“American Depositary Receipt” (ADR) is a security that’s traded on a U.S. stock exchange and represents ownership of a foreign company, like BMW or Prada. You can buy or sell ADRs in your brokerage account the same way you buy or sell stocks.
A report that gives people information about the company’s financial performance and activities for the preceding year. It’s like an annual report card for the company.
A financial statement that summarizes what the company owns (assets) and owes (liabilities), and what amount is invested by shareholders (equity). A strong balance sheet means the company owns lots of assets and doesn’t owe much money to anyone.
Blue chip stocks
Stocks in large, well-established companies that are household names like Coca-Cola, Verizon, and P&G. Most pay cash dividends to their investors. Dividends are not guaranteed and subject to change.
An account that allows you to hold cash and stock. An online brokerage like Stockpile provides a secure interface where investors can buy or sell stock.
Bull market & Bear market
It’s a “bull market” when stocks are rising. If a person believes stocks will go up, she has an optimistic “bullish outlook.” It’s a “bear market” when stock prices are falling. A person who believes stocks are going to go down has a pessimistic “bearish outlook.
The most common class of stock in a company, representing a claim to everything the company owns and earns. Investors get one vote per share to elect the company’s board of directors. If a company goes bankrupt, creditors and preferred shareholders get their share of any remaining assets before common stockholders do.
Cash the company gives to its shareholders when it makes money. The cash shows up in your brokerage account automatically. Sometimes, companies issue stock dividends instead. In that case, you end up with additional stock in the company.
A company’s profits. Companies report their earnings after the end of every quarter. People use these reports to help them understand how the company is performing and decide if the stock is worth buying. Stock analysts try to predict what a company’s earnings are going to be, and the stock price often increases or decreases as soon as earnings are announced, depending on whether the company beat or missed analysts’ estimates.
“Earnings Per Share” (EPS) tells you how profitable a company is. It’s how much profit the company earned for every share that’s out there. To figure it out, divide the company’s net income (its after-tax profit over the last four quarters) by the number of outstanding shares.
An “Exchange-Traded Fund” (ETF) is a collection of stocks that’s traded on stock exchanges. For example, an S&P 500 ETF includes the 500 stocks that make up the S&P 500 index; a China ETF includes stocks in Chinese companies.
Less than one full share of stock. Stockpile allows you to buy and sell fractional shares, so you don’t have to wait until you have enough money to buy an entire share in order to be a shareholder in a company.
Stock in a company that’s expected to grow its earnings at a rate higher than the market average. A growth stock usually doesn’t pay a dividend, because the company chooses to reinvest it in the company.
A type of ETF that tracks a stock index. Instead of picking and choosing the investments in the fund, it holds some or all of the stocks in an index. For example, the S&P 500 index fund holds a diverse set of 500 U.S. stocks that are meant to be representative of the overall stock market. A Nasdaq index fund holds stocks that are more technology-focused. ETFs give you instant diversification into a large number of stocks and seek to deliver the market’s average performance.
An “initial public offering” is the first time a company sells its stock to the public. After an IPO, you can buy or sell the company’s stock in your brokerage account.
How much the entire company is worth in dollars, according to the stock market. To figure out a company’s market cap, multiply the stock price by the total number of shares that are outstanding. A company’s market cap helps investors understand a company’s size and investment risk. Historically, small cap companies have experienced higher growth potential with higher risk, while large cap companies have experienced slower growth with lower risk.
What you own in your brokerage account. Your portfolio includes all of your stocks, ADRs, ETFs, and cash.
A class of stock that represents ownership in a company. If a company goes bankrupt and assets are liquidated, preferred shareholders get their share before common shareholders. Preferred shareholders usually don’t have voting rights.
The company’s stock price divided by its profits (also called its “earnings”). If two stocks have the same share price but one has higher earnings, many investors would say it’s the better deal because it has a lower P/E ratio. Smart investors use the P/E ratio as one of several tools to value a company.
The “Securities and Exchange Commission” (SEC) is a U.S. government agency that protects investors from fraudulent companies and unfair dealings in the stock markets. It was created after the stock market crash of 1929.
A part owner of the company (also called “stockholder”). You become a shareholder of a company when you buy its stock. You’re entitled to any dividends the company issues, and if you own at least one share, you can attend shareholder meetings and vote to elect the company’s board of directors.
Represents ownership in a company. It comes in units called shares.
Companies often split their stock if the share price gets too high. Dividing up the company into more shares makes each share more affordable. In a 2 for 1 stock split, the company doubles the number of shares and each one is worth half as much.
Where stocks, ADRs, and ETFs are bought and sold. The most important exchanges in the U.S. are the New York Stock Exchange and the Nasdaq.
Stock ticker symbol
A unique combination of letters (and sometimes numbers) that’s a shorthand name for the company’s stock. For example, Apple trades on the Nasdaq using the ticker symbol AAPL.
The process of determining what a company’s stock is worth. Analysts usually look at things like the company’s management, the market value of its assets, its capital structure and the potential for future earnings.
Stock that is considered to be underpriced relative to the company’s earnings or other factors.