Chapter 14 Terms
How to research stocks
1. Obtain corporate financial statements filed with the Securities & Exchange Commission. You can get such documents without charge via www.freeedgar.com 2. Analyze quarterly statements covering two or three years, noting trends in earnings per share and revenue. 3. Look for a trend of consistent growth in a share of stock's earnings per share ratio. 4. Calculate the company's or corporation's price-earnings (PE) ratio, a measure of a stock's value (divide the price of one share of stock by annual earnings-per share.) 5. Compare the stock's price-earnings ratio with the stock's industry's norms AND with the S&P 500's ratio. The lower the ratio, the less expensive the share of stock is relative to the stock's earnings. 6. Beware of debt. Check out the company's or corporation's balance sheet, looking for the extent of its long-term debt. 7. Check the company's or corporation's cash flow. You will want the company or corporation to have positive cash flow if you are interesting in purchasing a share(s) of stock from this company or corporation.
Federal Reserve Bank
A U.S. Government Agency (NOT the U.S. Treasury) that has four basic functions: to influence the supply of money and credit, to regulate and supervise financial institutions, to serve as a banker for the government, and to supply payment services to the public through depository institutions. It responsible for keeping the U.S. economy in balance by controlling interest rates and money supply, and its current chairman is Dr. Ben Bernanke. BPIC
Securities & Exchange Commission (SEC)
A U.S. Government agency that was established by Congress in 1934 for two reasons: to provide full disclosure to investors (annual reports), and to provide fraud in connections with the sale of securities. The ___ monitors illegal actions (it is the "Wall Street Police"), such as insider, manipulation of stock prices, falsification of corporate records, and other ill-gotten gains; caught perpetrators of these crimes may receive fines and/or jail time for illegal actions. The ___ also tracks the stock market for unexplained price moves. D-TIAR, PF
Reverse stock split
A ___ occurs when a company decreases outstanding shares, but increases the selling price for one share of stock in direct proportion. For example, if you have two shares of stock worth $40 total (each share of stock is worth $20), the company will increase the worth to $80 but for two shares of stock, making one share of stock worth $40.) A ___ can have positive effects on a company if the company has relatively few (tens, hundreds, or thousands) of shares in an economic recession or depression.
Stock split
A ___ occurs when a company increases its outstanding shares, but decreases the selling price on one share of stock in direct proportion. For example, if one share of stock is worth $80, the company will make a "2 for 1" deal by decreasing the worth to $40 but for two shares of stock, making one share of stock worth $40.) However, a ___ can have negative effects on a company if the company has relatively many (hundreds of thousands or millions) of shares in an economic recession or depression.
Public corporation
A company (specifically a corporation) whose stock is traded openly on stock markets.
Ticker tape (stock ticker)
A continuous thin ribbon of paper on which stock quotes are written. It was invented in 1867, *constantly* keeps up-to-date prices of securities (such as stocks and bonds), used to be on paper, but is now on screens, and is also called a stock ticker.
Margin agreement
A contract that must be completed and signed by an investor (the client) and approved by the brokerage firm or stock broker in order to open a ___ account. This sets out the terms and conditions of the account, and the investor required to possess this if he or she wants to buy on ___ from his or her investor.
Initial public offering (IPO)
A corporation's first offer to sell stock to the public.
Over-The-Counter Bulletin Board (OTCBB)
A dealer network in which many unlisted stocks trade on. Be very wary of some ___ stocks. Moreover, the ___ stocks are either penny stocks or are offered by companies or corporations with bad credit records, so be wary of those kinds of stocks, also.
Pink sheets
A dealer network in which many unlisted stocks trade on. The provider of interdealer, whole sale quotes for over-the-counter stocks not listed on NASDAQ. The print version of the ___ is published monthly, with daily updates. An electronic version, the Electronic Quotation Service (EQS) is a real-time system.
Margin call
A demand by a broker that a customer deposit enough to bring his margin up to the minimum requirement. It occurs when the share(s) of stock gets to half of the original purchase price.
Commission
A fee that a stockholder has to pay when he or she buys or sells a share(s) of stock. It can be wither a straight fee for each (ex. $8 per trade) OR a flat percentage rate of the purchase of the purchase or selling price for a piece of stock (ex. 2& for each trade).
Board of Directors
A group of people elected by the stockholders to manage a corporation. If the corporation makes a profit (net income), they decide whether or not to distribute earnings back to their stockholders in the form of a dividend. However, at the same time, the ___ does not have to declare a dividend at all; they could instead keep the earnings and reinvest them into the company in order to help maximize their company's profit.
