Concepts, definitions, and terms on investing stocks in the stock market.
401(k). Employer sponsored retirement saving plans for companies that intends to make a profit.
403(b). Employer sponsored retirement saving plans for companies that are non-profit such as schools, hospitals, and tax exempt companies.
457. Employer sponsored retirement saving plans for state and local government and some tax exempt companies.
52 Week High. The highest price the stock traded in the last 52 weeks.
52 Week Low. The lowest price the stock traded in the last 52 weeks.
529 College Savings Plan. A state-sponsored education savings plans in which an investment portfolio is chosen.
All Or None (AON). The order must be completed at one time or not at all.
Annuity. An annuity is an insurance contract when you make an investment and receive income in the future. The money earned in the contract is tax deferred.
Arbitrage. Making money during short-term differences in price. For example, purchase a stock in two different countries which the prices are different. Buy at the county with the lower price and sell at the country with the higher price.
Ask Quote. The price a seller is wanting to sell. Think of Ask Quote as the asking price of a painting in an art store. The quoted ask price is the lowest price a seller wants to sell.
American Stock Exchange (AMEX). One of two major exchanges in the United States where stocks are traded. An exchange is a place where buyers and sellers meet to trade stocks.
Asset Class. A category that divides which stock belongs either in the Large Cap, Small/Mid Cap, or International.
Basis Point. A basis point equals 0.01%. 50 basis points equals 0.50%.
Beta. The Beta measure price volatility. If the Beta is greater than 1, the stock price is more volatile than the market. If the Beta is less than 1, the stock price is less volatile than the market.
Bid Quote. The price a buyer is wanting to purchase. Think of Bid Quote in an auction and you are bidding to purchase shares. The quoted bid price is the highest price a buyer wants to purchase.
Blue Chip. Blue Chip companies are companies that have been in business for a long, long time. The companies consistently generate higher revenues and are considered the safest companies to invest. The chances a Blue Chip company declares bankruptcy is virtually zero.
Bonds. When you own a bond, you are lending money. There are three types of bonds which receives the money which are Corporate, Government, and Municipal. In return, you receive a fixed rate of interest. When the bond expires, the face value of the bond is paid back. Bonds and stock prices move in opposite direction.
Book Value Per Share. Book Value Per Share is the difference between the total assets and total liabilities. Book Value Per Share = (Total Assets) - (Total Liabilities).
Buy and Hold Strategy. The Buy and Hold Strategy is an investment strategy for which the owner can minimize capital gains taxes and maximize growth in his/her portfolio.
Capital Gain. Capital gain is the profit earned from selling a stock. The capital gain is taxed either at your ordinary income tax rate if the stock was owned for one year or less, or at a long term capital gains tax rate if the stock was owned for more than one year.
Capital Loss. Capital loss is how much the owner of a stock lost from selling the stock. In other words, the price sold was below the price purchased. For example, a stock was purchased at $50.00 per share and sold for $40.00 per share. The capital loss is $10.00 per share. Capital losses can be used to offset capital gains. Also, capital losses can be used as a deduction against ordinary income when filing taxes (see your tax advisor for more information). The "wash sale" rule applies to capital losses.
Cash. In stocks and investment, cash refers to Certificate of Deposits (CD), Treasury Bills, and Money Market Funds. In a portfolio, typically cash is in the form of Money Market Funds for which the cash can be withdrawn anytime.
Change. The difference between the previous closed price and the last trade price. In other words, it's when people say "it's up $.75" or "it's down $1.50" at the moment.
Charge Offs. When a company announces $X million charge off, it's a one time charge that includes the cost of downsizing, write offs, buying another company, and other unusual costs. Usually the charge offs are costs the company doesn't deal with in a fiscal year and removes the charge off from the earnings results. For example, a company reported $100 million in earnings and spent $5 million in downsizing. The $5 million is labeled charge off. As a result, the company actually earned $105 million.
Compounding. Earning additional income from the original plus all past additional income. In other words, earning interest over interest. For example, an account with $100.00 earning 10% interest a year. In the first year, the account earned $10.00 for a total of $110.00. In the second year, the account earned $11.00 for a total of $121.00. The $11.00 is the compounding or the compounded earnings in the second year for the $121.00 total.
