Investment Terms You Should Know

Basic Investment Terms and  Descriptions

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Annual Report  

A booklet sent by a company to its shareholders once per year. It depicts the company’s operations, and describes earnings, balance sheets, profits, sales, and other important facts about the company. It also provides detailed descriptions of the company’s business.

Ask

The lowest price at which an investor accepts to sell stock, or the quoted price that an investor can buy shares of stock for.

Asset Allocation

Distributing your money over a number of different types of investments (e.g., stocks, mutual funds, bonds, money market accounts, etc.). Note: most mutual funds consist of a variety of stocks, bonds, and money market accounts, so they are already asset allocated.

Bid

The price that a prospective buyer  is  ready to pay for a security; or any offer to buy at a specified price.

Blue Chip Stocks

These consist of the oldest, most continuously profitable companies,  some of which pay dividends. Some  Blue Chip companies are more than 100 years old. They are considered some of the lowest-risk stocks, based on their histories.

Beta

Measures the volatility of a share of stock. A beta higher than 1 is more volatile; a beta lower than 1 is less volatile. The S&P 500 index beta number is 1.

Book Value

A company’s total assets, minus intangible assets and liabilities, such as debt.

Commission

The fee that an investor pays to a broker for buying or selling a security.

Cyclical Stock

A company whose stock price is  closely in line with the cyclical ups and downs of the general economy.

Dividend

Part of a company’s profit, which is paid to shareholders.

Dow 30

“Dow Jones Industrial Average” (DJIA): thirty of the best Blue Chip companies on the stock exchange. The average is used to gauge market performance. The current Dow Industrial changes from time to time, some stocks deleted and some added.

Earnings Per Share (EPS)

Equals the profit, divided by the number of shares of stock.

Exchanges

The two major exchanges in which stocks are traded in the U.S.—the NYSE, or “New York Stock Exchange”; and the AMEX, or “American Stock Exchange.”

Growth  Stock

The stock of a company that has the potential to increase over long periods of time, due to developing products and increasing profits from those and/or other products and/or services.

Initial Public Offering (IPO)

A corporation’s first offer of stock  to the public. IPO shares are given a  market value, reflecting expectations for the company’s future growth.

Insiders

The officers and board of directors of  a company. May also be someone who has a large voting share in the company. Insiders are said to possess “insider information.”

Limit  Order

An order to buy or sell a security at  a specific price. The broker will execute  the   trade within this price       restriction  only.

NASDAQ

“National Association of Securities  Dealers Automated Quotations System.” NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded over the counter, and for many other New York Stock Exchange listed securities.

NASDAQ  Stock  Market

The first electronic stock market, listing nearly 5,500 companies. Some 530 market makers provide more than 60,000 competing bids to sell, buy, and offer NASDAQ stocks, through an international computer network that displays the best quotations in 52 countries.

Prospectus

A formal written offer to sell  securities, which sets in action the plan for a projected business establishment—or sets forth the facts concerning an existing establishment—that an investor needs to make an informed decision.

Shareholder

The owner of one or more shares of   a corporation’s stock.

Ticker Symbol

Letters that identify a security for trading purposes on the consolidated tape that crosses a television or computer screen—such as GE, for “General Electric.”

Stock Yield

The percentage (%) rate of return paid, in dividends, on a common or preferred   stock.

This is a short list of investment terms. As you progress in your investment education, your terms will increase.

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