accruals: Recurring continuous short-term liabilities. Examples of accruals are accrued wages and accrued interest.
accrued interest: Interest accrued on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest. Exceptions include bonds that are in default and income bonds.
adjusted basis: The base price from which to judge capital gains or losses upon sale of an asset like a stock or bond. The price has to be adjusted to account for any stock splits that have occurred since the initial purchase before arriving at the adjusted basis.
advance-decline (A-D): The measurement of the number of stocks that have advanced and the number that have declined over a particular period. It is the ratio of one to the other and shows the general direction of the market. It is considered bullish if declines lead advances in a day, for instance.
alpha value: See alpha under Mutual Funds.
American Stock Exchange (AMEX): Founded in 1921, AMEX trades mostly small and medium sized stocks, as compared to the huge stocks of the NYSE. AMEX is located in Manhattan and trades more foreign stocks than any other US stock exchange. See AMEX's homepage.
amortization: Accounting for expenses or charges as applicable rather than as paid. Includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses and deferred charges.
annual report: The formal financial statement issued yearly by a corporation. This report will show an investor the company's assets, liabilities, earnings--how the company stood at the end of the business year, how it fared profit-wise during the year and other information of interest to shareowners.
annuity: A form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some future time, usually retirement.
ask: The price at which a security or commodity is offered for sale on an exchange or in the over-the-counter market. Generally, it is the lowest round lot price at which a dealer will sell. It is also called the offering price, the ask price and the asking price.
assets: Everything that a corporation owns or due to it: Cash, investments, money due it, materials and inventories, which are called current assets; buildings and machinery, which are known as fixed assets; and patents and good will, called intangible assets.
averages: Various ways of measuring the trend of securities prices, one of the most popular of which is the Dow-Jones average of 30 industrial stocks listed on the NYSE.
bankruptcy: The market value of a firm's assets are less than its liabilities and, consequently, the firms has a negative net worth.
basic value investing: Investment strategy that concentrates on buying seemingly undervalued stocks, based on previous price-to-earnings ratios and other indicators.
bear market: A time when the market (or other investments) keep sinking in value, or when stocks remain at depressed levels.
beta value: See beta value in Mutual Fund section.
bid and asked: Often referred to as the quotation or quote. The bid is the highest price anyone has declared that he/she wants to pay for a security at a given time. The asked is the lowest price anyone will take at the same time.
blue chip: A company known nationally for the quality and wide acceptance of its products and/or services, and for its ability to make money and pay its shareholders their dividends.
bond fund: A fund that invests mainly in corporate, municipal, U.S. Treasury securities, etc. The main focus of such funds is income rather than capital gains.
bond rating: A method of evaluating the possibility of default by a bond issuer. Standard and Poor's, Moody's Investors Service, and Fitch's Investors Service analyze the financial strength of each bond's issuer, whether a corporation or a government body. Their ratings range from AAA (highly unlikely to default) to D (in default). Bonds rated B or below are not investment grade--in other words, institutions that invest other people's money may not buy them under most state laws.
broker: An agent, who handles the public's orders to buy and sell securities, commodities, or other property. For this service, he/she charges a commission.
bull market: A time when the market (or other investments) keep rising in value, or when stocks remain at high levels.
call: (1) The right (option) to buy a share of stock at a specified price within a given time period (see options). (2) The redemption of a bond or preferred stock before its normal maturity.
capital: Sources of long-term financing that are available to the business firm.
capital gain or loss: Profit or loss from the sale of a capital asset. A capital gain, under current federal income tax laws, may be either short-term (12 months or less) or long-term (more than 12 months). A short-term capital gain is taxed at the reporting individual's full income tax rate. A long-term capital gain is subject to a lower tax.
certificate of deposit (CDs): See CDs section.
commodities: Bulk goods such as grains, metals, and foods traded on a commodities exchange or on the spot market.
common stock: Securities that represent an ownership interest in a corporation.
common stockholder: Holders of common stock are the owners of the company. They elect the members of the board of directors for the company, as well.
consumer price index (CPI): An economic indicator published monthly by the US Commerce Department. It measures the rate of inflation for consumer goods.
contrarian investing: Buying securities when others are pessimistic and then selling them when others are optimistic.
covering: Buying a security previously sold short.
current return: See yield.
custodian: The bank or other such institution that stores the securities of a mutual fund.
day order: An order to buy or sell which, if not executed expires at the end of the trading day on which it was entered.
deferred sales charge: Sales charges that you pay when you sell the shares of a load fund.
dividend: The payment designed by the board of directors of a company to be distributed pro rata among the shares outstanding. On preferred shares, it is usually a fixed amount. On common stocks, the dividends vary depending upon the fortunes of the company during the year and the amount of cash on hand.