Cyclical. Cyclical companies expand and contract, and expand and contract in a regular and almost predictable way. Their sales and profits go up and go down usually as expected. Autos, airlines, steel, and defense industries are examples. Cyclical companies react to economic change as expected.
Day Order. The order to buy or sell a stock is valid for today's session.
Dealer Market. A dealer market is multiple market makers deal in their over-the-counter stocks making buying and selling over-the-counter stocks competitive and fair.
Debt To Equity. How much debt the company has relative to shareholder equity. Debt To Equity is calculated by dividing the total debt by shareholder equity. Debt To Equity = (Total Debt) / (Shareholder Equity).
Defensive. Defensive companies are companies that are less affected during economic recessions. Defensive companies may be a great choice because they generally continue to generate revenues during an economic downturn.
Developed Markets. Companies in these markets have a major role in the world economy, politically stable, steady growth, and low risk.
Diluted Earnings Per Share (EPS). Diluted means the company is going to issue additional shares. The additional shares are added to the actual outstanding shares. For example, a company has 10 million outstanding shares. The company is going to issue an additional 2 million shares. The diluted shares is 12 million or 10 million + 2 million = 12 million shares. Combining diluted and diluted EPS, Diluted EPS = (Total Net Income) / (Total Diluted Shares).
Direct Stock Purchase Plans (DSPs). The DSPs allow an individual to purchase stocks directly from the companies or their agents. You can invest a small amount of money a time with either low fees or no fees. There is no need to purchase a full share for each contribution.
Diversify. Spread your investment portfolio in different investment assets such as stocks, bonds, and cash. Diversification brings stability to a portfolio during the fluctuations in the market.
Dividends. Some stocks pay dividends. Dividends are cash payments paid annually, semi-annually, or quarterly to shareowners from the company's profits. Shareowners can take the cash for income or can reinvest to purchase additional shares; regardless, dividends are taxable income whether paid in cash for income or reinvested.
Dividend Reinvestment. Dividend Reinvestment is the dividends paid are automatically used to purchase more stocks. The dividend earned to purchase more stocks are taxable income. If you are in a plan, it's called the Dividend Reinvestment Plan (DRPs) or Drips.
Dividend Yield. The annual dividend divided by the stock's current price. Dividend Yield = (Annual Dividend) / (Stock Price).
Dollar Cost Averaging. Buying a stock at different times in a period of time. For example, you buy a stock at $400.00 every month for the next 12 months. When the stock price is down, you buy more stocks. When the stock price is up, you buy less stocks. Dollar Cost Averaging is a way to buy stocks on a limited budget.
Double Taxation on Dividends. The Double Taxation term means dividends are doubled taxed. The first tax is the company's income. When a company issues a dividend, the dividend comes from the company's profits which comes from the company's income. The second tax is the shareholder's income. When a shareholder receives a dividend, the dividend is income to the shareholder. The Double Taxation is the company's income and the shareholder's income.
Earnings Per Share (EPS). How much net income the company made per share. EPS = (Total Net Income) / (Total Shares Outstanding).
Developed Markets. Companies in these markets have a small role in the world economy, politically unstable, growth potential, and higher risk.
Exchange Traded Funds (ETFs). ETFs are mutual funds traded on a stock exchange like a stock. Most ETFs are based on indexes such as the Dow Jones Industrials, NASDAQ 100, and the S&P 500 indexes.
Extended Hours Trading. Stocks can be purchased or sold before and after standard market hours. The standard market hours are 9:30 A.M. to 4:00 P.M. Eastern or 6:30 A.M. to 1:00 P.M. Pacific. The extended market hours are 8:00 A.M. to 9:15 A.M. Eastern or 5:00 A.M. to 6:15 A.M. Pacific and 4:15 P.M. to 8:00 P.M. Eastern or 1:15 P.M. to 5:00 P.M. Pacific. Stocks are traded differently during extended hours trading.
Fill Or Kill (FOK). The order must be completed in full immediately or canceled.
Float. A stock's Float is how much shares outstanding that are available for trading. For example, if a company has 100 million shares outstanding and the founder owns 10 million shares, the float is 90 million shares.
