Stocks — slides
Financial Literacy Club
Investing · Lesson 2
Stocks
Owning a piece of a company — and why stock prices move.
12-minute lesson · learnwithflc.org
Stocks · 1 / 20
Financial Literacy Club
Investing · Lesson 2
Stocks
Owning a piece of a company — and why stock prices move.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Explain what owning a share of stock means
- Describe the two ways stock investors can earn a return
- Calculate a company's market capitalization
Warm-up
If you owned one share of a company you use every day, what would you actually own?
Think, then write your answer.
The big idea
Stocks
Owning a piece of a company — and why stock prices move.
Investing · Lesson 2
A stock (or share) is a small piece of ownership in a company. If a company has 1 million shares and you own 100, you own 0.01% of it.
Investing · Lesson 2
Companies sell shares to raise money to grow. After that, investors buy and sell shares with each other on stock exchanges, like the New York Stock Exchange and Nasdaq.
Investing · Lesson 2
You can make money from a stock in two ways: the price rises, or the company pays dividends — a share of its profits paid to owners. Many companies don't pay dividends and reinvest profits instead.
Investing · Lesson 2
Why do prices move? Mostly because of expectations about future profits. News, interest rates, the economy, and investor mood all shift those expectations. In the short run, prices can swing a lot for reasons that have little to do with the business itself.
Vocabulary
Market capitalization
A company's total stock market value: share price × number of shares. It's how people compare the size of public companies.
Investing · Lesson 2
One company is a big bet
Individual companies can fail. Even famous ones have lost most of their value. That's why many investors spread their money across many companies — covered in the diversification lesson.
See it
A company sells shares to raise money. Investors then trade those shares on an exchange. The price moves with expectations about future profits. Owners can earn returns through price increases and dividends.
Company sells shares
To raise money to grow
Investors trade shares
On a stock exchange
Price moves
With expected future profits
Price goes up or down
Gain or loss when you sell
Dividends
Some companies share profits
Real example
Why a stock dropped on good news
A hypothetical company, Orbit Snacks, reports that profits grew 10% this year. The stock price falls 8% the next day. How?
Investors had expected 20% growth. The price already reflected those hopes. Real growth was good — but worse than expected — so the price adjusted down.
Lesson: stock prices react to the gap between results and expectations, not just whether news is "good" or "bad." That's one reason short-term price moves are so hard to predict.
Activity · small groups · 10 min
Headline Reactions
- Read five made-up headlines: (1) “Company's profit rises 10%, but it expected 25%”; (2) “Company loses money, but losses were half what analysts expected”; (3) “New CEO announces bold expansion”; (4) “Company's biggest product recalled”; (5) “Company raises its dividend.”
- Groups predict whether each stock would likely rise or fall, and explain why using the word “expectations.”
- Compare predictions with the lesson's example of a stock dropping on good news.
Check for understanding · 1 of 3
What do you own when you buy a share of stock?
- AA loan to the company that pays fixed interest
- BA small piece of ownership in the company
- CA guarantee of future dividends
- DA coupon for the company's products
B. A small piece of ownership in the company
Stocks are ownership. A loan to a company that pays fixed interest is a bond.
Check for understanding · 2 of 3
A company announces record sales, but its stock falls.
What's the most likely explanation?
- AInvestors expected even better results, so the price adjusts to the disappointment.
- BRecord sales always lower stock prices.
- CThe stock exchange made an error.
- DThe company paid too many dividends.
A. Investors expected even better results, so the price adjusts to the disappointment.
Prices reflect expectations. When results fall short of what was already "priced in," the stock can drop.
Check for understanding · 3 of 3
All companies pay dividends to their shareholders.
- True
- False
False
Many companies — especially fast-growing ones — reinvest profits instead of paying dividends.
Remember
Key takeaways
- Stock = ownership in a company.
- Returns come from price changes and (sometimes) dividends.
- Prices move on expectations, not just results.
- Market cap = share price × shares outstanding.
- One company is a concentrated risk.
Discuss
Talk it over
- Why might someone want to own a small part of a company they use every day?
- Should stock prices be driven by investor mood? What problems does that create?
Exit ticket
Why can a stock fall even when the company reports good news?
Answer on your exit ticket before you leave.
Nice work today.
Review this lesson anytime — free, no account needed:
learnwithflc.org/courses/investing/stocks
Next up: finish your worksheet.