dollar-cost averaging: See dollar-cost averaging under Mutual Fund section.
earnings per share: The earnings available to common stockholders divided by the number of common stock shares outstanding.
earnings report: A statement--also called an income statement--issued by a company showing its earnings or losses over a given period.
equity: The net worth of a business, consisting of capital stock, capital surplus, earned surplus, and occasionally, certain net worth reserves. Common equity is that part of the total net worth that belongs to the common stockholders. Total equity would include preferred stockholders.
ex-dividend: See ex-dividend under Stocks/Bond section.
financial pyramid: This is a risk structure that many investors aim for in spreading their investments between low-, medium-, and high-risk vehicles. In a financial pyramid, the largest part of the investor's assets is in safe, liquid investments that provide a decent return. Next, some money is invested in stocks and bonds that provide good income and the possibility for long-term growth of capital, and so on.
fixed costs: Costs that remain relatively constant regardless of the volume of the operations. Examples of fixed costs are rent, depreciation, property tax, and executive salaries.
front-end load: A sales charge applied to an investment at the time of initial purchase. Mutual funds often have these types of sales charges.
formula investing: An investment technique that calls for the shifting of funds from common shares to preferred shares or bonds as the market, on average, rises above a certain predetermined point--and the return of funds to common share investments as the market average declines.
401(k) plan: See 401(k) plans in Retirement section.
fundamental analysis: Research of industries and companies based on factors such as sales, assets, earnings, products or services, markets, and management. Fundamental research is very important when attempting to decide whether or not to invest in a stock or fund.
futures contract: A contract to buy or sell a commodity at some specified price in the future.
going private: The process by which all publicly owned shares of common stock are repurchased or retired, thereby eliminating listing fees, annual reports and other expenses involved with publicly owned companies.
gross national product (GNP): The total value of goods and services produced in the US economy over a particular period of time, usually one year. The GNP growth rate is the primary indicator of the status of the economy. GNP is made up of government and consumer purchases, private domestic and foreign investments in the US and the total value of exports.
gross profit: The net sales less the cost of goods sold. This is called gross margin also.
Group of Ten: The ten major industrialized nations that try to coordinate monetary and fiscal policies to create a more stable world economic system. These ten include Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States.
guarantee of signature: A certificate issued by a bank or brokerage firm vouching for the authenticity of a person's signature. This kind of document may be necessary when stocks, bonds and other registered securities are transferred from a seller to a buyer. Banks also require signature guarantees before they will process certain transactions.
heavy market: A stock, bond or commodity market with falling prices resulting from a larger supply of offers to sell than bids to buy.
hedge/hedging: A strategy used to offset investment risk. A perfect hedge is one eliminating the possibility of future gain or loss. It involves purchasing a derivative security (i.e. option or future) in order to reduce or neutralize all or some portion of the risk of holding another security.
holding company: A corporation which owns the securities of another, in most cases with voting control.
hot stock: This can be either (1) a stock that has been stolen, or (2) a newly issued stock that rises quickly in price.
in-and-out trader: A trader who buys and sells the same security in one day, hoping to profit from tremendous price movement.
index: See Stock and Bond Indices.
indices: Plural of index.
individual retirement account (IRA): See IRA section under Retirement.
interest: Payments a borrower pays a lender for the use of his/her money. A corporation pays interest on its bonds to its bondholders.
interim dividend: A dividend that is declared and paid before annual earnings have been determined, generally quarterly. Most companies strive for consistency and plan quarterly dividends they are sure that they can afford, reserving changes until fiscal year results are known.
investment: That's what this web page is all about!
inverted yield: This is an unusual situation where short-term interest rates are higher than long-term rates. Normally, lenders receive a higher yield when committing their money for a longer period of time. This scenario is called a positive yield curve.
Keogh Plan: See Keogh Plan under Retirement.
liability: Claim on the assets of a company or individual--excluding ownership equity.
limit order: An order to buy or sell a security at a specific price or better. The broker will execute the trade only within the price restriction.
liquid asset: Cash or easily convertible into cash (i.e. money-market funds, US T-Bills, bank deposits, etc.)
liquidity: The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market.
load: A sales charge paid by an investor who buys shares into a load mutual fund or annuity. Loads are usually charged when the shares or units are purchased initially.
long bond: A 30-year Treasury bond or any bond that matures in more than 10 years. Since these bonds commit investors' money for a long time, they are riskier than shorter-term bonds of the same quality and thus normally pay a higher yield.
margin: The amount paid by the customer when using a broker's credit to buy or sell a security. See buying on margin in the Stocks/Bond section for more detail.
market order: An order to buy or sell a state amount of a security at the most advantageous price obtainable after the order is represented in the trading crowd.
market price: In the case of a security, market price is usually considered the last reported price at which the stock or bond sold.
maturity: The date on which a loan or a bond or debenture comes due and is to be paid off.
moving average: The average of security or commodity prices constructed on a period as short as a few days, or as long as several years and showing trends for the latest interval.
mutual fund: See What is a Mutual Fund? in the Mutual Fund Guide.
naked option: An option position that is not offset by an equal and opposite position on the underlying security.
