Stock Terminology
“The bottom line: If you take the time to understand
a little bit about the stock market and research companies
before you buy shares in them, you’ll do better in the
long run than someone who just jumps in.”
- Ilyce R. Glink, author of
100 Questions You Should Ask About Your Personal Finances
You hear a lot of terms bandied about when reading finance-oriented
magazines like Money and Forbes and watching
CNBC. The following will help familiarize you with some of
these terms so you can develop a better understanding of what
financial analysts and market gurus are saying:
Bear Market: the market is referred to as a “bear”
when it’s not performing well. Technically, a bear market
exists when the stock market drops at least 20% from its most
recent high.
Big Board: a reference to the New York Stock Exchange
(NYSE).
Blue Chips: large, well-established companies that
combine growth and dividends to shareholders. They are typically
the most prominent 100 - 200 companies, and the blue chip
label refers to their long-term endurance.
Bull Market: this is when the stock market is performing
extremely well. You may be referred to as a “bull”
if you are openly optimistic about the market’s continuing
growth potential.
Dividends: typically paid out each quarter, dividends
are basically your share of the company’s profits.
Earning Per Share: calculated by dividing a company’s
net income by the number of outstanding shares.
Equity: the same as a stock, representing ownership
in a company--just as you own equity in your home.
Market Correction: this occurs when the market drops
at least 10% from its most recent high.
Price-to-Earnings (P/E) Ratio: a measure of a company’s
future earnings prospects, calculated by dividing the stock
price by its earnings per share.
Tax-Advantaged: being tax-free, tax deductible, or
having other tax benefits.
Tax Deferred: postponing taxes on earned income each
year until money is actually withdrawn from the account.
Tax Shelter: a legal means of reducing or avoiding
tax liability.
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