Chapter 14 - Investing in Stocks
Total Return
A calculation that includes not only the yearly dollar amount of dividends but also any increase or decrease in the original purchase price of the investment
Earning Per Share
A corporations after-tax income divided by the number of outstanding shares of a firm's common stock
Dividend
A distribution of money, stock, or other property that a corporation pays to stockholders
Investment Bank
A financial firm that assists corporations in raining funds, usually by helping to sell new security issues
Proxy
A legal form that lists the issues to be decided at a stockholders meeting and requests that stockholders transfer their voting rights to some individual or individuals
Account Executive
A licensed individual who buys or sells securities for clients... also called a stock broker
Dollar cost Average
A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals
Secondary Market
A market for existing financial securities that are currently traded among investors
Primary Market
A market which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities
Securities Exchange
A marketplace where member brokers who represent investors meet to buy and sell securities
Beta
A measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Stock Index
Over-The-Counter Market (OTC)
A network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
Dividend Reinvestment Plan
A plan that allows current stockholders the option to reinvest or use their cash dividends to purchase stock of the corporation
Direct Investment Plan
A plan that allows stockholders to purchase stock directly from a corporation without having to use an account executive or a brokerage firm
Stock split
A procedure in which the shares of stock owned by existing stockholders are divided into a larger number of shares
Limit Order
A request to buy or sell a stock at a specified price or better
Market Order
A request to buy or sell a stock at the current market value
Stock Market Bubble
A situation in which stocks are trading at prices above their actual worth
Ex-dividend
A situation when a stock trades "without dividend," and the seller - not the buyer - is entitled to a declared dividend payment
Margin
A speculative technique whereby an investor borrows part of the money needed to buy a particular stock
Preferred Stock
A type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends
Nasdaq
An electronic marketplace for approximately 3,200 different stocks
Day Trader
An individual who buys and the later sells stocks and other securities in a very short period of time
Stop-Loss Order
An order to sell a particular stock at the next available opportunity after its market price reaches a specified amount
Technical Analysis
Assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole, not on the expected earnings or the intrinsic value of an individual corporations stock
Fundamental Analysis
Based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings
Efficient Market Hypothesis (EMH)
Based on the assumption that stock price movements are purely random
Specialist
Buys or sells a particular stock in an effort to maintain an orderly market
Annualized Holding Period Yield
Calculation the takes into account the total return, the original investment, and the time the investment is held
Book Value
Determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock
Equity Financing
Money received from the sale of shares of ownership in a business
Initial Public Offering (IPO)
Occurs when a corporation sells stock to the general public for the first time
Selling Short
Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date
Dividend Yield
The annual dividend amount generated by an investment divided by the investment's current price per share
Market-To-Book Ratio
The current market value of one share of stock divided by the book value for one share of stock
Record Date
The date on which a stockholder must be resisted on the corporations books in order to receive dividend payments
Common Stock
The most basic form of ownership for a corporation
Dividend Payout
The percentage of a firm's earning paid to stockholders in cash
Price-Earnings Ratio
The price of a share of stock divided by the corporation's earning per share of stock
Option
The right to buy or sell a stock at a predetermined price during a specified period of time