{"id":72,"date":"2009-07-08T11:49:08","date_gmt":"2009-07-08T16:49:08","guid":{"rendered":"https:\/\/www.pbs.org\/wnet\/ascentofmoney\/?p=72"},"modified":"2009-11-06T14:06:16","modified_gmt":"2009-11-06T19:06:16","slug":"taking-stock-lesson-activities","status":"publish","type":"post","link":"https:\/\/www.pbs.org\/wnet\/ascentofmoney\/uncategorized\/taking-stock-lesson-activities\/72\/","title":{"rendered":"Lesson Activities"},"content":{"rendered":"

INTRODUCTORY ACTIVITY<\/strong><\/p>\n

1. Distribute a copy of the \u201cTaking Stock\u201d Student Organizer to each student. Starting at the top, ask the class which larger industry each company is part of\u2014i.e. what type of goods it produces or services it offers. Have students note each correct response on their organizers, and search online for unfamiliar companies. <\/p>\n

2. Once the class has completed the organizer, inform them that the economic performance of these thirty companies are used to determine the Dow Jones Industrial Average (DJIA)\u2014the most commonly used index of the New York Stock Exchange (NYSE). Explain that the NYSE\u2014where shares in these thirty companies are publicly traded among investors\u2014is the world\u2019s largest stock market. Because their various industries span most forms of activity in our economy, these thirty companies\u2019 performance is used as a benchmark for determining the relative health of the stock exchange as a whole and the economy more generally. Explain that when people refer to the stock market being \u201cup\u201d or \u201cdown,\u201d they are generally referring to the DJIA. <\/p>\n

3. Explain to students that in the course of this lesson they will be learning more about companies, stocks, and the stock market through clips from the PBS series THE ASCENT OF MONEY, hosted by Professor Niall Ferguson.<\/p>\n

LEARNING ACTIVITES<\/strong><\/p>\n

1. Explain that companies generally start as a vision of one or more \u201centrepreneurs\u201d\u2014resourceful and enterprising individuals who often have little aside from a \u201cbusiness model\u201d\u2014i.e. an innovative plan for producing profits. Tell students that they will now be watching a video clip about the world\u2019s first true company. Provide a FOCUS question by asking: What was the Dutch spice merchants\u2019 entrepreneurial business model in the late 17th century? PLAY CLIP 1, \u201cBirth of the Stock Market.\u201d PAUSE about 40 seconds into the clip, after Ferguson says \u201cThe Dutch plan was to fetch them the longer but quicker way\u2014by sea.\u201d<\/p>\n

2. Review the focus question: What was the Dutch spice merchants\u2019 entrepreneurial business model in the late 17th century? (Rather then bringing the spices from Asia overland, they would ship them by sea.)<\/em> Explain that many ambitious business models like this one require capital resources\u2014generally cash or credit\u2014beyond those of individual entrepreneurs. Provide students with a FOCUS for the next part of the clip by asking them why these spice traders found it necessary to pool their resources and form partnership companies. RESUME playing CLIP 1. PAUSE after about one minute, after Ferguson says \u201cThe result was around six fledgling East India enterprises.\u201d<\/p>\n

3. Review the focus question: Why did Dutch spice traders find it necessary to pool their resources and form partnership companies? (The sea voyage to and from the spice producing regions of Asia was so prolonged and dangerous that the expense and risk of such voyages had to be shared among the merchants.)<\/em> Explain that a basic principle of joint ownership in a company is that both profits and risks are pooled and shared by all partners. <\/p>\n

4. Ask students if anyone knows what an \u201cIPO\u201d is. (IPO is an acronym for \u201cInitial Public Offering,\u201d referring to a company\u2019s first offering of \u201cstock\u201d to the general public.)<\/em> Ask students what \u201cstocks\u201d are. (Stocks are ownership shares of a company sold by that company.)<\/em> Ask students why they think a company\u2019s original partners would want to share ownership with additional shareholders? (The potentially unlimited capital raised by the sale of stock allows a company to expand its business beyond the limited resources of the original partners.)<\/em> Provide a FOCUS for the remainder for the clip by asking how the world\u2019s first true stock market came into existence. RESUME playing Clip 1 through to the end.<\/p>\n

5. Review the focus question: How did the world\u2019s first true stock market came into existence? (After an offering to the general population of shares\u2014the first \u201cIPO\u201d\u2014the newly consolidated United Dutch East India Chartered Company declared that these shares could not be returned to the company for a refund, but only sold to another investor. The brisk market for these highly profitable shares became the world\u2019s first stock market.)<\/em> Ask students if they are familiar with the laws of supply and demand to which Ferguson refers at the end of the clip. (Accept all answers.)<\/em> Explain that it is an economic model which concludes that in a competitive market, price fluctuates to equalize the quantity demanded by consumers and supplied by producers, resulting in an economic equilibrium. <\/p>\n

