How much RESEARCH should my students do?
This is an important question that gets asked a lot. Yet, there is no clear cut answer. It depends on student's level and how much you want them to learn. First and foremost, we want students to understand what the stock market is and the importance of long term investing. What we want students to understand is that in our society today it is not just important, but essential that we as individuals save money for retirement. Social security and the workplace retirement plans will not be enough for long term retirement. Investment planners are telling their clients to save as though we are going to live into our nineties. It is possible for a lot of us that we could spend 25 or more years in retirement.
Depending on the student’s age and how much background knowledge you and your students have is important in deciding how much research is necessary. Whether or not they pick successful companies is not important (when using hypothetical money). What is important is that they understand the importance of researching a company (and its industry), diversification and tracking their company stock after purchasing it (knowing when to trade).
Researching: There are many researching methods out there. For younger children, or any beginner for that matter, picking some well known companies (McDonalds, Wal-Mart, Coke, Dell, Nike and General Electric etc.) based on the fact that you see them or their products all over town is a good start. Hearing some good news about a company expanding overseas or adding some new product (i.e., Apple coming out with ipods helped their stock price rise) will also help students choose a company. This is a great way to start and give children exposure to the stock market.
If you want students to do some actual company research, then they have to dig a little deeper. This can take some time and you will need to have access to the internet. There are plenty of books written on this subject. Peter Lynch has written a few that are recommended for high school and perhaps middle school teachers to use with their students. Another useful resource is Jim Cramer’s “Real Money.” It is important when researching a company to understand what kind of investing you are doing. Are students looking for long term or short term?
Understanding the difference between growth and value companies is important. Students will also need to know what is meant by a small, mid and large cap company.
The first place to go to is http://www.finance.yahoo.com. Enter the company ticker symbol. (For more details click on Handout for Using Finance.yahoo.com for Help with Research ) If you do not know what the ticker symbol is, it can be found by clicking on "lookup company symbol" at the top of the screen of finance.yahoo.com. Once you have entered the symbol it will take you to the summary page for that company. A good idea is to go to the headlines. Scroll down and the headlines will begin to appear. With some you will have access to the article. With others a subscription will be required. Reading through the headlines should help you decide whether business is good or bad. A good activity in the computer lab is to read the articles out loud and have students discuss whether or not this news is good or bad for the company. After reading the latest headlines, go back to the summary page and scroll down (looking to the left) to the financials. Click on Income statement. Here you will see the past three years of revenue and profit. Look to see if the gross profit has increased or decreased. If it is decreasing, a little more research is needed to find out why. Perhaps one of the articles you read about your company might have the answer. If profits have decreased, this does not mean you should not buy the stock, but, we need to find out why. The company may be posed for a turn around.
If you want students to do some more research, you can do so by finding out who their competitors are. Let us use Corning (GLW) for example. After entering the symbol GLW (at finance.yahoo.com), do the following:
At this point you really need to investigate the site. At the front and center of this page you will find a view section. If you click on the arrow, different titles will pop up. Click on some of those that you are interested in and see how your company is performing.
This may be beyond what you want your students to do. So let’s focus on what is important.
1. Name of company and its symbol.
2. What are the headlines saying?
3. Check out the company website.
4. Has revenue, profit and debt increased or decreased over the past three years?
5. What industry is your company in?
6. What is the economic forecast for the industry?
Students should be taught the importance of diversification. There are plenty of opinions on this as well. For the sake of long term investing, most experts will advise that no single stock exceeds 3 to 5% of a portfolio. With that said, you may only want your students to buy five or ten stocks which could exceed 5% of the portfolio. One suggestion is to have students choose stocks which tend to vary between 10 and 20%.
Example: Give students a hypothetical $100,000.00. Tell students they can not spend more than 20% or $20,000.00 on one single stock or tell them not to exceed 10% or 10,000.00. Do not allow them to buy all tech stocks, either. They need to have diversification with different industries as well. Lastly, there is diversification between good solid companies and speculative companies. Only allow 20% of their portfolio to include high risk companies. Have students invest the remaining 80% with value companies. Check out Helpful Handouts for value and growth companies.
It is always good to charge your students a trade fee. Charge them 2% every time they make a trade. This will demonstrate why it is not a good idea to simply change their portfolio daily.
Teach students when to sell or trade. Have students continue reading news articles about their companies. Every week have your students figure out the percent of change for each stock.
Example: A student bought a stock at $10.00. Next week it was up to $12.00. Subtract the difference (12.00 – 10.00 = 2.00). Divide the difference by the original price, 2.00 / 10.00 = 0.2 or 20%. A twenty (20%) return is pretty good, especially in a week. Consider if they had purchased 2,000 shares, their profit would be $4,000.00. That is generally considered a good return. Advise students that it would be wise to think about selling this stock. Before students buy any stock, each group or student needs to decide a percentage return that they would designate for selling. They might say if the stock price slips 55% we should consider selling. If it goes up between 5 and 10%, students should consider selling for profit.
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