THE STOCK SELECTION PROCESS

Lesson Summary
Before students can become active in the Stock Market Game (SMG), they have to decide which stocks they want to purchase. This can be a difficult task for any investor. This lesson will help students choose stocks by looking at securities issued by companies with familiar names. After learning about investments in these well-known companies, they will then find it easier to research stocks with unfamiliar names. This will assist them in making a more informed decision on choosing stocks for successful investments. After reaching a decision on which stocks will make the best prospective investment, they will present their findings in the form of a well-organized 5 to 10 minute oral presentation. 

Objectives / SOL Correlation
History and Social Science

12.15 The student will analyze the United States market economy, in terms of
· labor, capital, and natural resources; 
· the interaction of supply and demand in markets; 
· the role of private ownership, private enterprise, and profits; 
relationships to the global economy. 

12.18 The student will define common economic terms, including productivity, recession, depression, the business cycle, and inflation, and explain and interpret indicators of economic performance, including gross domestic product, consumer price index, unemployment rate, balance of trade, and stock market averages.

English
12.1 The student will make a 5-10 minute formal oral presentation.
· Choose the purpose of the presentation: to defend a position, to entertain an audience, or to explain information. 
· Use a well-structured narrative or logical argument. 
· Use details, illustrations, statistics, comparisons, and analogies to support purposes. 
· Use visual aids or technology to support presentation. 

Expected Student Outcomes
1. The student will understand how to perform research on common stocks listed on all of the major stock exchanges in the U.S. (Amex, NASDAQ, and NYSE) through use of the Internet.

2. The student will be able to make informed decisions as to the relative investment qualities of several different stocks.

3. The student will demonstrate the results of their research by successfully completing a 5-10 minute oral presentation.

Vocabulary
Assign theses vocabulary words to the class one week before the activity so that they will be familiar with the terminology. 

1. Beta - Coefficient measuring a stock's relative volatility. The beta is a covariance of the stock in relation to the rest of the stock market. The Standard & Poor's 500 Stock Index has a beta coefficient of 1. Any stock with a higher beta is more volatile than the market, and any with a lower beta can be expected to rise and fall more slowly than the market. A conservative investor whose main concern is preservation of capital should focus on stocks with low betas, whereas one willing to take high risks in an effort to earn high rewards should look for high-beta stocks.

2. Common Stock- Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock.

3. Dow Jones Industrial Average- The Dow Jones Industrial Average (DJIA) is an index used to measure the performance of the U.S. financial markets. Introduced on May 26, 1896 by Charles H. Dow, it is the oldest stock price measure in continuous use. Over the past century "the Dow" has become the most widely recognized stock market indication in the U.S. and probably in the entire world. The 30 stocks included in today's Dow are listed on the New York Stock Exchange, except for Microsoft and Intel, and are all large blue-chip companies that reflect the health of the U.S. economy. All but a handful of these have major business operations throughout the rest of the world, thus providing some insight into the economic well being of the global economy.

4. NASDAQ- The National Association of Securities Dealers Automated Quotation is a global intranet providing brokers and dealers with price quotations on issues traded over-the-counter. Unlike the NYSE auction market where orders meet on a trading floor, NASDAQ orders are paired and executed on a computer network.

5. New York Stock Exchange (NYSE)- The oldest stock exchange in America and the largest financial market in the world. Traders called specialists conduct auctions to insure the best prices for buyers and sellers. It is located at 11 Wall St. in the heart of New York City’s financial district. 

6. S&P 500- A capitalization weighted index of 500 stocks. Standard and Poor's 500 index represents the price trend movements of the major common stock of U.S. public companies. It is used to measure the performance of the entire U.S. domestic stock market.

7. Stock Chart- A graphic representation of the price history of a stock over a specific time period.

8. Stock Symbol- A shorthand version of the name of a stock that is used in trading and reporting the stock’s market activity.

Note- most definitions are available at www.nyse.com under “glossary.”

