Investing in the stock market for the first time might seem nerve-racking. Trading stocks and watching tickers can be intimidating because your hard-earned money is on the line—and seemingly out of your control.
With all of the insider phrases, lingo, and terminology flying around, people without experience might feel they have no chance at succeeding. But we have compiled a list of 25 useful and basic financial terms that might help any first-time investor as they begin to test out the stock market. Check it out:
Volume
Volume is relatively straightforward and simply means the total number of shares—of a stock or security—that have traded hands in one day.
To gain a better understanding of volume it helps to compare it with average volume. Doing so allows potential investors to see if a stock is trading at a much higher volume on that particular day, which can drive a stock’s price up or down.
Capitalizations – Market Cap
Mark cap is the total dollar value of a company’s outstanding shares. To calculate market cap, multiply the current shares outstanding by the current stock price. This number is used to help determine the company’s size.
Outstanding shares are all of the company’s stock that is held by all of its shareholders, which includes inside investors in the company.
10 billion or more = large cap. 2 billion to 10 billion = mid cap. Under 2 billion = small cap.
Revenue
Revenue is all of the money a company brings in during a particular period of time before accounting for expenses. In other words, revenue is a company’s “top line.” In general, revenue and sales can be used interchangeably.
EBITA
EBITA is a company’s earnings before interest, taxes, and amortization. More simply, it refers to a company's operating profit.
Earnings Per Share
EPS is a measure of a company’s profit minus its dividends paid on preferred stock, divided by the number of shares outstanding. It is great indicator of profitability.
Investors and analysts value companies that increase EPS quarter-over-quarter and year-over-year. They often shy away from stocks that experience EPS declines over a period of time.
Price-to-Earnings Ratio
PE ratio is how much investors are willing to pay for a stock relative to the company’s earnings, which is calculated by dividing the market value per share by its earnings per share. It is basically the amount of money a person would have to pay for a stock to gain $1 in earnings.
Earnings report
A quarterly filing used to report a company’s performance to its shareholders and the public. That particular quarter’s sales, expenses, and net income are disclosed, as well as forward looking statements of guidance for the next quarter and the year ahead. Companies compare most of the statistics year-over-year.
Guidance or forward-looking statements
A company provides guidance or forward-looking statements, often in its earnings reports, that provide a range for what the company projects its profit or sales might be for a year or quarter. The most important guidance metrics are often earnings and revenue estimates.
Buy and sell ratings are often based on earnings report guidance. Earnings and revenue beats, based on analyst estimates as well as the company’s own guidance, are sometimes more important than if a company grew overall. Likewise, failure to meet or exceed estimates can be devastating.
Non-Recurring Items
Non-recurring items are a part of income statements that don’t always appear and may never show up again. Examples include one-time expenses such as buying new office space or a gain or a loss from a lawsuit.
Shorting
The basic idea is that an investor plans to profit from a loss or a decline in a company’s share price. The investor sells shares of borrowed stock with the expectation that the price of the stock will eventually fall. If and when this happens, the investor then purchases shares in the open market to make a profit and returns their borrowed shares.
Margin
Margin is the difference between something’s selling price and how much it costs to produce the good or service. In the investing world, it often refers to the ratio between a company's revenues and expenses.
Volatility
Volatility refers to how much a stock’s price can change over a short period of time. Most often, the more volatile a stock is, the more risk an investor takes on.
Bull (Market)
A bull market means that there is overall optimism from investors and analysts that positive market trends will continue, with stock prices trending upwards.
Bear (Market)
In contrast to a bull market, a bear market is marked by a decrease in investor confidence in the market. Bear markets are spurred by pessimism, doubt, and the idea that the downward trend will continue.
A downturn of roughly 20% or more from a peak in market indexes, such as the S&P 500, over a two-month period is often thought of as the start of a bear market.
Bonds
Bonds are debt investments. The investor loans money to different organizations—most often governments—with variable or fixed interest rates attached. The hope is that the bondholder will eventually make money from the interest accumulated down the line, while the bond issuer uses the money now.
Mutual Funds
Think of mutual funds as strength in numbers that provide small time investors access to professionally managed and extremely diversified portfolios. Mutual funds pool thousands of individuals’ funds and invest that capital between stocks, bonds, and other assets in a formally stated and disciplined strategy.
There are currently 8,000 different mutual funds in the U.S., totaling over $4 trillion in assets. In 1940, there were a total of 68 funds.
Exchanged Traded Funds
ETF’s track a bundle of similar assets such as commodities or bonds. They can be bought, sold, and traded like stocks. Semiconductor, small-cap, recent IPO companies, and oil and gold futures are just a few examples of ETFs.
Hedge Funds
The often talked about hedge fund consists of limited partnerships of investors that use aggressive, high-risk tactics in order to try to achieve higher returns. These funds are less regulated. Therefore, investors most often have be to accredited and put up a large initial minimum investment in order to be involved—they often require investors to keep their money in the fund for at least one year.
