The Stock Market Game is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.
Let's start with the good news. One of the worst months ever on Wall Street came to a close. And, it's Halloween weekend. The economy may be in a sorry state, layoffs are increasing by the day and home foreclosures continue to rise, but at least there are trick-or-treaters, and our bellies are full of candy, helping to keep our minds off our troubles.
But back to the doom and gloom. Wednesday (Oct. 29) marked the 79th anniversary of "Black Tuesday" or the crash of 1929. It was one of the biggest market crashes ever, and it led to the beginning of the Great Depression. As mentioned
, many economists are confident we are not on the verge of another depression, but the month of October has been quite the roller-coaster ride with the
posting one of its worst months in history.
Also this week, the
cut a key short-term interest rate by half a percentage point. Wednesday's rate cut put the
rate at 1% -- matching its lowest level ever, which was from June 2003 to June 2004.
The federal funds rate is used to set rates for a variety of consumer loans, including home equity lines of credit and credit cards, as well as for many business loans. The lower the rate, the more the Fed hopes to spur economic activity.
Unfortunately, things are a bit different in this economic climate. Banks are not excited about lending money now -- to anyone. They have become more concerned with people's inability to pay them back. Even healthy banks like
JP Morgan Chase
Bank of America
are leery of resuming their lending and as JP Morgan Chase's CEO, Jaime Dimon, stated earlier this month, "If you're not fearful, you're crazy."
Back to the good news -- or rather, something neutral: stock splits.
First off, what are they? A stock split refers to a corporate action that increases (or decreases) the number of shares in a public company. A 2-for-1 stock split, for example, doubles the number of outstanding shares and divides the price by two. If you own 100 shares of a stock selling at $50 a share for a total value of $5,000 and the company's directors authorize a 2-for-1 split, your holdings will change to 200 shares priced at $25, with the same total value of $5,000. While 2-for-1 splits are the most common, stocks can also be split 3-for-1, 10-for-1, or using any other ratio. In addition, a company can reverse the process and consolidate shares to reduce their number by authorizing a reverse stock split.
So what is the purpose of a stock split? It's basically an accounting procedure. Instead of a $20 bill in your wallet, you now have two $10 bills. But if a stock split simply rearranges the numbers, why do companies do them? The usual reasons include: making the stock appear cheaper than it really is (to encourage more buyers); increasing liquidity; meeting stock exchange listing requirements; and expressing a bullish management attitude.
For more information on stock splits, be sure to take a look at the
issue "Anna and the Banana." The edition is accessible in the Teacher Support Center under the
In addition, the article "
," from our partners at
, may be of interest to your students who could use some advice on how to turn their portfolios around. The article includes a checklist for students to use when researching companies, such as the "Second Banana Syndrome" -- when a company trails its competitor by a large margin, as is the case with
and the more dominant
And as a reminder,
will be available Dec. 1.
reviews the cost of the gifts in the song,
The Twelve Days of Christmas
. It's a great tool to help students learn about inflation and the broader economy, and the Stock Market Game (SMG) has a project in the
to help you use it in the classroom. To access the project, choose the "Projects" link, and then in the drop down menu select "Overarching Projects" and choose "High School," and then "Business." Leave the "Mastery" option at "Novice," as the project is for all levels of student ability.
SMG will hold a Webinar on Nov. 5 at 4:00 p.m. EST to review the 2008 Christmas Price Index data and the SMG project. All you need to participate is Internet access and a phone. You can register for the Webinar
. We hope you will join us.
Don't forget to vote on Tuesday!
To learn more about The Stock Market Game, visit www.stockmarketgame.org.
This article was written by a staff member of The Stock Market Game.