6. Asks students if they think that the law of supply and demand guarantees a stable market? (Accept all answers.)<\/em> Provide students with a FOCUS question for the next video clip by asking: Who coined the term \u201cirrational exuberance\u201d and what does it mean?
\nPLAY Clip 2: \u201cShock Markets.\u201d Review the focus question: Who coined the term \u201cirrational exuberance\u201d and what does it mean? (Former Federal Reserve Chairman Alan Greenspan coined the term to describe the \u201ccollective euphoria\u201d and unwarranted optimism that investors often demonstrate when they invest in the ultimately unpredictable stock market.)<\/em> Explain that history has shown time and again that investors seeking to profit from a strong\u2014or \u201cbull\u201d market\u2014often ignore signs that the stocks they\u2019re buying have become overvalued. A key principle of investing is to \u201cbuy low and sell high,\u201d but when all prices are rising it can be difficult to know exactly what \u201clow\u201d and \u201chigh\u201d prices are. Moreover, when investors sell stocks which they think have peaked in value, it can spark a \u201csell-off\u201d which, if widespread enough, can trigger a weak \u201cbear\u201d market. <\/p>\n

7. Divide students into groups of 4-5. Have each group log on to \u201cPlay the Market\u201d (http:\/\/www.pbs.org\/wgbh\/nova\/stockmarket\/virtual.html<\/a>) and tell them to click \u201cTrade Traditional Stocks\u201d in the bottom right corner of the window to start the game. Explain that each group will assemble their own collection of investments\u2014or \u201cportfolio\u201d\u2014from some combination of the four imaginary stocks offered. They can then modify this portfolio according to market changes they will learn about by clicking on the \u201cNews Flash\u201d button in each 2 week turn of the 16 week simulation. Also point out that each group is also free to keep some or all funds in the \u201cbank\u201d at 4% interest rather than purchasing stocks. Explain that the point of the exercise is to increase the value of one\u2019s portfolio as much as possible. Allow 20 minutes for the groups to play through the simulation.<\/p>\n

8. Ask each group to share the simulation\u2019s final evaluation of their portfolio performance (found by clicking the \u201cEvaluation\u201d button on the simulation\u2019s last screen). Which group performed best, and why? Which group performed worst, and why? Would any group have been better off keeping all their money in the bank? Did any group invest heavily in YeeeeeHaw.com when it was performing well, only to see the value of their stock plummet later on? Explain that similarly high expectations of unproven technology stocks fueled the \u201cdot-com boom\u201d of the late 1990s, when Mr. Greenspan made his famous observation that investors were deluding themselves through \u201cirrational exuberance.\u201d Explain that as with the simulation\u2019s fictional YeeeeeHaw.com stock, many real technology stocks plummeted in the \u201cdot-com crash\u201d around the turn of the 21st century. <\/p>\n

9. Explain that the stock market crash of September 2008 and the ensuing financial crisis\u2014largely based on overvalued real estate investments\u2014dwarfed the dot.com crash. Many experts are in fact comparing it to the crisis of October 1929 that precipitated the Great Depression of the 1930s. Explain that while the stock market fluctuates minute to minute and day to day, broad trends can be discerned over time. <\/p>\n

10. Have each group to log onto the \u201cDow Jones Industrial Average Timeline\u201d (http:\/\/www.stockcharts.com\/charts\/historical\/images2\/DJIA1900.gif<\/a>), which depicts the Dow Jones Industrial Average\u2019s performance over the past century. What general trend can be discerned? (Overall growth over time; periods of fast growth interspersed with periods of relative stagnation.)<\/em> Ask if anyone can make a correlation between a major event or period in history and significant gains or losses in the market? How, for instance, did the market respond to the December 1941 attack on Pearl Harbor, and the string of Allied defeats which followed? What about the 1973-4 Arab Oil Embargo? The terrorist attacks of September 11, 2001? During which presidential administrations did the stock market climb? During which did it fall? <\/p>\n

CULMINATING ACTIVITY<\/strong><\/p>\n

1. As homework, assign each student in the class to write a brief research report on one of the companies listed on the \u201cTaking Stock\u201d Student Organizer. Important questions to be addressed should include: What was the original business model of the company\u2019s entrepreneurial founders? How much time passed from the company\u2019s creation to its IPO, and why was an IPO necessary? When was it chosen to become on of the thirty companies which determine the Dow Jones Industrial Average? How has the company\u2019s stock performed throughout its history? Has it been affected by current events in the past ten years? <\/p>\n

2. During the next class period, have students divide into their previously established groups of 4-5 and present their findings to each other. Within each group, have certain companies prospered while others have suffered? Have certain events affected some companies more than others? <\/p>\n","protected":false},"excerpt":{"rendered":"

INTRODUCTORY ACTIVITY 1. Distribute a copy of the \u201cTaking Stock\u201d Student Organizer to each student. Starting at the top, ask the class which larger industry each company is part of\u2014i.e. what type of goods it produces or services it offers. Have students note each correct response on their organizers, and search online for unfamiliar companies. 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