Chapter 2 - Investing in Stocks Flashcards
Capital Gain
when investors sell stocks for more than they paid
Capital loss
when a stock sells for less than an investor paid for it
dividend
the amount of profit a company pays to its shareholders
stop loss order
an order put in to sell the stock when the price decreases to a certain amount
market order
an order put in to buy or sell at the best possible price
limit order
an order to buy or sell a specific amount at a specific price
odd lot
stock order that isn’t a multiple of 100 shares. commissions are higher for odd lots
round lot
an order that’s a multiple of 100 shares
floor broker
person who actually executes a stock order on the exchange floor
market maker
a dealer a particular OTC stock and who is similar to a NYSE specialist
two dollar broker
an independent member of the stock exchange who is not connected with the firm. used when a brokerages floor broker is too busy
specialist / designated market maker
a broker who specializes in trading specific stocks at the trading posts
horizontal merger
two or more companies with the same type of business are combined
vertical merger
merging with companies at other levels of the same business in order to be guaranteed a supplier or customers
example : a dairy company buying farms or Nike buying Reebok
conglomerate merger
a merger between two companies with unrelated product lines
example : Nike buying Beats
hostile takeover
occurs when a corporation, an investor, or a group of stockholders gains controlling interest in another corporation
retained earnings
when a company retains part of their profits and reinvests it in the corporation.
preferred stock
stockholders receive special treatment because company dividends to them before being laid to common stockholders. if the company went bankrupt, preferred stockholders would receive payment first.
treasury stock
shares repurchased by a corporation.
authorized shares
shares a corporation is allowed to issue
crash of ‘29 and ‘87
crash of ‘29 called Black Thursday created new laws
warrants
a long term privilege similar to stock rights that allow the public to buy additional shares at a set price
day order
an order put in that only lasts a day
good till canceled order
an order that will stand until it’s filled or canceled
ticker tape
an electronic display of stock transactions that flashes across a screen in most brokerages
market risk
a risk that affects the prices of all stocks simultaneously
examples :
- change in interest rates
- sudden or unexpected event
company risk
a risk that affects the stock price of one company
examples :
- demand goes up = price goes up
- vice versa
SEC
watch dog agency that enforces federal laws pertaining to the stock market. breaking the rules results in harsh punishment.
proxy
is a form giving another person authority to vote on behalf of the shareholder
board of directors
chief governing body of a corporation
annual report
financial report published once a year by a corporation and distributed to its stockholders
stock
represents ownership in a corporation that’s represented by shares. each share of stock has a stake in the corporations earnings and assets
NYSE
oldest and most popular stock exchange. is an indicator for the stock market.
NASDAQ
an organization of dealers that is self regulated and required dealers to follow reputable business practices
OTC
over the counter market that is a way of trading stocks rather than a place for trading stocks. stocks are traded by dealers in a complex telephone and computer network, rather than in a trading floor
AMEX
American stock exchange . stocks are listed smaller, new ones with smaller trading volume
IPO
initial public offering. first time a brand new company decides to go public. it’s handled by an investment banker or brokerage firm. a tombstone ad notifies investors about the IPO
Blue chip stocks
Stock of a well-established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times
examples : coca-cola, GE, Disney, GM
income stocks
stocks of corporations whose dividends are relatively large and stable
cyclical stocks
stocks that go with the flow of the economy. if the economy does bad, they do bad and vise versa
defensive stocks
A stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market
growth stocks
stocks that retain most of their earnings
FED functions
regulates banks throughout the country. controls currency and money supply. raises or lowers discount rate. buys government securities that puts new money into system. and vise versa.