Corporation
A legal entity separate from its shareholders. This means that an individual shareholder in a corporation is NOT directly responsible for the actions of the ___. In the event of bankruptcy, the financial loss to the shareholders is limited to their investment in the ___'s stock.
Stock quote
A list of representative prices bid and asked for a stock during a particular trading day. Stocks are ___ in points
Stock exchanges
A marketplace that brings buyers and sellers of securities (such as stocks and bonds) together. The prices of securities are dictated by supply and demand. Each stock has two sides, a buyer and seller (each does the "bid" and "ask," respectively). To be listed on a major stock exchange, a company or corporation has to meet certain financial and legal requirements. Examples of ___ are the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), Philadelphia Stock Exchange (PHLX), Chicago Board of Options (CBOE), and Pacific Stock Exchange.
Rate of Return
A percent that tells the investor the overall gain or loss on an asset (such as a share[s] of stock) based upon his purchase price to the current price of the asset. The formula for the ___ is: (Selling value of the asset + any dividends) / (Buying price of the asset + any fees and/or commissions of the asset). In other words: Gain / Cost.
Speculator
A person (an investor) who buys and sells a share(s) of stock for quick profits (playing the market). A ___ who plays the market is participating in a short-term investment strategy.
Stock certificate
A piece of official paper that states the number of shares of stock a shareholder holds, the name of the company issuing the stock, the type of stock (common, preferred, or both), and the par value.
Short-Term Investment strategy
A plan for a relatively brief period of time (usually a couple of weeks or a couple of months) that balances returns available with risks that must be taken in order to enhance the investor's overall welfare.
Long-Term Investment Strategy
A plan for a relatively extended period of time (usually a couple of years of tens of years) that balances returns available with risks that must be taken in order to enhance the investor's overall welfare.
Balance sheet
A record of the financial situation of an institution on a particular date by listing its assets and the claims against those assets. Analyzing this is one of the proper steps that should be taken when someone researches stocks.
National Association of Securities Dealers Automated Quotation (NASDAQ)
A securities exchange (and not dealer network that sells over-the-counter stocks) that is owned and operated by the National Association of Securities Dealers (NASD). The ___ is the world's first electronic stock market, and is still, to this day, all electronic. It trades with other brokers, and trades are completed by either telephone or computer. To be listed in the ___, companies or corporations must have issued at least 100,000 shares of stock worth at least $1 million. It has several regional locations, was created in 1971, is home to many high tech stocks (such as Microsoft, Intel, and Dell) which usually have 4- or 5-letter ticker symbols unless the stock was previously traded on the NYSE, has no trading floor (is all electronic), is relatively cheaper to join as a company or corporation than other stock exchanges (such as the NYSE), and companies and corporations can only join ONE stock exchange (i.e., a company cannot be both on the ___ and the NYSE).
Ticker symbol
A short abbreviation that is used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both, and usually has 3, 4, or 5 characters in the stock's abbreviation.
Fractional shares
A stock dividend or stock split that results in some shareholders being entitled to fractions of whole shares. This is included when investors purchase new shares of stock when they are participating in a Dividend Reinvestment Program (DRIP).
Bid, ask, spread (aka bid and ask, bid-ask, and bid-offer)
A two-way price quotation that indicates the best price at which a security (such as a share of stock) can be bought and sold at a given point in time.
Short term capital gain
A type of ___. It is used when a share(s) of stock is held for less than a year, and ___ is taxed at ordinary income tax rates.
Long term capital gain
A type of ___. It is used when a share(s) of stock is held for more than a year, and ___ is taxed at a lower than average income tax rate with the current maximum being 15%.
Share of stock
A unit of ownership in a corporation. ___ are traded in either round lots or odd lots, shareholders usually pay a commission when buying and selling ___, and when a shareholder buys stock, he or she is buying a piece of the company or corporation (i.e., you become part owner, along with other individuals and institutions that hold shares. As a shareholder, you can never lose more than you invest.)
Margin account
An account with a securities brokerage in which the stock broker extends credit. An investor is required to possess this if he or she wants to buy on ___ from his or her investor.
Stock table
An alphabetical listing of the the transactions on the stock exchange. It gives various information about each of the stocks listed, such as the price-earnings ratio and the closing price of a particular stock.
