A
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.
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.
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.
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balance sheet: A
firm's financial statement that provides a
picture of its assets, debts, and net worth at a
specific time
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:
The
indicator used by Value
Line to measure a stock's risk relative to
the market, in this case the NYSE Index. The
market's beta is always 1.0 (Based on past
statistical records, a beta higher than 1.0
indicates that when the market rises, the stock
will rise to a greater extent than that of the
market; likewise, when the market falls, the
stock will fall to a greater extent. A beta
lower than 1.0 indicates that the stock will
usually change to a lesser extent than that of
the market. The higher the beta, the greater the
investment risk.)
bid price:
The price one is willing to pay for a security
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.
- book value per
share:
The accounting value of a share of common stock,
determined by dividing the company's net worth
by the number of shares that are circulating
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.
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- callable bond:
A
bond that can be officially repaid by the issuer
prior to its maturity date (Out of courtesy, a
premium is usually paid when the bond is
repaid.)
call option:
The right to buy a share of stock at a specified
price within a given time period
capital:
Sources of long-term financing that are available
to the business firm.
capital gain:
An increase from the purchase price to the selling
price of common stock or any other capital asset;
profit from the sale of investments or property
certificate of
deposit (CDs):
An interest-bearing bank receipt for a specified
amount of money (CD's usually mature between three
months and three years. The interest rate depends
on the amount of money and length of time of the
deposit.)
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.
- compounding:
The paying of interest on
the accrued interest as well as on the
principal
consumer price index
(CPI): An economic indicator
published monthly by the US Commerce Department.
It measures the rate of inflation for consumer
goods.
covering: Buying a
security previously sold short.
current ratio:
The worth of a company
divided by current financial liabilities,
including all short-term debts (This ratio
roughly measures a company's financial risk:
logically, the more the financial liabilities,
the riskier the company. Thus, small current
ratios indicate high risk.)
custodian: The
bank or other such institution that stores the
securities of a mutual fund.
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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.
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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.
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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.
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.
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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.
H
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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.
I
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in-and-out
trader: A trader who buys and
sells the same security in one day, hoping to
profit from tremendous price movement.
.
indices: Plural
of index.
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.
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K
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L
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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.
M
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margin: The
amount paid by the customer when using a
broker's credit to buy or sell a
security.
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
beginners section on mutual funds
N
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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.
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 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.
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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.
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. It is
therefore expected the stock will drop in
price.
P
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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.
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.
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 option:
The right
given a buyer to sell stock at a specified price
within a specified period of time
Q
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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.
R
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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.
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).
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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 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.
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: A well-known, value-rated
index of 500 major US companies: 400 industrial
firms, 20 transportation firms, 40 utilities
firms, and 40 financial firms
T
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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.
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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.
V
volatility:
Characteristic of a security, commodity, or
market to rise or fall sharply in price within a
short-term period.
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X
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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.
Y
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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.
Z
