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Fifteen Investing Terms You Should Know

Need a crash course in investing? These terms and definitions will help.

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Ask: The lowest price a seller is willing to accept when selling a security (stock).

Bear: An investor who believes the market as a whole or a particular stock will decline. A bear is the opposite of a Bull.

Bid: The highest price a buyer is willing to accept when purchasing a security.

Blue Chip: A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. Examples: Coca-Cola, Berkshire Hathaway, & Gillette. We have an entire subject area dedicated to Blue Chip stocks! Go Here.

Book Value: The value of the company if all liabilities were subtracted from assets and common stock equity. The book value has very little relation to the market value. In industries in the technology sector, this number is almost always miniscule compared to market capitalization.

Broker: A person that buys or sells an investment vehicle for you (securities, bonds, commodities, etc.,) in exchange for a fee which is called a commission.

Bull: An investor who believes the general market or a particular stock is going to increase in price.

Dividend: A portion of a company's income that is paid out to shareholders on a quarterly or annual basis. Dividends are declared by the Board of Directors.

Dow Jones Industrial Average: The Dow Jones Industrial Average (or DJIA for short) is by far the most popular and widely used gauge of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies.

Market Capitalization: A company's market capitalization (or "market cap" as it s frequently called) is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share.

NASDAQ: A stock exchange where mostly shares of technology companies such as Microsoft and Cisco are traded. An exchange is a place where options, futures, and shares in stocks, bonds, indexes, and commodities are traded. The most famous in the United States is the New York Stock Exchange.

P/E Ratio: How much money you are paying for $1 of the company's earnings. In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings ($20 per share divided by $2 per share earnings = 10 P/E.)

Spread: The difference between the Ask and the Bid.

Stock: Stock is ownership. A business is divided up into shares of stock and parts of the company (the shares) are sold to investors to raise money. For more information, check out the investing lessons.

Yield: When a company pays a dividend the yield is the percentage of the stock price in relation to the dividend paid. In other words, if a stock is trading for $10 and pays a dividend of $0.50, the yield is 5%, because for every $10 you invest, you would receive 5% back annually in the form of a fifty-cent dividend.

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