Security
An asset an investor can invest in to be financially safe if that asset makes a relatively noticeable and beneficial profit. Examples of a ___ are shares of stock, bonds, and mutual funds.
Par value
An assigned dollar value that is used for preferred stock. Its value is usually $25. The reason they assign a ___ is to compare various ratios (such as the price per earnings [PEG] ratio), to determine dividends paid, and to use it as a benchmark for trading. Most people buy preferred stock because of the dividend income, which is based on the percentage of the ___.
Index
An average of the prices of single shares of various stocks to see how all stocks in a particular securities exchange are performing overall. It helps investors gauge the stock market. Examples of an ___ are the Dow Jones Industrial Average and the Standard & Poor's 500.
Supply and demand
An economic concept that states that the price of a good rises and falls depending on how many people want it (demand) and depending on how much of the good is available (supply). The prices of securities (such as stocks and bonds) depend on this.
Creditor
An entity (a bank, finance company, credit union, business, or individual) to which money is owed. It agrees to advance an individual, company, or corporation the money, goods, or services.
Bear Market
An important term. It occurs when stocks are on a general downward trend (less investors are buying shares of stock than before the ___ occurred).
Bull Market
An important term. It occurs when stocks are on a general upward trend (more investors are buying shares of stock than before the ___ occurred).
Gross National Product
An important term. It represents the total value of the both the goods and services produced all over the world by a nation (such as the United States of America) during a specific period of time (usually a year).
Recession
An important term. This happens when there is a general decline in spending from a nation (a general downturn in economic activity), is considered to occur when there are two consecutive quarters of general economic decline in the Gross National Product (GNP), and an occurrence of this causes the Federal reserve Bank to decrease the prime rate of United States, to increase the general spending of United States, and to decrease the savings of United States.
Inflation
An important term. This happens when there is a general rise in spending from a nation (a general upward rise in economic activity), is considered to occur when there is too much money chasing too few goods, and an occurrence of this causes the Federal Reserve Bank to the increase prime rate rates of United States, to decrease the general spending of United States, and to the increase general savings of United States.
Broker's fee
Commission charged to the buyer of the share(s) stock. This is NOT charged when an investor participates in the ___ short-term investment strategy.
Blue Chip companies
Companies that are large, well-established, and financially solid. They maintain a fairly stable price during the ups and downs of the stock market, and they usually pay small but regular dividends. An example of this type of company is General Electric.
Two ways a company can make money through owning stock
Dividend income and capital (quarterly) or paper gain (price appreciation).
Rate of return
Exactly how much money that investor made from selling his or her investment; it is expressed as a percent.
Capital
Financial assets or the financial value of assets, such as cash.
Quarterly statements
Financial reports that summarize the financial condition and financial performance (such as revenue, spending, and profit) and the operations of a business that are published four times per year. Obtaining these is one of the proper steps that should be taken when someone researches stocks.
Financial statements
Financial reports that summarize the financial condition and operations of a business. Obtaining these is one of the proper steps that should be taken when someone researches stocks.
Disadvantage to reading a stock table/stock quote from a newspaper
It is far more convenient for most investors to get stock quotes off the Internet. This method is superior because most Web Sites update stock prices and other information associated with stocks (such as yield and dividends) throughout the day, and gives you more information, news, charting, and research, etc. associated with stocks.
Paper gain
Not a true loss or gain (i.e., as a shareholder, you can never lose more than what you invest into a company or corporation).
Retained earnings
One of the choices a company can make on what to do with their dividends. They can either distribute them to their shareholders in the form of a dividend, OR at the same time, the company does not have to declare a dividend; they could instead keep the earnings and reinvest them into the company in order to help maximize their company's profit, which is called ___.
Column 5 of a stock table
One of the columns of a stock table in a newspaper. This column lists the annual dividend payment per share. IF this space is blank, the company or corporation does not currently pay out dividends.
Column 11 of a stock table
One of the columns of a stock table in a newspaper. This column lists the closing price, or close, for a share of stock. The close is the last trading price recorded when the stock market closed at the very end of the day. If the closing price is up or down more than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind that you are NOT guaranteed to get this price if you buy the stock the next day because the price for a share of the stock is constantly changing (even after the stock exchange is closed for the day) since trading for shares of stock can go on after the stock market closes (such as 4:00pm for the New York Stock Exchange). The close is merely an indicator of past performance and except in extreme circumstances, it serves as a ballpark of what you should expect to pay for a share of a particular stock.
