Investing has its own terminology that you should know before you make your move. All you have to do is a little bit of research to become a good investor. But you won't understand what you are looking at if you don't understand the terms. Here are a few key terms that will help you as you begin to invest in the stock market.
Revenue is the money that a company makes on the sales of products or services. Sometimes you will see this as "sales" instead of revenue. But the revenue doesn't give you a complete picture of the company. Just like your budget, the expenses are important to your financial health. Companies have to pay for employees, materials, advertising, office space and numerous other expenses. These costs are stated in the company's pre-tax income. After the company pays taxes and other expenses, they are stating their net income.
To determine the company's profitability you can look at the net income. But you should also look at the company's profit margin. The profit margin is the net income divided by the revenues. It is a percentage. This is often helpful when comparing companies.
The earnings per share is calculated by dividing the company's net income with the outstanding shares. The outstanding shares are the stock that has been issued and is currently held by investors. Many large companies give investors a share of their earnings, called a dividend.
The dividend adds to the total return you may get from a certain stock investment. Capital appreciation also adds to the return. Capital appreciation is the increase in the price of the stock. The total return stated is usually calculated on an annualized basis, considering the expected change for the full year.
You can find growth rates for growth companies. These will help you to identify how quickly a company is increasing revenue, profit and earnings per share. These rates are recorded on a quarterly and yearly basis. You can also find growth rates for multiple year periods.
Look at the book value in determining a company's worth. This is the company's total assets minus its liabilities, preferred stocks and intangible assets. This is what the company is worth if everything was liquidated and all debts paid in full. This is often divided by the outstanding shares and is reported as the book value per share.
Many top employees of companies own significant portion of stock in the company. They are referred to as insiders because they have confidential information that the normal investor doesn't gain access to. If they hold a large number of shares in the company, they tend to act in the interest of the shareholder. Check the level of insider ownership when you are looking at a stock. High insider ownership levels are a positive factor when considering a stock.
You should also look at the risk the stock poses to you. This can be seen in the stock's beta. The beta measures the tendency for the stock to move up or down in price compared to the overall market. A beta over one means that the stock is more volatile than the overall market. A beta of less than one means that it is less volatile.
These are just a few of the terms that you will run into as you start to consider stocks for investment. There are many more terms that you will encounter along your investment path. All it takes is a little time and some simple research, and you will easily understand the stock market.
Martin Lukac http://www.MartinLukac.com , represents http://www.RateEmpire.com , an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com
Stock quoting are made by the sale makers themselves. It's their goal to sew the threads of the business in a stock and because of that they have to post a current stimulate and ask value at all times all through hot offer hours.
The auction cost is the value where the stock sale maker will make the acquisition from you. The ask quality is the price where he costs to you. A person always acquisition the higher ask and could unique market to the lower stimulate quality. The difference is known the spread and it is the income of the market maker.
That is why investing online quotes are changing also inasmuch as the spread changes. The widespread will enlarge as an instance by the time there is surely low share volume or by the time the investing online moves greatly effective. Both situations inherit higher risk inasmuch as the business maker, hence the higher distributed. On the other side, a slow business will narrow the spread. Likewise when a lot of computer buyers and vendors specification up the risk is reduced and the spread goes down. The dispersed would be assorted points or budget in the worst package however in the well labeled large stocks it's single a few cents.
Daily investing online trading is just a portion of the business and therefore have to bear in mind the value of the company and nothing else. In the somewhat long term, this is maybe true, though short and mid term there are as well numerous items that persuade the perceived cost. The stock quotes might change umpteen points or percent within hours although nothing unexpected had happened to the company itself however immediate factors were interpreted to use effect at present or later.
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The major part of a mutual fund is a portfolio of a wide range of stocks that are managed on behalf of the investors that buy into the fund. Mutual funds were created to give small investors to take advantage of a large, diversified portfolio without the need of large investments. The major advantage of a diversified portfolio is the increased protection against rapid market fluctuations of any one particular stock.
As mutual funds' portfolios are spread across 20 or more stocks, even if one of those stocks falls, the effect is much less than if the portfolio consisted of that one stock only. The main rule of investing is “diversify whenever it is possible”. Of course, it is a problem for small investors - they often lack the funds to buy a wide variety of stocks. And that's where mutual funds comes in, letting small investors to benefit from diversification only after investing a small amount of money.
