Lesson
The stock exchange is an organized market in which publicly listed stocks can be bought and sold. It is an actual building that provides a marketplace for the buying and selling of stocks of public companies. In Canada, the first stock exchange opened in Toronto in 1852. Since then, stock exchanges have opened in Montreal, Vancouver, Calgary and Winnipeg, but the Toronto Stock Exchange (TSX) is the largest and most important in our country. You have undoubtedly heard the news headlines from time to time as to the growth or decline in the stock market on any given day as a result of some dramatic occurrence. The crisis of September 11th, 2001 sent the markets into a frenzy - maybe you remember that incident. Anyway, the stock market and how it operates is really no big mystery, I admit that it looks and sounds pretty intimidating, but it is not really - trust me.
Providing the company is publicly listed (sells their stock on the exchange), you can buy stock in any corporation that you believe will give you a good return on your money. You simply have a stockbroker (an agent who buys and sells shares on the stock market for individuals) purchase the quantity of stock that you desire. The broker will then charge a commission based on the dollar value, on each transaction he completes for you, whether it is a purchase or a sale. In this regard, you become the stockbroker's client. It should be noted that the stock exchange itself does not buy, sell, or set the price of stock. Trading is done at prices that reflect the public opinion of the worth and future potential of a particular company. Therefore, the unit price of a given stock may fluctuate a great deal in just a few hours.
The price of a company's stock will fluctuate over time depending on factors such as:
- the current profit and dividend shares of the corporation;
- the level of confidence in the company's CEO and management team;
- trends in the industry to which the company belongs; and
- the general economic climate and outlook.
The key with buying stock is to research the company before you buy, invest for the long term, and stay calm during times of fluctuation in the market. Ideally, you want to buy in a bear market (when prices are down) and sell in a bull market (when prices are high). And remember, each time you get your stockbroker to exercise a transaction on your behalf, you will be charged commission (an amount for the broker). You can follow the unit price of your stock in the business section of your local newspaper, check on-line, or contact your stockbroker.
As a general rule, those who invest in the stock market do not check the price of their individual stock on a daily basis. Instead they follow the stock market indicators that at the end of the day will report on the trading activity of the stock exchange in terms of quantity of transactions and will state in numerical terms, the change in the market from the previous day=s close. In Canada, the S&P/TSX Composite Index give investors an accurate view of the performance of the stock market on any given day.
Activity
Assigned Readings
- Economics Now: Analyzing Current Issues pp. 134 - 137;
- Made in Canada: Economics For Canadians 2nd Edition, by James D. Thexton pages 71 - 83. (You might find this old Economics text in your library or in a stockpile of old texts - check with the school's secretary or a high school social studies teacher).
Assigned Activities
- Complete question #5 on page 138 of the prescribed text. You can complete this activity by reviewing those indices at www.cbc.ca/business
- Made in Canada: Economics For Canadians 2nd Edition, by James D. Thexton pages 71 - 83. (You might find this old Economics text in your library or in a stockpile of old texts - check with the school's secretary or a high school social studies teacher)
- Select 6 stocks that you would be interested in buying on the TSX. Follow the unit price of those stock for the next three weeks and graph the fluctuation in its unit price for that period of time. (Our local paper, The Telegram provides these stock quotes in the Saturday edition)
- Ask your teacher to enrol you in the Wilfred Laurier University Stock Market Challenge for High School Students at http://invest.wlu.ca