What affects share prices other than dividends?
Business Lesson 4
Ride the bubble
Aim: to understand how share prices are
affected by people’s expectations
Lesson 4: Ride the bubble
1
For starters…
> Last lesson we learned that normally a dividend
increase leads to a price increase (and a dividend
decrease leads to a price decrease). Look through
celebrity Data and find 3 exceptions.
> Extension: why do you think these exceptions
occurred?
Lesson 4: Ride the bubble
2
By the end of today, you will be able to
• explain how expectations affect share
prices.
• explain what a price bubble is.
• come up with a trading strategy based on
taking advantage of price bubbles.
Lesson 4: Ride the bubble
3
Remember your mission
To
as much
muchmoney
money
possible
Tomake
make as
asas
possible
by by
investing imaginary
imaginary money
inin
celebrity
shares.
investing
money
celebrity
shares.
• This week we’ll learn one way to accomplish your mission: to
take advantage of price bubbles.
? Think back to last week’s lesson. What affects share prices?
? Extension: can you think of factors we didn’t discuss last week?
Lesson 4: Ride the bubble
4
Dividends aren’t everything
• Often share prices change even though the potential dividend
hasn’t.
• Some reasons this occurs:
– people expect dividends to go up eventually… so demand
increases now
– people expect people to expect prices to go up… so they too ‘jump
on the bandwagon’ and demand increases
– people invest in shares with low dividend yields because their
strategy focuses on capital gains
Lesson 4: Ride the bubble
5
Spot the difference
? What’s changed about our diagram this week?
Lesson 4: Ride the bubble
6
What’s in it for me?
• When share prices rise a lot but dividends don’t keep up a
bubble is created.
• A bubble describes a rapidly rising price that some investors
feel is unfounded.
? Why do you think the term ‘bubble’ is used (hint: what
happens when a bubble gets too big?)?
? Extension: how can you benefit from bubbles? Can you find
one to take advantage of?
Lesson 4: Ride the bubble
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Extension activity/homework
> Complete the worksheet on expectations
This will help you ride a bubble (but
don’t forget to get off)!
Lesson 4: Ride the bubble
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Invest!
> Find what you think to be a bubble and
invest in that celebrity.
Lesson 4: Ride the bubble
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Celebwork
Bring in your favourite press
source of celebrity news next
lesson (and, of course, don’t
forget to follow the news).
Lesson 4: Ride the bubble
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