Investing 101

Lesson 1: Stocks and Their Value

Lesson 1 Optional Reading Assignment

Time Estimate 60 minutes

Description From the textbook, A Random Walk Down Wall Street by Burton Malkiel, read: Part One: "Stocks and Their Value," pages 23 - 111.

Objectives Gain a good foundation in the basics about stocks and learn how they are valued.

Key Ideas from Reading Assignment

• Learn how a stock's worth is based not only on the value of the assets that the company holds, but also the public's perception of the current and future value of the company.
• Understand the forces that drive the stock market up and down.

Self-Study Review Questions
Based on the reading assignment, answer the following questions. These review questions are for self-study purposes only.

1. Define the firm-foundation theory and how it affects investing in the stock market today.
2. What are the key factors that drive the "Madness of Crowds"?
3. What were the import drivers of the stock market's value from the 1960s to the 1990s?
4. Do you think the Internet bubble has burst? Why do you agree or disagree?
5. How does the recent fluctuation in prices of Internet stocks compare to what happened during the Tulip-bulb craze and the South Sea Bubble?
6. What do you think is most important in determining a stock's value?

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