Mutual funds can be made up of a variety of holdings, not only the stocks. Their portfolios might include also bonds or other money market instruments. Technically speaking, a mutual fund is a company and those who buy into it are in fact purchasing shares of that company. They can be bought either directly from the fund itself or from brokers acting on behalf of the fund. How do we redeem shares? That's simple – we sell them back to the fund (they have to buy them).
Most funds are run by investment professionals and analysts who decide which securities to include in the fund. However, there are also some non-managed funds, usually based on an index such as the S&P 500 or Dow Jones. Such funds simply duplicate the holdings of the index, so there is no need for analyses.
How do they work? For example, if the Dow Jones goes up by 5%, the mutual fund based on that index will also rise by 5%. Surprisingly, non-managed funds usually perform better than their managed counterparts.
So far so good, but there are also a few downsides. First, there are fees that must be paid regardless of how the fund performs. Then, the individual investor has nothing to say about which securities should be included in the fund. Lastly, the current value of a mutual fund remains unknown until it publishes its financial statement (twice a year).
Mutual funds are a good choice for the smaller or part-time investors, better than either stocks or bonds. For one, they provide investors with the diversity that lessen the shock caused by sudden stock market movements while usually outperforming bonds. Of course, it is possible for a mutual funds to lose value, though mainly in the short term. Investors interested in short-term transactions should rather turn their attention to bonds which offer a set rate of return.
Money market funds, bond funds and stock funds are three main types of mutual funds currently on market. Money market funds offer the lowest risk, but also the lowest return rate. Their portfolios consist only of high quality investments – for example, bonds issued by the US government and blue chip corporations.
Bond funds usually produce higher profit than money market funds, but they are also a little more risky. The reason is simple: all the risks associated with bonds – bankruptcy or falling interest rates – can also damage bond funds.
Stock funds are mutual funds with the greatest potential, but also carry the most risk. However, they are dangerous mostly for the short-term holders – stocks usually outperform other investments in the long run. There are two main types of stock funds - 'growth funds' that aim to maximize the gain and 'income funds' that concentrate on stocks that pay regular dividends.
Mutual funds are ideal investment instruments for everyone with limited funds or none investment experience. The choice between the funds is a decision on how much risk you want to take against the expected return rate.
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Option trading is not restricted to individual stocks. The large commodity market is an option market that deals in all manner of commodities such as grain or cattle. There is also another type of investment known as index option trading.
An index is a listing of a number of different stocks that share something in common, and it represents the composite value of all of them. An example is the Dow Jones Industrial Average which represents the value of the 30 largest and most widely held industrial stocks on the New York Stock Exchange. The Standard and Poor's 500 is another index that represents 500 different stocks. These two well known indices are used frequently to gauge the progress of the economy and the general health of the stock market. They are familiar to most people, even those with little or no interest in the market, as they are widely quoted on news broadcasts.
They represent just two of a large number. There are broad based ones that reflect a wide range of widely different stocks, and there are ones that are very specific to a certain group. As the Dow Jones tracks industrial stocks, another index called The Morgan Stanley Biotech Index tracks 36 different stocks of companies engaged in biotech research. An index can list companies with similar products, and even similar management styles. There are also a wide variety of foreign indices that reflect the composite value of foreign stocks.
An index may also be classified as to how it is weighted. Some regard every stock equally, and a price fluctuation in any stock in the index will have an impact of the index price no matter how large that individual stock's share of the index might be. Other indices "weight" the index based on the size of the company. In other words, small companies that experience even a large price change will not have as much impact on the index as a small change in one of the largest companies.
Index option trading is popular in part because the risk is considered to be lower than with individual stock. This is partly because the index, representing a variety of stocks, is less likely to be subjected to the same adverse pressures that may cause an individual company to experience a very rapid decline in its value. The index is seen as much easier to subject to trend analysis, and this makes it a popular part of most Mutual Fund portfolios.
There is another classification of indices that might be of interest to investors with certain social and environmental sensitivities. They are known generally as Ethical Indices as list stocks that satisfy certain criteria in their business operation. An example of one such index is the Wilderhill Clean Energy Index. Sadly, in the current market there is no direct connection between environmental sensitivity and profit, but with an Ethical Index, you can at least feel good about yourself while you make money, or even feel somewhat good if your investment turns out the opposite way.
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