Unit 1
Lesson 2: Understanding Stocks
(With a Side of Laughs)
Objective
By the end of this lesson, you will:
Understand what stocks represent and their different types.
Learn how stock prices change and what influences them.
Explore why people invest in stocks and how they generate returns.
Introduction
What Exactly Are Stocks?
Think of stocks as tiny pieces of a company that you can own. When you own a stock, you’re essentially claiming, “I own a part of this company”—even if it’s just a microscopic sliver. Owning stocks makes you a shareholder, which is like being part of an exclusive club that gets a say (sometimes) and a share in the company’s success.
Fun Fact: If you own a share of Disney, you technically own a piece of Mickey Mouse—how cool is that?
Main Content
1. Types of Stocks
Common Stocks
The most popular type of stock.
Owning these means you’re a partial owner and might get to vote on company decisions.
You can earn money through dividends (if the company shares profits) or if the stock price goes up.
Preferred Stocks
Less common but still important.
Shareholders get paid dividends first, but they usually don’t get voting rights.
Think of it like being VIP at a concert—you get the perks but not a say in the playlist.
2. Why Do Stock Prices Change?
Stock prices are like roller coasters—up one minute, down the next. But why?
Supply and Demand
High Demand: When lots of people want to buy a stock, the price goes up.
Low Demand: When more people are selling than buying, the price drops.
Company Performance
Great earnings? The stock might rise.
Bad news? The stock might plummet.
News and Events
A new product launch or a scandal can shift investor sentiment and, in turn, the stock price.
Market Trends
Bull markets (rising prices) and bear markets (falling prices) also influence stock behavior.
Example: Imagine a new burger joint, Burger Bliss, goes public. If everyone’s raving about their fries, more people might buy their stock, causing the price to climb.
3. Why Do People Invest in Stocks?
To Build Wealth
Over time, stocks have historically offered higher returns than most other investments.
Dividends
Some companies pay shareholders a portion of their profits regularly. It’s like getting a little paycheck for owning their stock.
To Beat Inflation
Inflation reduces the value of money over time. Stocks can help your money grow faster than inflation.
Ownership Perks
In some cases, you might get perks. For example, some companies offer shareholder discounts or exclusive access to events.
Activity:
Stock Market Scenarios
1. Scenario: You hear that TechWorld Inc. just launched a gadget that’s selling out everywhere. Another company, OldTech Corp., reports a major product recall.
2. Question: Which company’s stock price is likely to rise, and which might drop? Why? Write your predictions and explain your reasoning.
Summary
Stocks represent ownership in a company and come in two main types: common and preferred. Prices fluctuate due to supply and demand, company performance, news, and market trends. People invest in stocks to grow wealth, earn dividends, and stay ahead of inflation.
Key Takeaways:
Stocks are ownership shares in companies.
Common stocks offer voting rights, while preferred stocks prioritize dividends.
Prices change based on demand, company news, and market conditions.
Quiz Time!
1. What is a stock?
A) A piece of ownership in a company
B) A company’s product inventory
C) A type of bond
2. What are common stocks?
A) Stocks that pay dividends first
B) Stocks with voting rights
C) Bonds with fixed returns
3. Why do stock prices change?
A) Magic
B) Supply and demand, company performance, and news
C) Because brokers decide
Answers: 1-A, 2-B, 3-B
Next Lesson
Lesson 3: How Stock Prices Are Determined (And Why They’re Always Changing)
We’ll take a deeper dive into the forces that drive stock prices and explore concepts like market orders and limit orders.
Pro Tip: Remember, investing isn’t about luck—it’s about strategy. Keep learning, stay curious, and you’ll be on your way to financial success. Invest with Ducky!