Good Til Cancelled Order. The order is valid longer than today's session until the order is filled or canceled.
Goodwill. Money a company pays to purchase another company which is above the actual value of assets received. The difference between the purchase price and the actual value is the money lost in the acquisition or Goodwill.
Growth Stocks. Growth stocks are companies that are well established and the price of the stock may increase when earnings increases. The price of the stock tend to rise higher than the market average when earnings and good and tend to fall lower than the market average when earnings are bad.
High or Day High. The highest price the stock traded for the session.
Immediate Or Cancel (IOC). The order must be filled as much as possible immediately and cancel any remaining.
Individual Retirement Accounts (IRAs). There are three types of IRAs which are Traditional IRA, Roth IRA, and Rollover IRA. Each IRA has different characteristics. Anyone can open an IRA as long as the eligibility requirements are met.
Income Stocks. Income stocks have a more steady stock price. The stock price changes little during an economic boom and an economic bust. Companies considered an income stock pays high dividends. Utilities and real estate are examples of Income Stock companies.
Industry Class. A category that divides which stock belongs in which industry. Hotels, Casinos, Semi-Conductors, and Restaurants are examples of Industry Class.
International Stocks. Stocks whose company is located outside the United States.
Intrinsic Value. How much the company is worth based on assets, debts, growth targets, and how much cash the company generates. Intrinsic Values varies among analysts.
IPO. IPO stands for Initial Public Offering. An IPO is a company issuing shares of stock to the public to raise money.
IRA. IRA stands for Individual Retirement Account.
KEOGH. Self-employed and small business plan retirement plan for the self employed.
Large Cap Stocks. Known as Large Capitalization Stocks, these companies known as Large Caps have a market capitalization value $10 billion and greater. Large Cap Stocks have established growth and dividend payments.
Last Trade Price. The latest price of the stock which either was the purchased price by a buyer or a sale price by a seller.
Last Trade Time. The time of the last traded price of the stock.
Limit Order. An order to buy or sell a stock at a price set by the buyer or seller, respectively. If the Limit Order is a buy, set the maximum price you want to buy. If the Limit Order is a sell, set the minimum price you want to sell. The set price is the Limit.
Liquidity. The ability of a stock to handle a large volume of trading without price fluctuations.
Low or Day Low. The lowest price the stock traded for the session.
Margin. Margin is borrowing money to purchase stocks and bonds. Your portfolio is used as collateral. A minimum margin equity called Maintenance Requirement is required to keep the margin or the broker can issue a Margin Call.
Margin Call. Margin Call is when your broker requires additional funds or securities to maintain the margin or loan. The broker issues a Margin Call when the margined securities drops to a certain price. Your broker can sell securities in your portfolio to protect its interest in your margin or loan.
Market Capitalization. The market value of a company. Market Capitalization is calculated by multiplying the total common shares and the current price of the stock. Market Capitalization = (Total Number of Common Shares) * (Current Price of the Stock). Market Cap is short for Market Capitalization.
Market Makers. Market Makers buy and sell Over-The-Counter stocks to have an inventory of the stock or stocks responsible.
Market Order. An order to buy or sell a stock now.
Market Value. How much investors want to pay for a company. The Market Value is the Market Capitalization. If the market capitalization for a company is $1 million or 100,000 shares at $10.00 per share price, then the market value is $1 million.
Mid Cap Stocks. Known as Middle Capitalization Stocks, these companies known as Mid Caps have a market capitalization value between $1.5 billion and $10 billion.
Money Market. A short term investment where money (or cash) is in Treasury bills, short-term commercial debt, and Certificates of Deposit. Money Market is one of the safest investments and one of the lowest annual returns.
Moving Average. A moving average or rolling average take a time period and averages out the time period in a defined time period set by the person calculating the moving average or rolling average. For example, a 10 year period and the time period to calculate the moving average or rolling average is 2 years. The first moving average is the 1st year and 2nd year, the second moving average is the 2nd year and the 3rd year, the third moving average is the 3rd year and the 4th year, etc.