Column 12 of a stock table
One of the columns of a stock table in a newspaper. This column lists the dollar value change in the price for a share of the stock from the previous day's closing price. When you hear about a stock being "up for the day," it means the net change was positive.
Column 1 of a stock table
One of the columns of a stock table in a newspaper. This column lists the highest price at which a share of stock has traded over the past previous 52 weeks (one year).
Column 2 of a stock table
One of the columns of a stock table in a newspaper. This column lists the lowest price at which a share of stock has traded over the past previous 52 weeks (one year).
Column 3 of a stock table
One of the columns of a stock table in a newspaper. This column lists the name of the company or corporation. If there are no special symbols or letters following the name, it is common stock. Different symbols imply different classes of shares. For examples, the letters "pf: means the shares are of preferred stock.
Column 6 of a stock table
One of the columns of a stock table in a newspaper. This column lists the percentage return on a divined, or in other words, the percent of the dividend out of the price per one share of stock. Its formula is: Annual dividends per share / Price per share.
Column 7 of a stock table
One of the columns of a stock table in a newspaper. This column lists the price-earnings ratio, which has the formula: Current price of a share of stock / Earnings per share ratio over the last four quarters.
Column 8 of a stock table
One of the columns of a stock table in a newspaper. This column lists the total number of shares of stock traded for the day; in a newspaper, it is listed in hundreds in order to save space. To get the actual volume traded, add two zeros to the end of the number listed. For example, if the volume is listed as "3,800," you add two zeros to that number to get the actual volume, making the actual volume to be "380,000" stocks traded for that particular day.
Column 4 of a stock table
One of the columns of a stock table in a newspaper. This column lists the unique alphabetic name which identifies the stock. If you watch financial television, you have seen the ticker tape move across the screen, quoting the latest prices alongside this symbol.
Column 9 of a stock table
One of the columns of a stock table in a newspaper. Together with Column 10, these columns show the price range at which a stock has traded at throughout the day. This column by itself lists the maximum (highest) price that investors have paid for a share(s) of the stock during the day.
Column 10 of a stock table
One of the columns of a stock table in a newspaper. Together with Column 9, these columns show the price range at which a stock has traded at throughout the day. This column by itself lists the minimum (lowest) price that investors have paid for a share(s) of the stock during the day.
Pacific Stock Exchange
One of the main stock exchanges. It has two trading floors, which is rare quality; most stock exchanges have two or more trading floors.
Chicago Board of Options (CBOE)
One of the main stock exchanges. It revolutionized trading options by creating standardized, listed options in 1973. Before 1973, options were individually tailored and traded "over-the-counter" by a few put/call dealers. It is the world's largest options exchange.
New York Stock Exchange (NYSE) (Big Board)
One of the main stock exchanges. It was established on May 17th, 1792, is the largest stock exchange in the United States, and became a publicly traded company in 2007 (NYSE Euronext). To have a stock listed on the ___, you must have at least 1.1 million publicly traded shares with a combined market value of at least $9 million. The bell that designates the open and end of the trading day at the ___ rings at 9:30 am to open and at 4:00 pm to close. Also known as the "Big Board," the ___ relied on floor trading only for many years, using the open outcry system. Today, more than half of all ___ trades are conducted electronically, although floor traders are still used to set pricing and deal in high volume institutional trading.
American Stock Exchange
One of the main stock exchanges. It was known as the "Curb Exchange" until 1921, and is located in Manhatten, New York. It uses holdings of small to medium size companies or corporations, who must have at least 250,000 publicly traded share with a combined market value of at least $2.5 million.
Philadelphia Stock Exchange (PHLX)
One of the main stock exchanges. It was the first stock exchange in North America, and is the marketplace for the trading of stocks, equity options, index options, and currency options.
Dow Jones Industrial Average (DJIA)
One of the main stock indexes. It is the world's oldest and best known stock index, began in July, 1884, is an index of 30 Large Cap. stock (which, combined, represent a variety of industries), and gives people and investors a general idea of how a particular stock market (a securities exchange) is doing. The ___ was, at one time, the most renowned indued for United States stocks, but because the ___ contains only thirty companies and corporations, most people and investors agree that the S&P 500 is a better representation of the United States market.
