5 Things You Need to Know About Dow 20,000

“The Dow’s ongoing flirtation with the 20,000 market milestone is the talk of Wall Street.”

The 120-year-old Dow Jones Industrial Average consists of 30-blue chip stocks that make up arguably the world’s best-known stock index.  At the time of this article and this blog post, the average is trading at near record levels and threatening the break the 20,000 mark.  So how important is breaking the 20,000 barrier?  Consider the following five questions.

  1. Why, with the Dow so Close to 20,000, can’t it get over the hump?
  2. Is Dow 20,000 a big deal?
  3. Does a new milestone mark a new stage of the bull run we’ve seen?
  4. Will Dow 20,000 improve the mood of investors?
  5. Is Dow 20,000 a reason to buy?

Adam Shell, in this USA Today article, provides some answers to the above 5 questions that can help investors keep a more balanced perspective on what a Dow 20,000 really means for both individual investors and the economy.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • With so much in the news about the stock market, record high values, a possible correction or pullback in market values, the Federal Reserve’s interest rate changes, and other economic factors, you may want to use this article and this blog post to explain why the Dow Jones Industrial Average is just one of many factors that affect investors, the market, and the economy.

Discussion Questions

  1. Since the Dow Jones Industrial Average is in record territory, is this a good time to invest in the stock market? Explain your answer.
  2. At the time you answer this question, what is the current Dow Jones Industrial Average? Has it gone up or down in the last six months, and what affect has the change had on the stock market and the economy?

How to Invest in Stocks

“Before you buy your first stock, you should master the basics of stock investing.”

This article provides basic information that you can use to help students learn more about investing.  For example, there are over 25 different links to more detailed information including:

  • Basic Stock Terms for Beginners
  • What Is a Balance Sheet?
  • What Is an Income Statement?
  • What Is Investment Risk?
  • How to Buy Your First Stock
  • How to Value Stocks
  • How to Analyze Stock Fundamentals

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to:

  • Stress the importance of learning about stocks before making a stock investment.
  • Use a specific link(s) and show how students can use detailed information to become a better stock investor.

Discussion Questions

  1. Assume you are 35 years old and have $40,000 for investment purposes. Would you choose stocks or some other investment alternative?  Explain your answer.
  2. Access one or two of the links listed in this article. How could the information in this link help you evaluate a possible stock investment?

Securities and Exchange Commission (SEC) Warns of Government Impersonators

The SEC has issued an investor alert warning people about fraudulent solicitations that purport to be affiliated with or sponsored by the Securities and Exchange Commission.

The SEC does not endorse investment offers, assist in the purchase or sale of securities, or participate in money transfers.  SEC staff will not, for example, contact individuals by telephone or e-mail for purposes of:

  • seeking assistance with a fund transfer
  • forwarding investment offers to them
  • advising individuals that they own certain securities
  • telling investors that they are eligible to receive disbursements from an investor claims fund or class action settlement; or
  • offering grants or other financial assistance (especially for an upfront fee).

If you receive a telephone call or e-mail from someone claiming to be from the SEC (or other government agency), always verify the person’s identity.  Use the SEC’s personnel locator, (202) 551-6000, to verify whether the caller is an SEC staff member and to speak with him or her directly.  In addition, you can call the SEC at (800) SEC-0330 for general information, including information about SEC enforcement actions and any investor claims funds.

For more information, click here.

Teaching Suggestions

  • Ask students to visit other websites, such as, consumer.gov and investor.gov for additional tips on investing wisely and avoiding fraud.
  • Ask students to find a list of international securities regulators on the website of the International Organization of Securities Commissions (IOSCO) and a directory of state and provincial regulators in Canada, Mexico, and the U.S. on the website of the North American Securities Administrators Association (NASAA).

Discussion Questions

  1. What actions can you take to protect yourself from government imposters?
  2. What are the tell-tale signs that an impersonator is contacting you to steal your financial information?

Robo Investment Advice

Automated investment services are expanding.  Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds.  Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

 

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?

