Stocks Quiz

income investing

Buying securities that pay out dividends and other forms of passive income

Pros:

• Steady return schedule

• Decent return

• Relatively safe

Cons:

• Need to start out with a lot of money for a sufficient payout

• Not an effective way to produce financial freedom

• Low return rates

impact investing

Buying companies with a significant social or environmental impact (charitable strategy)

Pros:

• Positive impact on society

• Opportunity to support your values and the world

Cons:

• Very risky

• Need to have a lot of money

growth investing

Investing in companies that have above-average growth (uses fundamental analysis)

Pros:

• Good return if economy is going well and your predictions are met

Cons:

• If economy isn’t in a good condition, investment will be hit hard

• High risk

momentum investing

Buying stocks that are on a rising trend, short-selling stocks that are on a falling trend (uses technical analysis, looking at charts only)

Pros:

• Can outperform other investment strategies

• Reasonable pace

Cons:

• Short-selling is very risky

• Must be attentive and ready to buy and sell very quickly (commitment)

dollar-cost averaging (DCA)

Making regular investment amounts in the market over time with whatever strategy you choose, and regardless of current stock price.

Pros:

• Avoids forced adjustment to market timing

• Reduced risk levels and volatility levels

• Avoids human error

• Discipline to invest

Cons:

• The market tends to go up over time. Investing a lump sum earlier is likely to do better than smaller amounts invested over a period of time. 

• Also, you have no control over investing less/more at important times.

value investing

Buying companies when they’re priced below true value

Pros:

• Based off of tangible data

• Can generate highest returns with the lowest risk

Cons:

• Need to be well-educated and do a lot of research

• Very possible to lose money if done incorrectly

• Time consuming

small cap investing

Investing in small caps that often grow faster than big cap stocks (with low market value at first)

Pros:

• potential for faster growth than big cap stocks

Cons:

• high risk and volatitlity

• can be largely influenced by big investors

Stock

a share of ownership in a company, a percentage of one

• assets

• income and profits

Preferred Stock

generally do not have voting rights, and not commonly traded on any exchanges, but receive dividend payments first

Common Stock

most investors buy, gives one vote at shareholder meetings for every share owned, may be able to receive dividend → not likely

bond

“i owe you” loan from a company or treasury

IPO (initial public offering)

a private company decides to go public and issue shares of stock for anyone to buy

Ticker symbol

a unique one to five letter code used by the stock exchanges to identify a company → since many companies have similar names, they help with making sure you pick the right company

Bid/Ask Price

how much buyers and sellers in the real market are willing to pay for this stock

Volume

how many shares of this stock traded so far today, or the last trading day

Dividend

companies that are consistently profitable often pay out part of their earnings to shareholders

Dividend yield

divided the annual dividend by the stocks current price

companys annual dividend payments

Diversify

to build a portfolio with a variety of assets classes in different industries or sectors

Sector Diversification

you split your investments across companies based on the type of business they do

Stock Diversification

basic → where you don’t put too much money in any one stock

Asset Allocation

owning a variety of investments like real estate, stocks, bonds, mutual funds, ETFs, gold/silver, and cash

ETF

exchange traded fund

they trade on a normal stock exchange with their value being determined both by the value of the underlying assets and the value of the ETF itself

not actively managed

not only for index funds, they can also support commodities and other industires

Mutual Funds

you can buy into a wide range of stocks, bonds, money markets, or other securities all at once

professionally managed

Open Ended Mutual Funds

no limit to the number of shares that can exist at any given time → issued shares with money used to buy more underlying securities

Closed Ended Funds

fixed number of shares, similar to ETF → total amount invested is determined only once, at the IPO

primary market

where stocks are created

secondary market

investors trade previously issued stock

indices

index funds →a collection of stocks, representative of the stock market

NASDAQ composite

all the stocks on the NASDAQ

bull market

economy is booming and stock prices are rising

bear market

economy is bad and stock prices are falling

P/E ratio

price per share/earnings per share

low →stock is undervalued

high →stock is overvalued and/or emerging and ready for growth

volatile (volatility)

unpredictable/rapidly fluctuating stocks (unstable)

Market order

placed at the next available price, never placed outside market hours, too volatile (not predictable) (when time is more important than price)

Limit order

placed in an ideal direction to capture a price

Stop (less) order

placed in the opposite direction to prevent losses (can become a market order)

fundamental analysis

analyzing stock decisions based off of company performance data such as revenue history, profit history, cash flow statements, new product traction, and more

technical analysis

analyzing stock decisions based off of stock information alone: stock price history, patterns/predictions, and trends

over diversify

a portfolio is spread across so many assets that it becomes inefficient, leading to lower returns, higher costs, and increased complexity without significant additional risk reduction.