Standard & Poor's (S&P) 500
One of the main stock indexes. It represents a measurement of the changes in a stock market's (a securities exchange's) conditions, which are based on the average performance of five hundred widely-held common stocks. Stock market professionals prefer this index over other indexes (such as the Dow Jones Industrial Average) because the ___ gives a broader picture of the general movement or performance of various stocks. It is one of the most commonly used benchmarks for the overall United States stock market. The Dow Jones Industrial Average (DJIA) was, at one time, the most renowned indued for United States stocks, but because the DJIA contains only thirty companies and corporations, most people and investors agree that the S&P 500 is a better representation of the United States market. IN fact, many people and investors consider it to be *the* definition of the stock market.
Dollar-Cost Averaging
One of the main types of long-term investment strategies. It involves the systematic purchase of an equal dollar amount of the same shares of stock at regular intervals.
Buy and Hold
One of the main types of long-term investment strategies. It is when an investor buys a share(s) of stock and ___ on to it for a long period of time.
Dividend Reinvestment Program (DRIP)
One of the main types of long-term investment strategies. It is when dividends are used to purchase new shares of stock, including fractional shares. This method avoids a broker's fee. Growth stocks usually participate in this.
Direct Investment
One of the main types of long-term investment strategies. It is when investors buy a share(s) of stock directly from a corporation.
Trading in Options
One of the main types of short-term investment strategies. It is an option that gives the investor the right to buy or sell a share(s) at a predetermined price (either a price higher or lower than the current share[s] of stock at the time of purchase). It is available for three, six, or nine-month periods. Two types of ___ are a Call Option and a Put Option.
Buying on Margin
One of the main types of short-term investment strategies. It is borrowing money from an investor's stock broker to buy a share(s) of stock if he opens a margin account and signs a margin agreement. With a ___ purchase, the investor is betting that his already owned share(s) of stock will increase in value. If the share(s) of stock increases in value, the investor repays the loan, and takes the short-term profit. However, if the share(s) of stock does decrease in value, the investor will have to make up the difference between the current decreased value of the share(s) of stock and the value of the share(s) of stock when the ___ agreement was first made. When the share(s) of stock gets to half of the original purchase price, the investor will get an ___ call from his or her broker. In general, the investor who participates in ___ pays a lot of interest to his stock broker or brokerage firm on this.
Selling Short
One of the main types of short-term investment strategies. It is selling a share(s) stock borrowed from a broker that must be replaced at a later time. The investor borrows a stock certificate for a certain number of shares of stock from his or her broker or brokerage firm. When the investor ___, he or she sells the borrowed stock, knowing that he or she must cover his or her short position at a later date. If the price of the share(s) of stock drops, the investors purchases the share(s) of stock at a lower price that he or she sold the borrowed share(s) of stock for. Then, the investor replaces the lower-priced share(s) of stock with the original higher-priced share(s) of stock. There is usually both no broker's fee or interest when ___, but the brokerage firm receives a commission.
Playing the market
One of the main types of short-term investment strategies. It occurs when an investor buys and sells a share(s) of stock for quick profits.
Equity option
One of the main types of stock options. It (a contract) gives the purchaser the right to buy or sell a stock at a given price before a certain date.
Currency option
One of the main types of stock options. It provides the right to buy a specific currency at a specific price within a specific period of time.
Index option
One of the main types of stock options. Its value is based on the movement of a stock index such as the Major Market Index, Standard and Poor's 100 Index, Standard and Poor's 500 index or the New York Stock Exchange Composite Index. Unlike a stock option, which can be exercised to acquire a fixed number of the underlying shares, exercise of an index option settles only in cash.
Mid Market Capitalization (Mid Cap)
One of the market cap categories. A company or corporation belongs to this category when its market cap is between $2 billion to $10 billion, and includes the companies and corporation with a medium market cap.
Small Market Capitalization (Small Cap)
One of the market cap categories. A company or corporation belongs to this category when its market cap is less than $2 billion, and includes the companies and corporation with the tiniest market cap.
Large Market Capitalization (Large Cap)
One of the market cap categories. A company or corporation belongs to this category when its market cap is more than $10 billion dollars, and includes the companies and corporation with the biggest market cap.
Earnings per share ratio (earnings growth ratio)
One of the things that can affect the price of a share of stock. It is a company's or corporation's after-tax earnings divided by the number of shares outstanding, and is a measure of the company's or corporation's profitability; the higher this value, the better, and the lower this value, the worse. It is generally considered to be the most important variable when determining share price. Its formula is: After tax income / Outstanding shares. For example, if a company's ___ is 20:1, that means for every share of stock investors purchase from the company, the company makes $20.
