Investment Operations

Discount Bond

A bond is a formal contract to repay borrowed money with interest at fixed intervals. This is a bond that is sold for less than its original price value. Bonds that are issued below the original price can rise. Discount bonds can be paid to the bearer once it expires.

Interest Rate

A rate that is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender (such as a bank) charges a customer $90 in a year on a loan of $1000, then the interest rate would be 90/1000 *100% = 9%. From a consumer's perspective, the interest rate is expressed as annual percentage yield (APY) when the interested is earned, for example, from a savings account or a certificate of deposit. When the interest is paid, for example, for a credit card, a mortgage, or a loan, the interest rate is expressed as annual percentage rate (APR). Examples APY Accounts Savings Account Certificate of Deposit Money Market Checking (some) Examples APR Accounts Credit Card Mortgage Loans

Coupon Rate

Bondholders use to received a certificate. Most of these certificates had coupons attached to a certificate that provided the terms of a loan. When the interest payment was due, the investors detached the coupon and would exchange it for cash. And instead this is the bond's interest rate called coupon rate. Coupon rate is the interest that investors would receive as soon as their bond would mature.

Value Investor

Buys securities that are selling for less than the manager believes its worth, if the securities are undervalued, the price will rebound. A true value investor would never invest in a company that does not have an established competitive moat (e.g. brand name) protecting its core business. Both Warren Buffet and Benjamin Graham use this style of investing, believing that all investments should be worth greatly more than an investor has to pay for it. For example, Warren Buffett's most successful investments were in companies that were financially struggling, but had enormous brand power, like Coke. Example: such securities may be stock in public companies that trade at discounts to book value or tangible value, have high dividend yields, have low price-to-earnings multiples or have low price-to-book ratios. What Factors do Value Investors use? The earnings yield of the company, which is the inverse of the Price-to-Earnings Ratio. The earnings yield can be interpreted as the earnings return on every dollar spent on this stock. Intuitively, stocks with low P/E ratios have high earnings yields. Also Margin of Safety, the difference between the price and the calculated value. Pros It reduces long-term risk of losing money by choosing investments which have a built in margin of safety. "Hot" stock tips, hype, and mass hysteria do not affect the decisions a value investor makes. Can produce steady, consistent gains that regularly outperform most benchmarks (e.g. S&P 500, DJIA, etc...) Cons Value investing is extremely taxing to the average person, as major analysis must be done prior to investing, and it requires an unusual level of confidence, as investments are made with an infinite time limit. Value Investors must be willing to remain within their circle of skill and invest only in businesses they fully understand. Value investing places great significance on being a savvy businessperson in addition to having an in-depth understanding of securities and markets.

Committee on Uniform Security Identification Procedures (CUSIP)

Form during the Paper Crunch on Wall Street in 1964, this serves as the National Securities Identification Number for products issued from both the United States and Canada. It's a numbering system owned by American Bankers Association and is operated by Standard & Poor's. Its use to identify any North American security for purposes of facilitating clearing and settlement of trades. It's a nine-digit number that is giving to all stocks and registered bonds, which is used to make sure that it's an accurate match.

Premium Bond

Is a bond that investors will prefer if it has a coupon rate: a semi-annual rate. Also, if a premium bond has a higher par value (face value) than usual and a high yield (return of investment) it is more appealing to the investor. A premium bond gives you the chance to win big on a return. What it means when you hear "premium" or "discount" as an investor is that the price of the bond is either higher or lower than the par value. Bonds can be sold for more or less than their par value because of changing interest rates. When interest rates are high, the price goes down and vice-versa. EXAMPLE: If the market's interest rate is at 3% today and you just bought a bond paying a 5% coupon with the face value of $1,000 if interest rates go down by 1% from the time of your purchase, you will be able to sell the bond for a profit (or a premium).

Stock Index

Is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds. Stock market indices may be classed in many ways. A 'world' or 'global' stock market index includes (typically large) companies without regard for where they are domiciled or traded. A 'national' index represents the performance of the stock market of a given nation. More specialized indices exist tracking the performance of specific sectors of the market. An index may also be classified according to the method used to determine its price. In a price-weighted index such as the Dow Jones Industrial Average, Amex Major Market Index, and the NYSE ARCA Tech 100 Index, the price of each component stock is the only consideration when determining the value of the index.

Shareholder

Is an individual who owns shares of stocks in a company or organization. They usually have a certificate saying that they are the real owner, and have a certain portion of that property. They hold a percentage of the company's assets and earnings, but that doesn't mean that because you own a few shares, you have a big portion of the company.

Common Stock

Is the most stock issued in the United States. Owning it entitles you to collect dividends if the company pays them, and you can sell shares at a profit if the price increases. But stock prices change all the time, so you have to recognize that your shares can lose value.

Diversity

It has to do with your portfolio this word means to diverse your portfolio into different stocks like a growth stock (which is a stock that earns above average profits.), and a Defensive stock (this stock will remain stable even if the economy is declining.) Diversity is just a way of showing your portfolio has different type of investments. You can also add mutual funds to your portfolio (this fund allows more than one investor to get into a person's portfolio usually a money manager will keep track of this portfolio.)

Earnings Per Share

The best time to look at a company's earnings per share is when you are deciding if you should invest in the company. It is one of the few things investors look at when evaluating a company and determine if the company is doing well which makes it easier to compare companies of different sizes. Companies earnings per share shows profitability. Using the earnings per share ratio you divide the companies' earnings or net income by the number of outstanding shares. It is calculated during a certain period of time usually either annually or quarterly. It shows the portion of a company's earnings that is distributed to each share of common stock. For example if a company makes 6 million in earnings and had a 10 million in outstanding shares. The earnings per ratio would be 0.40 or 40%. Knowing that the number of shares changes over time it is important to use the average number of shares. Eps helps with determine the shares price or its stock value.

Capital Gain

This is the difference between what you paid for an investment and what received when you sold that investment, it can be a business, stocks, real estate, precious metal. If you sold an investment for more than what you paid for it, it's a capital gain. If you sold an investment for less than what you paid for it, it's a capital loss. Capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. It's calculated as follow: Selling price Minus Selling fees & commissions Minus Buying fees & commissions Minus Purchase price = Profit (or Loss if negative)

Stock Symbol / Ticker Symbol

is an abbreviation assigned to each company with securities in the public exchange market that represents that specific company. Companies adopt ticker symbols that will help the public link them to their company. They sometimes use the abbreviation of a known product, or like Google (GOOG), a shortened form of their company name. This acronym is usually two-four letters long, but it can sometimes be found as a single letter, or even a combination of letters and numbers. The Standard & Poor's(S&P) development of the modern letter-only standard to investing in the U.S., so you will usually find that companies trading in the NYSE will follow this standard. Securities traded on the NYSE will have up to three letters, while the ones traded on NASDAQ will usually have no more than four letters. Mutual funds will usually have an x at the end of this abbreviation, as they are also traded on the market.

Discount Bond

is bond that is sold for less than its original price value. Discount bonds can be paid to the bearer once it expires.

Day Trader

is to buy and sell financial instruments and the goal of the day trader is to make a profit off the difference between the buying and selling price. This at first was only available to banks and financial firms because they were the only ones with access to the market information, but now any individual can be a day trader. Being a day trader is a real risky thing to be because one can get great loss in such a short period of time. They always work with risk capital, which is money they can afford to lose, they use stop and limit orders to reduce losses, and they always close out at the end of the day. Day Traders is different from being an investor because they do not hold on to their stocks for a long period of time. They buy and sell stocks within the same day, day investors try to buy low and sell, just as anyone else would.