Beginning Investor - Investment Terms
Over the course of the past two months, readers have brought to my attention that there is a steep learning curve for investment terminology. That's why the focus of this month's Beginning Investor column will be investment terminology. The world of finance can be complex. This article doesn't intend to provide an all-encompassing set of definitions, but rather, as a general guide to help you understand the most frequently
used financial terms. There's no way we could cover everything - and I'm sure that we wont - but this should clarify some things for those new to investing. This month, we'll be looking at stock-related words in particular.
Stock
Let's start with the absolute basics. The most
common type of investment is in the form of
stock. Stock is an equity security - that is,
when you buy stock, you are purchasing a
piece of that company. You are part owner,
and therefore entitled to help select the people
who run the company from day to day.
Money is made from stocks either by dividends,
or capital gains.
Annual Report / 10-K
The annual report can come in two forms,
the glossy annual report, which looks pretty,
and is relatively easy to read and comprehend,
and the 10-K, which is an official SEC
filing that is required of public companies.
The 10-K is a legal document, and is therefore
much more difficult to read, however, it
can provide much more information.
Capital Gains
The sell price minus the purchase price of
stocks are referred to as capital gains.
Dividend
A dividend is a per share payment that a
company has the option to declare.
Essentially, dividends are a way for a company
to share their profits with its owners, the
shareholders. Public companies are not
required to declare dividends.
EPS
The term EPS refers to a company's earnings
per share for the fiscal year.
Equity
Equity is just a term to signify that a particular
type of security grants you partial ownership
of a company.
Liabilities
Liabilities are a company's debts of any kind.
Market Capitalization
The Market Capitalization, or Market Cap, is
the total number of shares outstanding (held
by investors) multiplied by the share price on
any given day.
Mutual Fund
A Mutual Fund is an investment company
whose sole business is to purchase stock in
other companies, and turn a profit for their
own customers. When you buy a share of a
mutual fund, you're essentially buying into
each and every company that that particular
fund holds. Mutual funds are can be a good
investment for those who are new to investing.
Net Quick Assets
A company's Net Quick Assets, or NQA are
the sum of a company's liabilities subtracted
from the sum of a company's assets.
P/E
The P/E is a company's ratio of their share
price to their earnings for a particular fiscal
year. This can be used as a good indicator of
a company's financial health and buy
prospects. A good P/E value varies by industry.
Par Value
Par Value is an arbitrary figure determined by
a company at the issuance of a particular
type of stock (i.e. it varies from class to
class). Essentially, par value carries no real
significance.
Share Price
Share Price is the price at which one share of
a company's stock is selling.
Short
A short is a method of making money even
when a stock's price drops. The way a short
works is that an individual will get shares of a
stock on margin (loan of shares from stock
broker). This person will then sell these
shares, and wait until the price drops before
repaying his broker. If then, you buy 100
shares of company x at $10 per share, and
sell them for that price, you will have $1000.
If the price of the stock drops to $5, you will
still have to pay your broker for those 100
shares, but the price will be only $5. Thus
you pay your broker $500 for those shares,
and pocket the difference.
Split
When a stock split is declared, a ratio is
picked by the company. The company's total
shares are multiplied by this ratio, while the
share price is divided by this ratio. Thus a
2:1 split on your 20 shares of a $10 stock
would result in 40 shares of a $5 stock.
Stock Classes
Companies can issue numerous classes of
stock, each with its own voting rights, stock
price, and par value. Typically, special classes
are only available to certain individuals, while
common stock is traded on public exchanges.
SEC
The SEC, or Securities and Exchange
Commission, is a United States government
agency that focuses on the regulation of public
companies and the stock market.
Companies are required to follow SEC directives.
Securities
The word security is just the technical term
for any asset like a stock or bond. Use it frequently,
as it will make people think you're
really smart.
Well, that about does it. Now when you
hear about the SEC cracking down on a company
for not being accurate on their 10-K, or
when someone talks about shorting an equity
security with a horrible P/E, you know exactly
what they're talking about.
