We use a level system to introduce beginners to the world of corporations.

 

Level 1: Common shares and directorships

Level 2: Preferred shares and dividends

Level 3: Bonds, debentures and interest

Level 4: Short selling, margin and leverage

Level 5: Rights offerings

Level 6: Options trading puts and calls

 

Each level is another way to invest your money, so you can ascend through the levels in any order, it’s your choice.

 

Level 1:  This is the simplest idea presented. You are trading common shares, which represents the ownership of the corporation.  As well, you can become a director of the corporation and draw an annual salary for each directorship you hold.  You want to grow your salary by holding lots of these directorships. Note the word “annual” because there is TIME involved, in the form of a payday at year end. Happy New Year.

 

Level 2:  We add a twist to holding common shares. In our game, preferred shares have all the privileges of common shares but there is an added sweetener, dividends at year end.

 

Level 3:   We introduce the idea of debt.  The corporations have borrowed money from the public in the form of secured bonds and unsecured debentures. These pay interest to players holding them at the year end.

 

Level 4:  This is probably the one most people don’t know about. Selling short is profiting when the market value of shares falls. You are allowed a margin account which means you are using someone else’s money, and you are introduced to the notion of leverage.

 

Level 5:  Here you are given the opportunity to buy more shares at a discount to market price, if you are a shareholder.

 

Level 6: This is the last idea. You are buying an option to buy or sell at a specified price.  You then have to exercise it on another turn before it expires worthless at the year end. Another form of leveraged, highly volatile investing sometimes called derivatives.