Materials Needed
1. Handouts (provided)
2. Computers with Internet access for each member of the class.
3. Materials suitable to assist an oral presentation- poster board, magic markers; or a PowerPoint presentation- Microsoft Office software on a computer with a large screen monitor, or a projector.

Prerequisite Skills
The student should possess basic computer literacy including Internet browsing skills.

Procedure
Students will be provided with Handout #1, which asks for specific information about ten stocks with familiar names. They will use the web site www.nasdaq.com. On the home page, they can look up the stock symbols and current share prices (flash quotes). When they look up the share price, they can click on the stock symbol and get a full quote. On the page with the full quote information, they can use the link labeled “fundamentals” to get the beta value. They can also obtain stock charts for 90 days by taking the link labeled “chart these stocks.” Below are examples of the charts of stocks that are declining and advancing.
 
 

Declining Chart	Advancing Chart

Encourage the students to cut and paste the stock charts into a word document, so that they can print out the charts and study them more carefully. Some students may need directions on how to left click inside the chart to save it as a gif image. 

Once they have each filled in the blanks on Handout #1, give them Handout #2. They will be asked to provide the same information about ten stocks with which they will probably be unfamiliar. They can find the information using the same steps used for handout #1. Once everybody has completed Handout #2, have students arrange themselves into teams of three. The teams need to agree on one stock from each of the handouts that they believe are the best choice in which to invest. Once all of the team members have agreed on their choices, they need to present their reasoning to the class in the form of an oral presentation. They can use conventional techniques or a PowerPoint presentation (if you have the necessary equipment). You may need more than one class session to complete the entire assignment.

Evaluation

Since everyone will have the same answers, you should be able to grade them by comparing the students’ work. Some differences may be attributed to the fact that some stocks have more than one issue (such as Coca Cola). This is a good learning experience, and will make them aware of the fact that some companies have different classes of stock. Do not deduct points if they can back up their answers. 

Use the following rubric to grade the oral presentation:
 
 

	Completely Agree	Somewhat Agree	Disagree
All members participated in presentation-	10	5	3
Group effectively made use of visual aids-	10	5	3
Decisions were made using data based logic-	10	5	3

Parental Involvement
Have the students show their parents the results of their research. Have them ask if anyone in the family or one of their friends has invested in the stock market. How did they do? Have them report on what their parents said when they return to class.
 
 
 

Handout 1 Stocks With Familiar Names

Name__________________________________________    Date_______________________

Instructions: Using the helpful web site, fill in the blanks in the table below. For the 90-day trend, find a stock chart and determine if it looks like the stock is going up or down.

Helpful website: www.nasdaq.com
 
 

Name of Company	Stock Symbol	90 Day Trend	52 Week High	52 Week Low	Current Price	Beta
Amazon.com
AOL-Time Warner
Bed, Bath, and Beyond, Inc.
Coca-Cola
DaimlerChrysler AG
Honda Motor Co., Ltd
Nike
Starbucks Corporation
World Wrestling Federation
Yahoo

 
 

Handout2 Stocks withUnfamiliarNames

Name__________________________________________    Date_______________________

Instructions: Using the helpful web site, fill in the blanks in the table below. For the 90-day trend, find a stock chart and determine if it looks like the stock is going up or down.

Helpful website: www.nasdaq.com
 

Name of Company	Stock Symbol	90 Day Trend	52 Week High	52 Week Low	Current Price	Beta
Allied Irish Banks, P.L.C.
Applied Materials, Inc.
Blue Square-Israel, LTD.
Brocade Communications Systems
Canadian National Resources, LTD.
Check Point Software Technologies, Ltd.
China Southern Airlines Company, Ltd.
France Telecom
MedImmune, Inc
Mercury Interactive Corporation

Don Hurwitz
Deep Creek High School
Chesapeake Virginia

**Editor's note:  Don's class has previously won the SMG statewide.