Basic Investing Terms You Should Know


Are you learning about investing? Then it is important that you learn and understand some basic investment terminology. Here is a list of some basic investing terms you should know, along with their definition:

ASK
The lowest price a seller is willing to accept when selling a security (stock).

BEAR
An investor who believes the market as a whole or a particular stock will decline. A bear is the opposite of a Bull.

BULL
An investor who believes the market as a whole or a particular stock will rise. A bull is the opposite of a Bear.

BULL MARKET
When most stock prices are rising over several months.

BEAR MARKET
When most stock prices are falling our several months.

BID
The highest price a buyer is willing to accept when purchasing a security (stock).

BLUE CHIP
A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet.

BOOK VALUE
The value of a company if all liabilities were subtracted from total assets.

BROKER
A person that buys or sells an investment for you in exchange for a fee called commission.

DIVIDENDS
A portion of a company’s profits that is paid out to shareholders on a quarterly or annual basis. The Board of Directors of the company declares dividends. It is not mandatory to declare dividends on common stock even though the company is making good profits.

DOW JONES INDUSTRIAL AVERAGE (DJIA)
It is the most popular and widely used measure of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies. The Dow is watched by investors as an indicator of the health and direction of the stock market.

EARNINGS / PROFIT
That portion of income left over after meeting all costs, overhead and taxes during a reporting period. This is called the Bottom Line. When a company is making money, it is said to be “in the black”. When a company is losing money, it is “in the red”.

INCOME / REVENUE / SALES
What a company earns for the goods they produce, or the services they provide. It is not the same as profit.

MARKET CAPITALIZATION
Also known as “market cap”. It is calculated by multiplying the current price per share with the number of shares outstanding.

MUTUAL FUND
An investment company that combines the money from a large group of investors to buy stocks and other investments.

P/E RATIO
How much money you are paying for $1 of the company’s earnings. In other words, if a company reports a profit of $3 per share, and the stock is selling for $30 per share, the P/E ratio is 10 because you are paying ten-times earnings ($30 per share divided by $3 per share earnings = 10 P/E).

SECURITIES
Includes stocks, bonds, and bank deposits.

SPREAD
The difference between Ask and Bid.

STOCK/ EQUITIES
If you own a stock, you own part of the company. A stock is evidenced by a paper certificate.

VOLUME
The number of shares of stock traded in a day.

YIELD
When a company pays a dividend the yield is the percentage of dividend over the stock price. In other words, if a stock is trading for $10 and pays a dividend of $0.50, the yield is 5%, because for every $10 you invest, you would receive 5% back annually being $ 0.50

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