 

Investors Face Quagmire of Falling Earnings, Higher Rates

“Investors may wade into unknown territory next month as the Federal Reserve readies the first rate hike in nearly a decade amid a corporate earnings recession.”

In this Reuters article, Rodrigo Campos explores the following factors that can be used to predict what could happen in the financial markets in the near future.  Consider the following

  1. The Federal Reserve may raise interest rates in December–the first increase in nearly a decade.
  2. Earnings for the third quarter of 2015 for 90 percent of the corporations listed in the Standard & Poor 500 are lower than expected.
  3. The decline in corporate revenues has been steeper than the drop in earnings.

As pointed out in this article, rising interest rates are always a negative factor for stocks.  Since 2013, every time the Fed has indicated a rate hike is on the horizon, the stock market throws a tantrum, and the Fed decides not to raise rates.  At the time of this blog, it is impossible to know if the Fed will raise interest rates in December–especially with corporate earnings on the decline.  Even the experts are not sure what will happen between now and the end of the year.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the relationship between corporate revenues, earnings, and stock prices.
  • Explain the affect an increase in interest rates could have on the financial markets and consumers.
  • Explore possible investments for a down market and a market on the upswing.

Discussion Questions

  1. What is the relationship between corporate revenues, corporate earnings, and stock prices?
  2. What affect would a Fed decision to raise or lower interest rates have on the financial markets? On consumers?
  3. Assume you have $375,000 invested in a diversified retirement portfolio. Corporate stocks in your portfolio include utilities, technology, energy, and consumer stables–some of which have reported lower earnings for the last two quarters.  You also assume the Fed will raise interest rates in December.  Would you sell some or all of your holdings?  If you decide to sell, how would you determine which securities to sell?  Explain your answer.

A Sick Market Is Set to Be Tested Further

“Even after bouncing hard off last week’s lows, the stock market has appeared unwell.”

Based on current information from August 2015, Michael Santoli, the author of this article, explains some of the “big” problems that are affecting the stock market and the nation’s economy.  He cites the following major factors that account for the current downward spiral of the U.S. financial markets.

  • Economic slowdown in China
  • More realistic expectations for future economic growth
  • Lower forecasts for corporate earnings growth
  • Uncertainty about the Federal Reserve’s decisions that could impact interest rates
  • The political climate leading up to the 2016 presidential election

One final point:  The month of September is typically the worst month of the year for stocks.  September 2015 should be an interesting month to say the least–get ready and hang on for what promises to be a rough ride.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out that economic growth and the financial markets can go up or go down depending on factors like those described in this article. If you sell, what would you do with your money?
  • Stress that a long-term investment program that can even out the ups and downs in the market.

Discussion Questions

Although the stock market has been on the upswing for the last few years, the summer of 2015 has been a rough “ride” for most investors.

  1. If you are an investor and expect that it is time for a correction or downturn in the market, what would you sell some or all of your investments? If you sell, what would you do with the money?
  2. Some financial experts argue that a correction can be a buying opportunity to purchase quality stocks at lower prices. Do you agree?  Explain your answer.

Defrauding Investors

On May 28, 2015, the Securities and Exchange Commission announced fraud charges against William Quigley.  He is accused of creating a scheme to steal from investors and from a brokerage firm where he worked as the director of compliance.

The SEC’s Enforcement Division alleges that was involved in a scheme to solicit investors to buy stock in well-known companies or supposed start-ups on the verge of going public.  The SEC alleges that:

  • The securities were never purchased for the investors.
  • Quigley wired the money out of the country or he withdrew it from ATM’s near his home.
  • he had accomplices, two brothers who live in the Philippines.

For more information, click here.

Teaching Suggestions

  • Have students prepare a position paper on how to protect themselves from investment fraud.
  • Have students go to the Securities and Exchange Commission website (sec.gov) to learn how SEC protects investors and maintains fair, orderly and efficient markets.

Discussion Questions

  1. How can federal, state, and local governmental agencies protect investors from investment fraud?
  2. What punishment should be meted out to investment fraudsters?

Stock Investing for Dummies

To make the most of your money and your choices, educate yourself on how to make stock investments confidently and intelligently . . .”

