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

---

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to start a business from scratch. Many franchise agreements are renewed every five or ten years, automatically. If... Read More

Your Portfolio and ?Old Ironsides?

The USS Constitution first ventured into the waters in 1798. From there she became an icon of durability and success.In battle, the ship became known as "Old... Read More

The Demise of Buy & Hold

Based on consistent results I think Buy & Hold should be renamed Buy, Hold & Bye-Bye. It sounded great for a while, especially for the huge majority... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a second thought, the term "Financial Planning" could be a scary one. Investments can be a smart way... Read More

Bearish or Bullish?

If you are interested in stock investing and the stock market, you may have plenty of questions. Even if you have already started investing, you may still... Read More

An Economical Retirement Investment Plan

The practice of economy, directed toward a retirement investment plan in the stock market, is in itself a source of great revenue. It is the art of... Read More

Going Against the Conventional Investment Wisdom

First of all, I want to give everyone the disclaimer that I am not a registered financial advisor and I don't play one on TV. Therefore, I... Read More

Have You Ever Seen A Map of the World Turned Upside Down?

For those accustomed to viewing things a certain way, it is quite disconcerting. One almost expects the ocean to pour out. It just seems wrong. Yet, the... Read More

The Biggest Oil Opportunity in the World ? And How You Can Profit From It

Where is the second biggest deposit of oil reserves in the world?In the oil sands region of Alberta, Canada. Oil sands are a thick, viscid mixture of... Read More

Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds

Stock trading strategies are as rampant today, as they were during the Great Bull Market. Yet, can you truly master the stock market like so many investing... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have long pointed out ?- adding foreign stocks to your portfolio will, over the long term, increase your... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well to adopt a casino mentality. At first glance, this sounds reckless and nothing more than a gambling... Read More

Is a SEP Plan Right For Your Business

A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A... Read More

My Way Or The Highway: Give Your Financial Professionals A Good Talking To!

All this talk about Investing is encouraging lately. Over the last few years, more people have become interested in the duty to invest there money, then ever... Read More

Powerful Hidden Techniques Mystery Formula - The Covered Call Option Trading Buy-Write Strategy

For better or worse, most option trading investors purchase stocks with the intent of holding their shares for an extended period of time.We do this mainly because... Read More

How To Create Wealth In The Stock Market

First and foremost, an opportunistic strategy for creating wealth in the stock market is needed. And the opportunistic strategy for creating wealth in the stock market must... Read More

Do You Need A Financial Planner?

No matter how much money you make, it pays to keep on top of money coming in and going out. Even if you do a good job... Read More

Quit and Retire Three Years Earlier!

For most people, there is a direct correlation between how worried they are about retirement income, and how much they can actually do about it. This is... Read More

CYA

You all know what CYA stands for. Of course, Cover Your Assets.And everyone does it. You have protection against losing your car in an accident. You have... Read More

In a Time of Need

As I take my leisurely walk with my dog through the older section of the local cemetery, I pause to read the details on the barely legible,... Read More

The Benefits of Laddering Your CD Investments

If you've decided to stock some money away in a certificate of deposit, why not reap the highest benefit over time by laddering your CD investments? What's... Read More

The High Price of Oil

In less than four years, the price of oil has risen about 300%, or over $50 a barrel. The Light Crude Continuous Contract (of oil futures) hit... Read More

Discipline in Trading and Investing

The one thing I can think of that most affects both trading and investing has to be self-discipline.Being disciplined is fully 50% of the job of trading... Read More

Exchange Traded Funds

They call 'em ETFs.There are hundreds of them.The mutual funds don't want you to find out about them.Why?Because they beat the socks off mutual funds in so... Read More

Keeping It Interesting

Some lines from a movie never leave your mind; I don't remember the context always, but I do recall the dialog. "The Big Chill" is one of... Read More

Success Trading: More Basic Terminology for New Traders

One important aspect of trading the markets is to understand how to feel it's overall pulse. In the stock market, this is measured by measuring the movements... Read More