Mutual Funds. When you own a mutual fund, you own a fund which contains stocks, bonds, money market funds, and/or a combination. Professional money managers take the money from all the owners of the mutual fund to buy and sell the stocks, bonds, and/or money market funds.
National Association of Security Dealers Automated Quotation (NASDAQ). The NASDAQ is an Over-The-Counter (OTC) market where buying and selling are through a computer network. There are over 5,000 stocks traded on the NASDAQ. Companies traded on the NASDAQ must have a market capitalization of at least $8 million.
Net Income. Another word for profit.
Net Profit Margin. How much profit is made from total revenues. Net Profit Margin = (Net Income) / (Total Revenues).
New York Stock Exchange (NYSE). One of two major exchanges in the United States where stocks are traded. An exchange is a place where buyers and sellers meet to trade stocks. The NYSE is the largest exchange with at least 3,000 stocks listed for trading. Companies traded on the NYSE must be profitable for the last three years and have a market capitalization of at least $40 million.
Over The Counter Bulletin Board. A stock is traded Over The Counter Bulletin Board or Over The Counter (for short) or OTCBB meaning the stock is not traded on any of the national securities exchange including the New York Stock Exchange and NASDAQ. A company whose stock is traded Over The Counter has the symbol ob at the end of their stock symbol.
Quote, In General. In the NYSE and AMEX, the specialist sets the bid quote from the highest price an investor wants to buy and sets the ask quote from the lowest price an investor wants to sell. In the OTC market, the multiple market makers' highest price an investor wants to buy and the lowest price an investor wants to sell are the bid and ask quotes, respectively.
Partial Fills. Complete an order a different and best prices.
Pink Sheets. A stock is traded on the Pink Sheets when the stock is considered a penny stock. The stock has the symbol pk at the end of their stock symbol.
Points. In the stock market, indexes are quoted as points even though their stock components are quoted as prices.
Price To Book Value (P/B). The P/B Value is how much shareholders receive from the company's assets if liquidated. P/B Value is calculated by dividing the stock price by the Book Value Per Share. P/B = (Stock Price) / (Book Value Per Share).
Price To Earnings Growth (PEG). The PEG is an indication on how expensive the stock is compared to the 5 Year Projected Growth. The PEG is calculated by dividing the P/E Ratio and the 5 Year Projected Growth. PEG = (P/E Ratio) / (5 Year Projected Growth).
Price To Earnings Ratio (P/E). The well known P/E Ratio is how much investors are paying for the stock for each dollar in net income. P/E Ratio is calculated by dividing the stock price by the earnings per share for the previous 12 months. P/E = (Stock Price) / (Earnings Per Share). P/E Ratios are interpreted in many ways good and bad. Forwarding looking P/E ratios is the stock price divided by the expected earnings per share.
Price to Sales Ratio (PSR). The PSR calculates the company's valuation. PSR = (Market Capitalization) / (Total Revenue in One Year). The lower the PSR, the more undervalued the company.
Primary Capital Market. Investing or purchasing shares of a company in which the money goes directly to the business.
Public Traded Company. When a company issues stock to raise money, the company is a public traded company. A public traded company must release quarterly earnings reports and annual detailed reports. These companies must have a board of directors to guide the company.
Return. How much money you receive from your investment.
Return on Assets (ROA). How much the company is maximizing their assets. ROA is calculated by dividing the net income by the total value of the assets. ROA = (Net Income) / (Total Value of the Assets). The ROA in percentage terms converted to dollars is how much net income was earned for each dollar of assets. For example, if ROA is 3.5%, the company made a net income of $.035 for each dollar of assets.
Return on Equity (ROE). How much profit made from the money the company raised from selling their shares and from retained earnings or accumulated profits not spent. ROE is calculated by dividing the net income by shareholder equity. ROE = (Net Income) / (Shareholder Equity).
Risk. The maximum amount of money you choose to lose from your investment. The more money you choose to lose, the higher the risk tolerance you have.
Roth IRA. An IRA which is a tax-free account. Contributions do not reduce taxable income. Qualified withdraws are not taxed.
Russell 2000. A stock index that measures the movement of the stock market. The Russell 2000 measures the bottom 2000 of the 3000 largest companies. The Russell 2000 can be used to assess the performance of small cap stocks.