Jonas Elmerraji is the founder and editor of growFolio, the world's first free online investment and business magazine. Issues are available online at http://www.growfolio.com
MORE RESOURCES:
 |
|
|
RELATED ARTICLES
Begging Your Trust in Africa
The syntax is tortured, the grammar mutilated, but the message - sent by snail mail, telex, fax, or e-mail - is coherent: an African bigwig or his heirs wish to transfer funds amassed in years of graft and venality to a safe bank account in the West. They seek the recipient's permission to make use of his or her inconspicuous services for a percentage of the loot - usually many millions of dollars.
How Do I Start Investing Online and What Are Some Basic Tips?
If you are new to investing online, don't put your entire life savings into an online account. Start with a smaller sum, which will be easier to handle and keep track of.
Before You Invest You Must Read This
It is important to answer the following questions before you begin to invest any of your money. The answers to these questions will help to guide you to when, what, where, and how much to invest.
Buy: Hold: Sell: Jump
I'm sitting here at my computer desk with a cup of coffee at my
elbow. The coffee rest in a mug, the mug garnished with the words
Buy, Hold, Sell, Jump, vertically along its sides.
Retirement Plan Considerations Cheat Sheet for Small Business
RETIREMENT PLAN CONSIDERATIONS are something every small business person needs to be thinking about. Do you have a strategic plan? Don't expect to have social security save you.
Retirement Is A Scary Proposition If Youre Without A Plan, And Running Out Of Time
Of the 75 million baby boomers nearing retirement today, many are:* Debt Ridden* Severely unprepared for retirement* Under Funded* Without a StrategyThis is a very serious problem in a country that we can all remember used to assure most people of a retirement where you are taken care of financially.We all know that social security alone is not the answer to this problem.
High Volatility Investments
Penny stocks and options are high volatility investments that attract both the trader and the long term investor because of the small amount of capital required to make substantial gains as compared with less volatile higher priced stocks. The long term investor buys a stock believing that a company's value will increase over time and the stock price along with it.
Basic Options Terms
Options are good investing and speculative instruments. But options terminology may confuse even experienced investors.
Retire Dollar Smart
Jim Miller is a registered investment advisor. This means that he is not beholden to a particular brokerage or financial institution.
Gold and Silver Maple Leafs Get New Packaging
Gold Maple Leafs and Silver Maple Leafs are receiving packaging makeovers, changes clearly mandated by investor disfavor with packaging that the Royal Canadian Mint has used since the coins were introduced. Gold Maple Leafs debuted in 1979, Silver Maple Leafs in 1988.
Secret Stock Options Trading Strategies the Experts Don`t Want You to Know
To understand stock options, we need to look at Webster’s Dictionary’s definition of the word strategy.Webster’s Dictionary defines the term strategy as1.
The Switzerland of Asia Shines
In many respects, Singapore is the Switzerland of Asia.Begun in 1819 as a British trading colony, the Republic of Singapore was founded in 1965 under the leadership of the current Prime Minister's father, Mr.
Dont Catch a Falling Knife
One of the most common mistakes made by inexperienced investors is trying to "catch a falling knife". This is the phrase used to describe the habit of buying stocks that are in "freefall", and is a poor strategy, albeit common among new investors.
Reasons For Joining An Investment Club
Whether you're a novice investor or an experienced stock picker an investment club may be beneficial to growing your investment portfolio. This article explains what an investment club is, why you should have an investment program and finally why you should join an investment club.
Missleading Fund Names Wreak Havoc On Investor Returns!
Mutual fund managers use fake fund names to part you from your money such that you cannot judge what a fund does by its name. Many funds have names that are outright misleading or even deceptive.
Your Worst Enemy To Successful Investing - The Media
How do you make your investment decisions and where do you get your information? If you're like most of the people I know, you look to the experts.That's fine, however it's important to be aware that for every expert, there's an opinion and for every opinion there's an expert.
Four Key Components To Building A Trading System
Need some insight on what you should really be striving for when you're building a mechanical trading system? When it comes down to it, there are really only a few criteria that are used in judging the merits of a trading system. The most obvious one is profitability - does the system work? But really, there's more to it than just that.
Understanding The Real Rate of Return!
There is one indicator more than any other which determines the health of an economy and it is the Real Rate of Return.
Furthermore this is the simplest of all indicators to understand because it determines the safety of assets.
Investing Offshore for Retirement
As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore for your retirement.
Angels, Are They Real?
They're real, but few survive. High risk investing is dangerous to your bank balance.
|