GAAP/non-GAAP
Companies most often report their financial results using generally accepted accounting principles. These rules were put in place so public companies’ financial statements could be compared. GAAP normally includes interest, taxes, depreciation and amortization (EBITDA).
A company can also report earnings using Non-GAAP accounting principles, which are based on firm-by-firm preferences.
Top Line & Bottom Line
A company’s top line is simply its overall sales or revenues for a particular period.
A company’s bottom line is its net income, a number that is determined by deducting all expenses from overall revenue. The bottom line often tells more about a company’s overall success, as it relates to how it is able to handle operating costs efficiently and effectively.
Common Stock vs. Preferred Stock
Holders of preferred stock receive benefits over those who own common stock. For example, if a company were to go under, shareholders who own common stock will not be paid dividends until preferred stock and debt holders are paid. This means, in some cases, common stock holders may never be paid.
Preferred stock holders get paid dividends before common stock holders even when a company is doing well. These shareholders also often receive more on individual returns.
Dividend
Dividends are the amount of money a company pays its shareholders—typically on a quarterly basis. These payments are often made in cash or share buybacks after the company has a profitable quarter. However, when companies are not doing well, they do not have to pay dividends. There are plenty of companies that do not pay out dividends, but some investors prefer dividend-paying companies because they can easily re-invest that extra cash to produce bigger returns.
Indexes
A market index is an overall reflection of the how all of the different stocks or bonds being tracked performed on average. This helps give investors and citizens an understanding of how the stock market is performing as a whole.
The Standard & Poor's 500—commonly referred to as the S&P 500—along with the NASDAQ
and Dow Jones are some of the most well-known market indexes. The S&P 500 includes 70% of the total stocks traded in the U.S.
Analyst Ratings
Buy, sell, and hold: these are the terms investors hear and read about a lot. These company ratings are based on the work of analysts who do a lot of research into the company’s financial statements and sectors in order to determine their ratings. These ratings can help drive stocks in different directions depending on the analyst or their company.
Zacks Rank
The Zacks Rank takes into account earnings estimate revisions, which our founder realized was one of the most powerful metrics impacting stock prices. When a company revises its estimates upwards, its stock price most often rises as well—this is the fundamental principle behind the Zacks Rank.
Companies’ with a Zacks Rank #1 (Strong Buy) have generated profits almost three times above the level of the overall market—26% annually against the S&P 500, which generally tracks up 10%. Zacks’ Strong Buy stocks represent only the top 5% of the roughly 4,400 stocks traded in the U.S.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging
phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>
Image: Bigstock
25 Terms Every Beginning Investor Needs to Know
Investing in the stock market for the first time might seem nerve-racking. Trading stocks and watching tickers can be intimidating because your hard-earned money is on the line—and seemingly out of your control.
With all of the insider phrases, lingo, and terminology flying around, people without experience might feel they have no chance at succeeding. But we have compiled a list of 25 useful and basic financial terms that might help any first-time investor as they begin to test out the stock market. Check it out:
Volume
Volume is relatively straightforward and simply means the total number of shares—of a stock or security—that have traded hands in one day.
To gain a better understanding of volume it helps to compare it with average volume. Doing so allows potential investors to see if a stock is trading at a much higher volume on that particular day, which can drive a stock’s price up or down.
Capitalizations – Market Cap
Mark cap is the total dollar value of a company’s outstanding shares. To calculate market cap, multiply the current shares outstanding by the current stock price. This number is used to help determine the company’s size.
Outstanding shares are all of the company’s stock that is held by all of its shareholders, which includes inside investors in the company.
10 billion or more = large cap. 2 billion to 10 billion = mid cap. Under 2 billion = small cap.
Revenue
Revenue is all of the money a company brings in during a particular period of time before accounting for expenses. In other words, revenue is a company’s “top line.” In general, revenue and sales can be used interchangeably.
EBITA
EBITA is a company’s earnings before interest, taxes, and amortization. More simply, it refers to a company's operating profit.
Earnings Per Share
EPS is a measure of a company’s profit minus its dividends paid on preferred stock, divided by the number of shares outstanding. It is great indicator of profitability.
Investors and analysts value companies that increase EPS quarter-over-quarter and year-over-year. They often shy away from stocks that experience EPS declines over a period of time.
Price-to-Earnings Ratio
PE ratio is how much investors are willing to pay for a stock relative to the company’s earnings, which is calculated by dividing the market value per share by its earnings per share. It is basically the amount of money a person would have to pay for a stock to gain $1 in earnings.
Earnings report
A quarterly filing used to report a company’s performance to its shareholders and the public. That particular quarter’s sales, expenses, and net income are disclosed, as well as forward looking statements of guidance for the next quarter and the year ahead. Companies compare most of the statistics year-over-year.
Guidance or forward-looking statements
A company provides guidance or forward-looking statements, often in its earnings reports, that provide a range for what the company projects its profit or sales might be for a year or quarter. The most important guidance metrics are often earnings and revenue estimates.
