Finance Review: Stock Unit

Vocabulary flashcards covering core stock market concepts, investor profiles, valuation metrics, exchanges, and financial analysis.

Short Selling

An investment strategy assuming the seller will be able to buy the stock back at a lower amount than the price at which they "sold short"; short sellers make money "on margin" if the stock goes down in price.

Margin Account (Buying on Margin)

Borrowing money to purchase securities.

Bear Market

A market condition marked by a downturn of 15 to 20 or more across multiple indexes.

Bull Market

A market characterized by optimism, investor confidence, and expectations that strong results will continue.

Growth Stock

Shares of a company that retains 100% of its earnings rather than distributing them to shareholders.

Income Stock

Shares of a company that distributes a large chunk of its profits back to investors.

Business Cycle

The natural rise and fall of economic growth over time.

Recession

The contraction phase of the business cycle characterized by 2 consecutive quarters of declining GDP.

Qualitative Analysis

Evaluating a company based on less tangible, subjective factors such as members or key executives, brand, and customers.

Quantitative Analysis

Evaluating a company based on measurable, numerical, and objective data.

Stock

A percentage of a company that you can buy, which can be public or private.

Common Stock

A type of stock that is generally cheaper, carries voting rights, has fluctuating stock prices, and provides no guarantee of dividends.

Preferred Stock

A less risky type of stock that pays guaranteed dividends, has no voting rights, experiences fewer price fluctuations, and has a price related to interest rates.

Beta

A calculation that helps measure the historical risk of stocks where 1 is par; a number higher than 1 indicates volatility, while a number less than 1 is more stable.

Par

A Beta baseline of 1, or the dollar amount assigned to a security when first issued.

Private Company

A business owned by an individual, a family, or a small group of investors.

Public Company

A company whose shares can be bought by the general public.

Initial Public Offering (IPO)

The process when a company decides to sell shares to the public, underwritten by investment bankers and registered with the Securities and Exchange Commission (SEC).

Conservative Investor

An investor focused on capital preservation and stable income generation with low risk, typically investing mostly in bonds with low P/E ratios, low Beta, and steady dividend yields.

Moderate Investor

An investor who uses a balanced approach seeking a compromise between capital appreciation and stability, investing in moderate stocks and bonds matching the broader market.

Speculative Investor

An investor entirely focused on maximizing aggressive long-term growth through volatile, high-return assets, investing in high-growth stocks with high or non-existent P/E ratios, high Beta ($> 1.5$), and little to no dividends.

Dow Jones Industrial Average (DOW)

A widely followed stock market index consisting of 30 companies.

S&P 500

An index containing 500 of the largest corporations mostly in America, used as the baseline for evaluating stocks or mutual funds.

Dividend

A portion of company profits paid to stockholders that is not guaranteed.

Dividend Dates

The date on which dividend payments are made or were last paid.

Dividend Yield

The rate of return on an investment paid in dividends or interest, expressed as a percent.

Capital Gains

A method of making money in the stock market by selling a stock at a higher price than what was originally paid for it.

Stock Split

Receiving more shares of a company without changing the total value of one's investment.

Reverse Split

A corporate action where an investor receives half as many shares, but each share is valued at twice the price.

New York Stock Exchange (NYSE)

The largest stock exchange in the world in terms of volume and publicly traded securities.

NASDAQ

The largest stock market with tech, containing approximately 5,000 companies.

AMEX

A merged exchange that specializes in derivatives (options) and ETFs.

Inflation

The loss of purchasing power where money left sitting in a basic savings account decreases in value, defined by the formula: $\text{real return} = \text{investment return} - \text{inflation rate}$.

Market Capitalization

The total market value of all outstanding shares, calculated by multiplying the price per share by the number of outstanding shares.

Earnings Per Share (EPS)

An indicator of profitability showing how much money each share would receive if the company distributed all of its earnings to its shareholders.

Price-to-Earnings (P/E) Ratio

A stock valuation measure calculated by dividing the stock price by the earnings per share (EPS).

Trailing P/E

A P/E ratio that calculates valuation using historical actual earnings.

Forward P/E

A P/E ratio that calculates valuation using projected or estimated future earnings.