Stock Basics: Investopedia

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

Depreciation

A decrease in an asset's value caused by unfavorable market conditions.

Auction Market

A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. The price a stock is traded represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to sell at. Matching bids and offers are then paired together and the orders are executed.

In The Street Name

A modernized stock certificate that is digitalized and in a computer. Makes trading easier.

Stock Certificate

A piece of paper verifying what stock you own and how much. This used to be traded amongst people but now it is all digitally done.

Common Stock

A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debtholders have been paid in full.

Dividend Reinvestment Plan (DRIP)

An agreement made by you and a corporation where upon receiving dividend, they are automatically reinvested in that company for more shares at a discounted price or no commission. Partial Enrollment DRIP is when not ALL dividends are used, but partially and you still get some money and a Full Enrollment is when all dividends are reinvested.

Appreciation

An increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates.

Bid

An offer made by an investor, a trader or a dealer to buy a security.

Debt Financing

Companies can either borrow money from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.

Absolute Priority

If a company goes bankrupt and liquidates, you, as a shareholder, don't get any money until the banks and bondholders have been paid out.

Earnings

Investors and Wall Street look at a company earning, or profits. Public companies are required to disclose these 4 times a year, each quarter.

Equity Financing

It does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them.

Stock Liability

No matter what, the maximum value you can lose is the value of your investment. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Voting Rights

Shareholders ability to vote on certain managing decisions and board of directors. One for for each share.

Class A and Class B Stocks

Stocks with varied votes per share. Companies want certain groups of shareholders to have more votes per share than others. The different forms are represented by placing the letter behind the ticker symbol in a form like this: "BRKa, BRKb" or "BRK.A, BRK.B".

Market Capitalization

The stock price multiplied by the number of shares outstanding. For example, a company that trades at $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million).

Liquidation

When a company becomes insolvent and cannot pay back its debts or obligations, the assets are divvied up among creditors and shareholders.

Exchanges

Where stocks are traded. NYSE which is a trading floor or online with a network of computers.

Stock

a share in the ownership of a company. Stock represents a claim on the company's assets and earnings.

Primary Market or NIM (New Issue Market)

A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.

Secondary Market

A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the New York Stock Exchange and the NASDAQ are secondary markets.

Over The Counter Bulletin Board (OTCBB)

A stock exchange for penny stocks and small companies with little to no regulation. Very risky. This is a market for companies that aren't big enough to be traded on the NYSE, NASDAQ or AMEX.

Callable

The company who you own shares in can buy them back from you at any time for any reason.

Spread

The difference between the bid and the ask price of a security or asset.

IPO

The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).

Ask

The price a seller is willing to accept for a security, also known as the offer price.

Principal Theory

The price of a stock is what investors feel the company is worth.

Over The Counter Market

These markets have no central location or floor brokers whatsoever. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.