9.1Introduction to Securities Markets

K: You already told us that you are on the board of directors of a publicly-traded company.

J: Correct.

K: Who chooses the directors of a publicly-traded company?

J: Typically, candidates are identified by company management and the existing board members. The final decision is made by the shareholders of the company who vote whether to approve a candidate for the board.

K: Where are shares of your company traded?

J: We are traded on NASDAQ, the second-largest stock market in the world (after the New York Stock Exchange).

K: Does the board of directors ever discuss your company’s stock price?

J: Absolutely. Because we represent the shareholders of the company, we have a fiduciary duty to direct the company in ways that will maximize shareholder value.

K: How about you … do you personally own any shares in this company?

J: Yes, I do.

K: So, how do you feel as you see the stock price fluctuate up and down? For example, I saw that a few years ago your company’s stock price dropped 20% in just a couple of months.

J: Yeah, thanks for bringing that up. – Owning individual stocks can be a nerve-wracking experience. As we discussed previously, a prudent investor follows the advice: “Don’t put all of your eggs in one basket.” So, the large majority of my savings is in diversified mutual funds.

K: Just a couple of more questions. Do you consider yourself an expert in accounting and finance?

J: Yes, I do.

K: So, can you use your knowledge of accounting and finance to pick winning stocks in the stock market?

J: Good question. And we’ll answer that question … later in this lesson.