Stock Investing Terms
American Depositary Receipt. This is an instrument that is issued by a U.S. bank for a foreign stock. Each ADR is equal to one share of stock in the foreign company. The bank holds the actual stock in the foreign company but by issuing the ADR it allows an investor to "own" the foreign stock without having to buy it on a foreign exchange.
Ask Price -
The best price at which someone is willing to sell. This is also the price at which you would purchase a stock with a market order.
Bear Market -
A market that has declined for a sustained period of time.
Bull Market -
A market that has increased for a sustained period of time.
Bid Price -
The best price at which someone is willing to buy. This is also the price at which you would sell a stock with a market order.
Dividend Yield -
The annual dividends paid per share divided by the current price of the stock. The higher the yield the better return you are earning on your investment. Often companies that pay a very high yield are relatively stable in share price thus they have to pay higher dividends to attract investors.
Book Value -
The book value represents the value each share of stock would be worth after taking all the company's assets and subtracting all the company's liabilities and obligations.
Dollar Cost Averaging -
Purchasing the same dollar amount of stock at regular intervals (usually monthly). What this does is allows a person to buy more stock when the price is low and less stock when the price is high. In effect this generally lowers the average cost per share.
Dow Jones Industrial Average. This is probably the most commonly referred to market index. It is a "basket" of 30 diversified stocks that is meant to reflect the overall market movement.
Earnings per share. This is the company's total profit divided by the number of shares outstanding.
Forward PE -
The forward P/E takes the current stock price divided by the forecasted earnings. Keep in mind this is only an estimate as future earnings can and will vary from forecasts.
Limit Order -
A limit order allows you to specify the price at which you want the order to be filled. The order will not be filled unless the stock can be purchased at the limit price or better.
Market Order -
A market order simply will get you the best price available at the time it reaches the market.
Penny Stock -
A penny stock is a stock that trades for less than $1 per share. However, some brokerages consider a penny stock any stock that trades less than $5 per share.
Preferred Stock -
If a company issues preferred stock, it has precedent over common stock. If dividends are paid, they must pay owners of preferred shares first. Preferred shares also have a priority claim over common shares to assets in the event of a bankrupcy or dissolution of the company. Often preferred shares do not having voting rights.
The current price of the stock divided by the earnings of the company, usually the trailing twelve months.
PEG Ratio -
This is the PE ratio divided by the annual earnings per share growth rate. The lower the ratio the more undervalued the stock is. As with any forecasted number, this is only a best estimate and likely to change.
Securities Exchange Commission, the regulating body over the exchange markets.
Initial Public Offering. This is when a company first issues stock to become a publicly traded company.