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