Rule of 72. Use the Rule of 72 formula to estimate how many years to double your money. The formula is Years = 72 / Rate of Return. For example, if the Rate of Return is 12%, it takes six years to double your investment or 6 = 72 / 12.
Sales Per Employee. How much revenue the company makes per employee. Sales Per Employee is calculated by dividing the total revenue by the total number of employees. Sales Per Employee = (Total Revenue) / (Total Number of Employees).
Same Store Sales Numbers. Sale figures in stores opened one year or greater.
Seasonal. Seasonal companies generate higher revenues during specific seasons or specific times during the year. For example, retail stores make higher revenues during the Christmas season.
Secondary Capital Market. Investing or purchasing shares of a company for which the money goes to the seller of the shares. These shares are traded at the NYSE, NASDAQ, AMEX, or over-the-counter. The company already has the money from the shares because the company issued the shares for money.
Sector Class. A broad category that divides which stock belongs in which sector. Retail, Transportation, Technology, and Financial are examples of Sector Class.
Security. Security is a broad term for stocks and bonds.
SEP-IRA. Self-employed and small business plan retirement plan for the self employed.
Shareholder Equity. The total amount of money a company raised from selling their shares. Shareholder Equity can be calculated by taking the total assets and subtracting from the total liabilities. Shareholder Equity = Total Assets - Total Liabilities.
Simple IRA. Self-employed and small business plan retirement plan for owners of small businesses and their employees.
Small Cap Stocks. Known as Small Capitalization Stocks, these companies known as Small Caps have a market capitalization value $1.5 billion and below. Small Cap have potential for rapid growth and are more volatile than Large Cap Stocks.
Specialist. The specialist facilitates the buying and selling one or more stock on the trading floor. The specialist maintains a fair buying and selling of the stock or stocks responsible.
Spread. The difference between the bid price and the ask price.
Standard & Poor 500 (S&P 500). A stock index that measures the movement of the stock market. The S&P 500 measures 500 companies considered the leaders from their various industries. The S&P 500 can be used to assess the performance of large cap stocks.
Stock Buyback. A company purchases shares of their own stock on the market.
Stock Split. A recapitalization of the total number of shares outstanding. For example, a company announces a 2 for 1 stock split. One old share becomes two new shares and the stock price is half the price. A person owns 200 shares at $10.00. The stock splits 2 for 1. The person now owns 400 shares at $5.00. Sometimes, a company announces a reverse stock split such as a 1 for 2 reverse stock split.
Stocks. When you own a stock in a company, you own the company in the form of shares. Market trends, earnings reports, current events, company announcements, and analyst ratings affect the stock market. Stocks and bonds prices move in opposite direction. A company sells stocks to generate capital.
Stop Order. An order to buy or sell a stock at the market price when the price of the stock reached or passed the buyer's or seller's (Stop) price. In other words, when the price of the stock reached or passed the Stop price, the Stop Order becomes a Market Order.
Stop Limit Order. An order to buy or sell a stock at a price set by the buyer or seller when the price of the stock reached or passed the buyer's or seller's (Stop) price. In other words, when the price of the stock reached or passed the Stop price, the Stop Order becomes a Limit Order.
Symbol. Every stock and mutual fund has a symbol. The symbol is three or more letters that represents the company. For example, the stock symbol for Walt Disney Company is DIS, the stock symbol for Southwest Airlines is LUV, and the stock symbol for Intel Corporation is INTC. Stocks traded on the New York Stock Exchange usually have three letters or less. Stocks traded on the NASDAQ usually have four letter or more.
Tax Deferred. Tax deferred means the person pays taxes at a later time.
Time of Quote. The time of the Last Trade Price.
Trading Floor. Area in the NYSE and the AMEX where buyers and sellers exchange stocks.
Traditional IRA. A type of IRA.
Value Stocks. Value stocks are companies that are undervalued and the market hasn't realized the great potential of the company.
Volume. The number of shares bought and sold for the session.
Wash Sale Rule. The capital loss can't be claimed for tax purposes if you purchased shares in the same company within 30 days after the sale.
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