Price-earnings ratio
One of the things that can affect the price of a share of stock. It is a ratio of a company's or corporation's current share price compared to its per-share earnings. It shows how much investors are willing to pay per dollar of earnings; generally, the lower the value, the better it is to own that share(s) of stock, and the higher the value, the worse it is. Its formula is: Market value per share / Earnings per share ratio. If the ___ is 20:1, that means investors are willing to pay $2 for $1 of current earnings. The lower this value, the more undervalued. When an investor researches stocks, he or she should compare this ratio with the stock's industry norms AND with the S&P 500's ratio. The lower this ratio, the less expensive the price of one share of stock is relative to the company's or corporation's earnings.
PEG Ratio
One of the things that can affect the price of a share of stock. It is a ratio that shows the relationship between the price-earnings ratio and earnings per share ratio, and tells a much more complete story than the price-earnings ratio on its own. Its formula is: Price-earnings ratio / Earnings per share ratio. The lower this value, the more undervalued the stock is (the better), and the higher this value, the more overvalued the stock is (the worse).
Undervalued stock
One of the things that can affect the price of a share of stock. When investors are paying less than what the stock is "worth."
Overvalued stock
One of the things that can affect the price of a share of stock. When investors are paying more than what the stock is "worth."
Bid
One of the three components of the ___, ask, spread mechanism. It represents the maximum price that a buyer (an investor) or buyers (investors) are willing to pay for a security he or they are buying. It is usually the lower number of the two numbers listed in the ___, ask, spread mechanism.
Ask
One of the three components of the bid, ___, spread mechanism. It represents the minimum price that a seller (an investor) or seller (investors) are willing to receive for a security he or they are selling. It is usually the higher number of the two numbers listed in the bid, ___, spread mechanism.
Spread
One of the three components of the bid, ask, ___ mechanism. A trade or transaction occurs when the buyer (an investor) and seller (also an investor) are agree on a price for a security. It is the difference between the bid and the ask prices (the ___), and is a key indicator the liquidity of the security or asset; generally speaking, the smaller the ___, the better the liquidity.
Limit Order
One of the three types of order that are used to trade shares of stock. It is a request to buy or sell a share(s) of stock at a specified price or better.
Market Order
One of the three types of order that are used to trade shares of stock. It is a request to buy or sell a share(s) of stock at its current market value.
Stop Order (Stop-Loss Order)
One of the three types of order that are used to trade shares of stock. It is a request to sell a particular share(s) of stock at the next available opportunity after the stock's market price reaches a specified amount (either at a relatively higher or lower price than the stock's current market value at the time of the purchase of the share[s] of stock).
Common stock
One of the two general types of stock. It is when the owner shares directly in thee success or failure of a business. A stated dividend is payed to ___holders, but is subject to have its value change. The remainder of the earnings available for distribution is shared by both preferred and ___holders. The shareholder profits when the company profits and loses money in his shares of stock when the company's value decreases, has a say in the company's decisions (in the form of either in person or through a proxy), such as whether or not the company issues additional stock, whether or not the company should be sold to additional buyers, or whether or not the board of directors should be changed. The shareholder gets one vote for each share he owns. If the shareholder cannot vote in person, he or she can vote by proxy, which is giving his or her voting rights to someone else. A proxy is valid until the shareholder revokes it. Stock certificates print how many shares of stock a stockholder owns in a company.
Preferred stock
One of the two general types of stock. Its dividends are always fixed and required, regardless of how a company is doing, is less risky than common stock, if the company fails the ___holder gets paid first, do not have voting rights, has a par value attached to it (usually $25), and has two types: cumulative ___ and convertible ___. The remainder of the earnings available for distribution is shared by both ___ and common stockholders.
Cumulative preferred stock
One of the two types of preferred stock. If a corporation's board of directors votes "no" to pay dividends, they can omit dividends paid to both common and preferred stockholders. It is an issue whose unpaid dividends accumulate and must be paid before any cash dividends are to be paid to the common stockholders. So, if a corporation does not pay a dividends, say, in the year 1999, but in the year 2000 has 100,000 dividends to distribute, the preferred stockholders get their dividends first that include both the dividend they did not get in 1999, which makes for a total of 200,000 dividends the corporation has to distribute in 2000.
Convertible preferred stock
One of the two types of preferred stock. It can be exchanged at the stockholder's option, for a specified number of shares of common stock.
Cyclical stock
One of the types of stock. Its shares do well when the economy is stable or growing, but often does poorly during recessions. Examples of industries that issue this type of stock are airlines, travel-based industries, automobiles, and home builders.