This article can be used to help reassure people who are afraid to make their first stock investment.  Specific topics in the article include

  1. The Ten Most Important Points about Stock Investing
  2. Checking Important Company Fundamentals Before Investing in a Stock
  3. Financial Measures to Consider before Investing in a Stock
  4. A Mandatory Reading List for Stock Investors
  5. Reassuring Points for Nervous Stock Investors

Information in each of the above topics is explained in a straight-forward and easy-to-understand format beginning investors can understand.  The last topic, Reassuring Points for Nervous Stock Investors is especially important for people reluctant to invest in stocks.

For more information go to http://www.dummies.com/how-to/content/stock-investing-for-dummies-cheat-sheet.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the benefits of a long-term investment program. Be sure to point out that the value of quality stocks usually increases over a long period of time–a concept stressed in the text.
  • Stress the importance of evaluating a stock before investing your money.

Discussion Questions

  1. What are the benefits of a long-term investment program that includes not only stocks, but also mutual funds, bonds, and other investment alternatives?
  2. Why are people afraid to invest in stocks?
  3. What steps can you take to overcome the fear of investing in stocks?

Plunging Crude Prices Hammer Energy Companies

“A decision by OPEC this week to maintain current levels of oil production is hammering major energy companies in the U.S. and abroad.”

This article explores the winners and losers of lower energy prices.  For consumers, lower energy and gas prices means increased discretionary funds for purchasing consumer goods including food, clothes, electronics, and presents for friends and relatives during the holiday season.  Also, both large and small retailers benefit because consumers have more money to spend.  And airlines, package delivery services, cruise lines, and other companies are spending less on fuel.

The disadvantages of lower energy and gasoline prices are already causing the stock prices of big oil companies including Chevron, ConocoPhillips, Exxon Mobil, Marathon Oil, and British Petroleum to decline.

For more information go to http://finance.yahoo.com/news/plunging-crude-prices-hammer-energy-companies-123639239–finance.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the impact of the cost of energy and gasoline on a consumer’s budget.
  • Describe alternatives uses for the savings that result from lower energy and gasoline prices.

Discussion Questions

  1. What is the current price for a gallon of gasoline? How does this compare with the cost 6 months ago?  What impact does this have on your spending patterns and your personal budget?
  2. While you are saving money at the pump, the big question may be how you plan to use the savings. Are there alternatives to spending the money on clothes, entertainment, or holiday gifts?
  3. Now that the value of energy company stocks has declined, would you invest in a company like Exxon Mobil or Chevron? Explain your answer.

The Perils of Penny Stocks

“The best way to avoid penny stock scams is to do independent research.” 

This article underscores the importance of researching penny stocks before investing.  Too often, the lure of “big” profits encourages people to invest without researching penny stocks.  Simply put, they don’t do their homework.

According to this article, a good place to obtain research information about penny stocks is the Security and Exchange Commission website (www.sec.gov).  By examining a company’s 10-K annual report, 10-Q quarterly report, and Form 8-K filings, in which companies report material events.

The article also warns investors about email promotions about penny stocks that are more hype than reality.  For example, Paul Allen, a 65-year old retiree from Boston,  received a flood of emails about a company called Vapor Hub International suggesting that shares of the e-cigarette company were about to take off.  He invested and quickly lost 80 percent of his investment.  And there are many more examples where investors–especially investors with limited funds and little experience buying and selling stock–often lose all or a large portion of their investment.

For more information go to http://www.kiplinger.com/article/investing/T052-C008-S002-the-perils-of-penny-stocks.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students that there is no substitute for research when picking any stock–especially penny stocks issued by small companies without a proven track record.
  • Tell students to remember the old adage “if it sounds too good to be true, it probably isn’t true.”

Discussion Questions

  1. Most investors know the risks involved when they invest in penny stocks. Still, they invest their money.  Why do you think they choose penny stocks?
  2. Assume that you are considering an investment in Vapor Hub International. What information could be used to evaluate this penny stock?  Where would you get this information?