NASDAQ (National Association of Securities Dealers Automated Quotations): An automated information network which provides brokers and dealers with price quotations on securities trader over-the-counter. See NASDAQ's home page.
nest egg: Assets put aside for a person's retirement. Such assets are usually invested conservatively to provide the retiree with a secure standard of living for the rest of his or her life.
net asset value (NAV): See net asset value in the Mutual Fund section.
net worth (book value): The amount by which assets exceed liabilities. For a corporation, net worth is also known as stockholders' equity or net assets.
New York Stock Exchange (NYSE): The oldest (1792) and largest organized securities market in the United States. The Exchange itself does not buy, sell, own or set the prices of securities traded there. See the NYSE homepage.
odd lot: An amount of stock less than the established 100-share unit.
offer: The price at which a person is ready to sell, as opposed to bid, the price at which one is ready to buy.
official statement: Document prepared by or for the issuer that gives in detail the security and financial information about the issue.
option: See options in the Stock/Bond Guide.
over-the-counter (OTC): A market for securities made up of securities dealers who may or may not be members of a securities exchange. OTC transactions are usually done over the telephone and involve companies that do not have sufficient shares on an exchange. OTC is the primary market for bonds of all types.
overvalued: The description of a stock whose current price is not justified by the earnings outlook or the price/earnings ratio. It is therefore expected the stock will drop in price.
paid-in capital: Capital received from investors in exchange for stock, as distinguished from capital generated from earnings or donated.
paired shares: Common stocks of two companies under the same management that are sold as a unit, usually appearing as a single certificate printed front and back.
paper profit or loss: An unrealized profit or loss on a security still held. Paper profits and losses become realized profits only when the security is sold.
par: This is equal to the nominal or face value of a security. A bond selling at par, for instance, is worth the same dollar amount it was issued for or at which it will be redeemed at maturity--typically, $1000 a bond.
passive bond: A bond that yields no interest. Such bonds sometimes arise out of reorganizations or are used in non-profit fund raising.
penny stocks: Low-priced issues often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although a few penny stocks have developed into investment-caliber issues.
pension fund: A fund set up by a corporation, labor union, government entity, or other organization to pay the pension benefits of retired workers. These funds invest billions of dollars annually in stocks and bonds and are a major force regulating the supply and demand of the markets.
portfolio: The combined holding of more than one stock, bond, commodity, real estate investment, mutual fund, cash equivalent, or other asset by an individual or institutional investor. The purpose of a portfolio is to reduce risk by diversification. See Diversification of Your Portfolio in the Mutual Fund Guide.
preferred stocks: Securities that pay a fixed return, and whose holders must be paid before the holders of common stocks.
price-earnings ratio: Price per share of a stock, divided by its last 12 months of earnings.
This ratio reveals how popular a stock is because it reflects how much people are willing to pay for
it. An underwriter determines a P/E ratio for a company during its initial public offering (when it
first goes public).
principal: The person for whom a broker executes an order, or dealers buying or selling for
their own accounts. The term principal may also refer to a person's capital or to the face
amount of a bond.
private placement: The sale of stocks, bonds or other investments directly to an institutional
investor like an insurance company. These types of placements do not have to be registered with the
Securities and Exchange Commission, if the securities are purchased for investment as opposed to
resale.
profit-taking: Selling stock which has appreciated in value since purchase, in order to
realize the profit. The term is often used to explain a downturn in the market following a period of
rising prices.
prospectus: See Prospectus in the
Stock/Bond Guide.
public offering: Also called a primary distribution, a public offering is the time when stocks
of a company are offered to the public for purchase. This comes after the company has registered its
stocks with the Securities and Exchange Commission. A reasonable public offering is decided upon
between the issuer and the investment bankers.
put: See options.
quote: The highest bid to buy and the lowest offer to sell a security in a given market at a
given time. A spread on a quote at a given time (such as $45 to $46) means that $45 was the
highest price any buyer wanted to pay for the stock when it was on the floor, and that $46 was the
lowest price at which any seller would sell at the same time.
random walk: The theory that stock prices are unpredictable.