Defensive stock
One of the types of stock. Its shares remains stable and pay dividends even during an economic decline, usually has a history of stable earnings, is not subject to the ups and downs of business cycles (utilities, drugs, and food are all examples of industries that are not), and the means for the demands of these products is consistent regardless of economic conditions.
Growth Stocks
One of the types of stock. They are stocks in companies or corporations that reinvest their profits into the business so that the business can grow and expand. They usually pay little to no dividends. Investors buy them for their increase in value. An example of a company that issues this type of stock is Google.
Income Stocks
One of the types of stock. They are stocks that have a consistent history of paying high dividends.
Penny Stocks
One of the types of stock. They are stocks that have a traded value of under $5 per share, and are very high risk (speculative).
Round lot
One of the ways a share of stock is traded. It is composed of 100 shares of stock or multiples of 100 shares of stock (such as 600 and 6,000 shares).
Odd lot
One of the ways a share of stock is traded. It is composed of fewer than 100 shares of a particular stock (such as 48 shares).
Call Option
One the main types of Trading in Options. It is an option that is sold by a stockholder (an investor) and gives the purchaser of the share(s) of stock (NOT the stockholder) the right to *buy* one hundred shares of stock at a guaranteed price before a specified expiration date. The purchaser of the share(s) of stock is betting that the share(s) will *increase* in value before the expiration date of the __.
Put Option
One the main types of Trading in Options. It is an option that is sold by a stockholder (an investor) to sell one hundred shares of stock at a guaranteed price before a specified expiration date. The purchaser of the share(s) of stock (NOT the stockholder) is betting that the share(s) of stock will *decrease* in value before the expiration date of the ___.
Investors
People who hold a share(s) of stock for a long period of time. They participate in long-term investment strategies.
How to get a stock quote on the Internet
Simply enter the ticker the ticker symbol into the quote box of any major financial Web Site, such as Yahoo! Finance, CBS Marketwatch, or MSN Moneycentral. Interpreting the data on a quote for a stock on a Web Site is exactly the same as with interpreting a quote for a stock on a newspaper.
Unlisted stock
Stock that is not listed and traded on an organized exchange (such as the New York Stock Exchange). Over-the-counter markets handle this type of stock.
Current market value
The amount the owner can sell the securities (such as stocks and bonds) for. Trading investments are the ___.
National Association of Securities Dealers (NASD)
The company that owns the NASDAQ.
Dr. Ben Bernanke
The current chairman of the Federal Reserve Bank.
Liquidity
The ease with which an asset (such as a share of stock) can be converted into an economy's medium of exchange (such as U.S. dollars).
Hierarchy of money given when a company or corporation closes
The importance of the various kinds of investors who invest money into a company (by order of importance, with #1 being the most important and #4 being the least important): 1. Creditors 2. Bondholders 3. Preferred stockholders 4. Common stockholders
Prime rate
The interest rate that commercial banks charge their preferred customers (corporations) for very short term loans. During a recession in the United States, the Federal Reserve bank increases the ___ of United States, and during an inflation period in the United States of United States, the Federal Reserve Bank decreases the ___ of United States.
Close (aka closing price)
The last trading price recorded when the stock market closed at the very end of the day. If the closing price is up or down more than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind that you are NOT guaranteed to get this price if you buy the stock the next day because the price for a share of the stock is constantly changing (even after the stock exchange is closed for the day) since trading for shares of stock can go on after the stock market closes (such as 4:00pm for the New York Stock Exchange). The close is merely an indicator of past performance and except in extreme circumstances, it serves as a ballpark of what you should expect to pay for a share of a particular stock.
Cash flow
The movement of money through a company or corporation. Analyzing this is one of the proper steps that should be taken when someone researches stocks.
Market Capitalization (Market Cap)
The total dollar market value of all of a company's or corporation's outstanding shares. It is calculated by multiplying a company's or corporation's outstanding shares by the current market price of one share. For example, if a company has 35 million shares outstanding, each with a market value of $100 per share, the company's ___ is $3.5 billion (35,000,000 shares • $100 per share = a ___ of $3,500,000,000). The investment community uses this figure to determine a company's or corporation's size, as opposed to sales or total asset figures. There are three categories for this figure: large ___, mid ___, and small ___.
