WHAT'S UP WHEN STOCKS ARE DOWN?

• Position: Stock exchange basics - Brief Article

With all the bulls and bears and dividends and Dows, who wouldn't be confused? Here's help

Without fail, at some point during the evening news, the announcer says something like this: "On Wall Street today, the Dow lost 91 points to close at 10,497."

What does this mean? Isn't "the Dow" some sort of Eastern philosophy? Where is "Wall Street" anyway?

And should you care?

If you don't know, you're not alone. Most Americans are sadly clueless when it comes to the workings of the stock market. But these mysterious numbers do mean something. They affect your world and your future.

So here are the basics, a guide to Wall Street for beginners.

WHAT IS STOCK?

When a company wants to raise money, it sells stock to the public. Each SHARE, or single unit of stock, represents part ownership of the company. A stock market is not a place, but the activity of buying and selling stocks. The actual buying and selling occurs at a STOCK EXCHANGE. There are 7 stock exchanges in the U.S., and more than 140 worldwide. The most famous is the New York Stock Exchange (NYSE), on Wall Street in New York City. Other stocks are traded on a computerized exchange called Nasdaq, which originally stood for National Association of Securities Dealers Automated Quotations.

HOW STOCKS MAKE MONEY

Investors make money in two ways: One is by receiving a DIVIDEND--a portion of a company's profits. Usually the amount is small--say 10 cents a share-paid out every quarter, or three-month period. Thus, 100 shares of a company would produce a quarterly dividend of $10.

The second way shareholders make money is through an increase in stock price. When demand for a stock is strong, its price rises, as investors bid higher prices for it. When demand falls, the stock price falls.

WHY DO STOCK PRICES CHANGE?

Stock prices change because a share does not have a fixed value. What is part ownership of Apple Computer worth? 0nly what people think it is worth. If someone is willing to pay $50 a share, then that share is worth $50. If buyers will pay only $30, then the value is $30.

A company's profitability, its new products, the financial health of the industry it's in, trends in the economy, and even world and national news--all can influence how investors feel about a stock.

WHAT IS THE DOW?

The Dow is an indicator of the stock market's fluctuations. Its full name is the DOW JONES INDUSTRIAL AVERAGE, named for Dow Jones & Co., which compiles the daily average. The Dow tracks the prices of 30...