigHope: $94.58
    • RiseTall: $256.04
    • OldCompany: $688.71

Instructions:

  1. On your paper, choose how many stocks you want to buy from each company at these prices. Robby wants to spend as much of this $10,000 as he can, but you can only buy whole numbers of stocks, so there will be some left over at the end. This money will not grow or depreciate in value.
  2. Robby will check in with you after 4 periods (months) to see his return on investment.

But wait!

Some things to consider:

  • Some investors think that BigHope will see a bit of a decline due to the fact that there was a celebrity wearing an ugly tie on TV, but others think that there will be a bump because of the upcoming holiday
  • There is no news regarding RiseTall, so expect more of the same
  • There has been a couple new competitors with OldCompany and some analysts think this might drive down prices for a little bit, but for how long?

After 4 Months…

The prices has changed!

  • BigHope: $121.76 (increased from $94.58)

  • RiseTall: $231.32 (decreased from $256.04)

  • OldCompany: $623.67 (decreased from $688.71)

    • Calculate how much the shares are worth with these new prices
    • Did the total value increase or decrease? By how much?

Activity 2

  • Given your successes/failures from the last four months, you can now make changes
  • You can choose to reallocate the funds across the stocks, or keep them the same
  • We will check in with Robby in another 4 months!

But wait!

  • Some considerations:

    • you learn that RiseTall is expecting a celebrity endorsement in month 7. This will likely boost the stock price a little that month and to some extent the following month, but likely not anything beyond that.
    • the holidays are now over and ties are less trendy
    • OldCompany has been putting out some new commercials, but have received a bit of backlash from people that don’t understand their product

After 8 Months…

Prices have changed again!

  • BigHope: $98.18 (decreased from $121.76)
  • RiseTall: $220.45 (decreased from $231.32)
  • OldCompany: $701.56 (increased from $623.67)

Activity 3

  • It’s your last chance to make Robby some money!
  • Reallocate or keep it the same!
  • We will check in with Robby in another 4 months!

But wait!

  • Some considerations:

    • We are going into summer now and people don’t like wearing ties in the summer
    • During the summer time, teens are more likely to learn from companies like RiseTall about entrepreneurship
    • You hear about some TikToks smashing OldCompany shoes and their quality. However, you also know that most of the people who wear OldCompany shoes are not on TikTok.

After 12 Months…

  • BigHope: $88.69 (decreased from $98.18)
  • RiseTall: $297.7 (increased from $220.45)
  • OldCompany: $634.31 (decreased from $701.56)

How did you do?

Discussion

  • What helped you make choices?
  • What would you have done differently if you could go back and do it all over?

Wrap Up

  • This was very simplistic
  • There are lots of types of traders (day traders, swing traders, buy and hold, etc.)
  • There are special markets where individuals can buy and sell without the need for a trader and the associated fees (e.g., Robinhood)
  • There are thousands of stocks to trade, not just three!
  • There are composites which are more stable
  • There are IPOs which are more risky

Thank you!