Reading a stock table/stock quote
This consists of 12 columns. • Columns 1 & 2 are the 52-Week High and Low • Column 3 is the Company Name & Type of Stock • Column 4 is the Ticker Symbol • Column 5 is the Dividend Per Share Ratio • Column 6 is the Dividend Yield • Column 7 is the Price-Earnings Ratio • Column 8 is the Trading Volume • Columns 9 & 10 are the Day High and Low • Column 11 is the Close • Column 12 is the Net Change
Reason why corporations issue stock
To raise capital (money) to finance anything from new equipment purchases to taking over another company; this reason is essentially a way for corporations to raise money. Note: a company must already have gone public to ___. Companies can issue either common or preferred stock, or both.
Online trading Web Sites
Web Sites on the Internet that coordinate the purchasing and selling of shares of stocks for multiple trading securities. Examples of ___ are www.Vanguard.com, TD www.TDAmeritrade.com, and www.Etrade.com
Dealer network
What an over-the-counter market operates as, in contrast of a stock exchange. Although the NASDAQ operates as a ___, NASDAQ stocks are generally not classified as a ___ because the NASDAQ is considered to be a stock exchange.
Dividend income
When a company does well, its stockholders receive ___. ___ are the part of the profits of a company that are distributed back to each of its shareholders. The Board of Directors decide if a ___ will be distributed at all and if so, how much and when. When a company cancels or reduces its ___, its share price may decline as the stock becomes less appealing to investors. However, if a ___'s value increases, the stock becomes mores attractive to investors who want to earn a dividend. Money from the profits of a company that is paid to the stockholders. This payment can be either in cash or shares of stocks, and is usually paid quarterly (four times per year). If the corporation makes a profit (net income), they decide whether or not to distribute earnings back to their stockholders in the form of a ___. However, at the same time, the company does not have to declare a ___; they could instead keep the earnings and reinvest them into the company in order to help maximize their company's profit.
Going public
When a company issues shares for the first time. This term is called this because the company ___ is making part of the company available to the public in the form of shares. When a company ___, it creates an IPO (initial public offering).
Role of a shareholder
When a shareholder buys a share of stock, he or she is buying a piece of a company; he or she becomes part owner, along with other individuals and institutions that hold shares of the same company. As a shareholder, you can never lose more than you invest.
Proxy
When a shareholder has a say in the company's decisions (in the form of either in person or through a ___), such as whether or not the company issues additional stock, whether or not the company should be sold to additional buyers, or whether or not the board of directors should be changed. The shareholder gets one vote for each share he owns. If the shareholder cannot vote in person, he or she can vote by ___, which is giving his or her voting rights to someone else. A ___ is valid until the shareholder revokes it.
Over-the-counter (OTC) markets
When securities (such as stocks and bonds) are bought and sold through brokers, but not through an exchange, it is called an electronic ___. ___ stocks are bought and sold through negotiation via telephone or a computer contract between a network of brokers who buy and sell securities not listed on a securities exchange. It does not have a trading floor. In general, the reason for which a stock is traded ___ is usually because the company or corporation that sells the shares of stock is relatively small, making it unable to meet the exchange listing requirements. Also known as "unlisted stock," these securities are traded by broker-dealers who negotiate directly with one another ___ and by telephone. Although the NASDAQ operates as a dealer network, NASDAQ stocks are generally not classified as ___ because the NASDAQ is considered to be a stock exchange. As such, ___ stocks are generally unlisted stocks which trade on the ___ Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some ___ stocks. Moreover, the OTCBB stocks are either penny stocks or are offered by companies or corporations with bad credit records, so be wary of those kinds of stocks, also.
Capital or paper gain (price appreciation)
___ is made when an investor sells a share(s) of stock for more than what was originally paid for it. A rate of return is exactly how much money that investor made from selling his or her investment; it is expressed as a pecent. There are two types of ___: short term gain and long term gain.
Stock broker
individual or organization that receives and executes buy and sell orders on behalf of outside customers in return for commissions.
Things that affect the price of stock
• The financial condition of the company or corporation (their earnings) • Current interest rates of the company or corporation • The market for a company's or corporation's product or services (ex. the newspaper industry's popularity has been consistently going down every year since the 2000s or so, but the biotechnology industry is currently booming) • The market value of the company or corporation (this reflects the price investors are willing for a share of stock; if investors are paying more than what the stock is "worth," it is considered "overvalued," and likewise, if a stock is trading at an amount less than what is what it is worth, it is considered to be "undervalued.") • Earnings per share ratio • Price-earnings ratio • PEG Ratio (Price / Price-earnings ratio / Earnings per share ratio)
