Activity 1: Investing Fundamentals
Activity time: 10 minutes
Materials for Activity
- Leader Resource 1, Key Investment Concepts and Definitions
Preparation for Activity
- Review Leader Resource 1, Key Investment Concepts and Definitions.
- Optional: Preview "Investing 101" and other materials on investopedia.com and/or the Financial Education Clearinghouse of the Washington State Department of Financial Institutions so you will be comfortable recommending these resources to participants seeking more information.
Description of Activity
Share this reading from "What Investment is Not" on investopedia.com:
Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a "hot tip" you heard at the water cooler is essentially the same as placing a bet at a casino.
True investing doesn't happen without some action on your part. A "real" investor does not simply throw his or her money at any random investment; [an investor] performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.
To make sure that all participants understand the basic concepts and terminology you will use in this workshop, introduce the information from Leader Resource 1, Key Investment Concepts and Definitions. You likely have participants with varying degrees of familiarity with the information; some may have no experience at all with investment. Invite comments and additions to the definitions you present, but urge participants to keep additional information simple and brief. If needed, remind the group that this workshop's topic is faithful investing, and there will not be time for a full investment tutorial. Suggest resources where participants can find out more.
Once the group appears comfortable with the information you have presented on investment basics, lead a discussion using one or more of these questions. Use your judgment to determine whether particular questions are appropriate, given participants' familiarity with financial investment:
- There is an important, albeit hypothetical, relationship between risk and return in investing. Bearing more risk of loss can yield higher return in the marketplace. Has this relationship been borne out in your personal experience?
- Which fundamentals does your intuition suggest are most important in the value of a company (or other entity)? How do your ethical values play into your valuation of a company or other entity?
- Do you believe the efficient markets hypothesis works in reality? What are some of the real world factors that might make markets "inefficient?"
- In a truly efficient market, your money invested for reasons other than achieving return will have little influence on the direction of the market. Do you believe your (or anyone's) investment decisions have an effect on market outcomes?
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