Real Estate Investment Trusts (REITs): An organization similar to an investment company
in some respects but concentrating its holdings in real estate investments. The yield is generally
liberal since REITs are required to distribute as much as 90 percent of their income.
real GNP: Gross Domestic Product in current dollars adjusted for inflation.
recession: A downturn in economic activity, defined by many economists as at least two
consecutive quarters of decline in a country's Gross Domestic Product.
redemption price: The price at which a bond may be redeemed before maturity, at the
option of the issuing company. Redemption value also applies to the price the company must pay to
call in certain types of preferred stock.
regional stock exchanges: They are organized national securities exchanges located outside
of New York City and are registered with the Securities and Exchange Commission. They include:
the Boston, Cincinnati, Intermountain (Salt Lake City), Midwest (Chicago), Pacific (Los Angeles
and San Francisco), Philadelphia (Philadelphia and Miami) and the Spokane stock exchanges.
registration of securities: See Registration of
Securities section under Stock/Bond Guide.
return: Profit on a securities or capital investment, usually expressed as an annual
percentage rate.
reverse split: The procedure by which a company reduces the number of shares
outstanding. The total number of shares will have the same market value immediately after the split
as before it, but each share will be worth more.
rising bottoms: A technical chart pattern showing a rising trend in the low prices of a
security or commodity.
risk: The measurable possibility of losing or not gaining value. Risk is differentiated from
uncertainty, which is not measurable.
rule of 72: The formula for approximating the time it will take for a given amount of
money to double at a given compound interest rate. The formula is simply 72 divided by the interest
rate. In six years, $100 will double at a compound annual rate of 12%. (72 divided by 12 equals
6).
saucer: A technical chart pattern signaling that the price of a security or a commodity has
formed a bottom and is moving up. An inverse saucer shows a top in the security's price and signals
a downturn.
Savings and Loan Association: A depository financial institution, federally or state
chartered, that obtains the bulk of its deposits from consumers and holds the majority of its assets as
home mortgage loans.
Securities and Exchange Commission (SEC): Federal agency created by the Securities Exchange Act of 1934 to administer that act and the
Securities Act of 1933, formerly carried out by the Federal Trade Commission. The SEC is
administered by five commissioners, appointed by the President of the United States.
short selling: See short selling in the Stocks/Bond
Guide.
signature guarantee: A certificate issued by a bank or brokerage firm vouching for the
authenticity of a person's signature. This kind of document may be necessary when stocks, bonds
and other registered securities are transferred from a seller to a buyer. Banks also require signature
guarantees before they will process certain transactions.
split: The procedure to increase the number of outstanding shares in a corporation without
any change in the shareholders' equity or the aggregate market value at the time of the split. In a
split up, the share price declines. For example, in a 2 for 1 split, the number of outstanding
shares is doubled, and the price per share is cut in half.
spot market: A commodities market in which goods are sold for cash and delivered
immediately.
spread: The difference between the bid and the offer prices.
stop order: An order to buy at a price above or sell at a price below the current market.
These types of orders are generally issued to protect against a loss and unrealized profits in a short
sale.
Standard and Poor's Index: See Stock and Bond
Indices.
tax shelter: A method used by investors to legally avoid or reduce tax liabilities.
technical analysis: The research into the demand and supply for securities and commodities
based on trading volume and price studies. Unlike fundamental analysts, technical analysts
generally do not concern themselves with the financial position of a company, such as its earnings,
or the strength of its balance sheet.
tick: The upward (uptick or plus tick) or downward (downtick or minus tick) price
movement in a security's trades.
ticker: The system that produces a running report of trading activity on the stock
exchanges, called the ticker tape. The ticker symbol are letters that identify a security for trading
purposes.
total return: The annual return on an investment, including appreciation and dividends or
interest. For bonds, total return is yield to maturity. For stocks, future appreciation is projected
using the current price/earnings ratio.
turnover rate: See turnover rates in the
Mutual Fund Guide.
12b-1 mutual fund: See 12b-1 in the Mutual Fund
Guide.
underwriter: An investment banker who, singly or as a member of an underwriting group or
syndicate, agrees to purchase a new issue of securities from an issuer and distribute it to investors,
making a profit on the underwriting spread.
unloading: Selling securities or commodities when prices are declining to preclude further
loss.
volatility: Characteristic of a security, commodity, or market to rise or fall sharply in price
within a short-term period.
x or xd: Symbol used in newspapers to signify that a stock is trading ex-dividend, that is,
without dividend. The symbol X is also used in bond tables to signify without interest.
yield: Percentage rate of return paid on a common stock or preferred stock in dividends.
yield to maturity (YTM): The concept used to determine the rate of return an investor will
receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date.
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