Buy and sell ratings are often based on earnings report guidance. Earnings and revenue beats, based on analyst estimates as well as the company’s own guidance, are sometimes more important than if a company grew overall. Likewise, failure to meet or exceed estimates can be devastating.
Non-Recurring Items
Non-recurring items are a part of income statements that don’t always appear and may never show up again. Examples include one-time expenses such as buying new office space or a gain or a loss from a lawsuit.
Shorting
The basic idea is that an investor plans to profit from a loss or a decline in a company’s share price. The investor sells shares of borrowed stock with the expectation that the price of the stock will eventually fall. If and when this happens, the investor then purchases shares in the open market to make a profit and returns their borrowed shares.
Margin
Margin is the difference between something’s selling price and how much it costs to produce the good or service. In the investing world, it often refers to the ratio between a company's revenues and expenses.
Volatility
Volatility refers to how much a stock’s price can change over a short period of time. Most often, the more volatile a stock is, the more risk an investor takes on.
Bull (Market)
A bull market means that there is overall optimism from investors and analysts that positive market trends will continue, with stock prices trending upwards.
Bear (Market)
In contrast to a bull market, a bear market is marked by a decrease in investor confidence in the market. Bear markets are spurred by pessimism, doubt, and the idea that the downward trend will continue.
A downturn of roughly 20% or more from a peak in market indexes, such as the S&P 500, over a two-month period is often thought of as the start of a bear market.
Bonds
Bonds are debt investments. The investor loans money to different organizations—most often governments—with variable or fixed interest rates attached. The hope is that the bondholder will eventually make money from the interest accumulated down the line, while the bond issuer uses the money now.
Mutual Funds
Think of mutual funds as strength in numbers that provide small time investors access to professionally managed and extremely diversified portfolios. Mutual funds pool thousands of individuals’ funds and invest that capital between stocks, bonds, and other assets in a formally stated and disciplined strategy.
There are currently 8,000 different mutual funds in the U.S., totaling over $4 trillion in assets. In 1940, there were a total of 68 funds.
Exchanged Traded Funds
ETF’s track a bundle of similar assets such as commodities or bonds. They can be bought, sold, and traded like stocks. Semiconductor, small-cap, recent IPO companies, and oil and gold futures are just a few examples of ETFs.
Hedge Funds
The often talked about hedge fund consists of limited partnerships of investors that use aggressive, high-risk tactics in order to try to achieve higher returns. These funds are less regulated. Therefore, investors most often have be to accredited and put up a large initial minimum investment in order to be involved—they often require investors to keep their money in the fund for at least one year.
GAAP/non-GAAP
Companies most often report their financial results using generally accepted accounting principles. These rules were put in place so public companies’ financial statements could be compared. GAAP normally includes interest, taxes, depreciation and amortization (EBITDA).
A company can also report earnings using Non-GAAP accounting principles, which are based on firm-by-firm preferences.
Top Line & Bottom Line
A company’s top line is simply its overall sales or revenues for a particular period.
A company’s bottom line is its net income, a number that is determined by deducting all expenses from overall revenue. The bottom line often tells more about a company’s overall success, as it relates to how it is able to handle operating costs efficiently and effectively.
Common Stock vs. Preferred Stock
Holders of preferred stock receive benefits over those who own common stock. For example, if a company were to go under, shareholders who own common stock will not be paid dividends until preferred stock and debt holders are paid. This means, in some cases, common stock holders may never be paid.
Preferred stock holders get paid dividends before common stock holders even when a company is doing well. These shareholders also often receive more on individual returns.
Dividend
Dividends are the amount of money a company pays its shareholders—typically on a quarterly basis. These payments are often made in cash or share buybacks after the company has a profitable quarter. However, when companies are not doing well, they do not have to pay dividends. There are plenty of companies that do not pay out dividends, but some investors prefer dividend-paying companies because they can easily re-invest that extra cash to produce bigger returns.
Indexes
A market index is an overall reflection of the how all of the different stocks or bonds being tracked performed on average. This helps give investors and citizens an understanding of how the stock market is performing as a whole.
The Standard & Poor's 500—commonly referred to as the S&P 500—along with the NASDAQ
and Dow Jones are some of the most well-known market indexes. The S&P 500 includes 70% of the total stocks traded in the U.S.
Analyst Ratings
Buy, sell, and hold: these are the terms investors hear and read about a lot. These company ratings are based on the work of analysts who do a lot of research into the company’s financial statements and sectors in order to determine their ratings. These ratings can help drive stocks in different directions depending on the analyst or their company.
Zacks Rank
The Zacks Rank takes into account earnings estimate revisions, which our founder realized was one of the most powerful metrics impacting stock prices. When a company revises its estimates upwards, its stock price most often rises as well—this is the fundamental principle behind the Zacks Rank.
Companies’ with a Zacks Rank #1 (Strong Buy) have generated profits almost three times above the level of the overall market—26% annually against the S&P 500, which generally tracks up 10%. Zacks’ Strong Buy stocks represent only the top 5% of the roughly 4,400 stocks traded in the U.S.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging
phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>