Finance iii | Girls that Invest Flashcards
IPO =
Initial Public Offering; when companies go from private to public and thus allow you to buy their shares.
Growth stocks =
Usually tech companies that are trying to grow quicker than the rest of the stocks in their sector. Quite unpredictable. High risk, (potential) high reward.
Blue chip stocks =
Established, stable, and reliable stocks with a strong reputation (e.g. Disney).
Sector stocks =
Stocks can be broken down by sector, such as stocks in healthcare (e.g. pharmacy companies), utilities, IT, energy, pharmaceuticals, materials, financials, and consumer discretionaries or staples.
Market capitalisation =
How much a company is worth.
Large-cap stocks =
Companies that are worth over $10 billion. Stocks in large-cap companies tend to be more stable but don’t grow as fast (e.g. Alphabet stock)
Mid-cap stocks =
Companies with a market capitalization between $2B and $10B. They’re a mixture of the benefits and draw-backs you’d see in both large-cap and small-cap stocks.
Small cap stocks =
Companies with a market capitalization of less than $2B. These stocks are the most volatile but can provide a high reward for high risk. They’re essentially like startups.
What are bonds?
> Companies (corporate bonds) or the government (municipal bonds) are asking you to loan them money. They pay this back to you with a fixed amount of interest on it. After the agreed amount of time, you get your initial money (= “your principal”) back.
Bond rates are affected by interest rates.
Much less risky than stocks
What are mutual funds/ managed funds?
> Baskets that can be filled with many different combinations of stocks, bonds, cash or cash equivalents, and other investments.
Can be actively managed by a human being or passive index fund.
Fund managers on average take a 1.4% fee of a portfolio, regardless of whether it makes a profit! Passive ones go as low as 0.03%)
Mutual funds can sometimes do better in the short term, but rarely in the long term. Only 2.3 - 7.57% of actively managed funds beat the passive index funds.
What are index funds? Which are the 3 most common ones?
> Follows an index (a list) of the [x] most successful companies in market [x]
3 most common: S&P 500, Dow Jones Industrial Average (top 30 companies in the US) , NASDAQ (top 1000 tech companies in the US)
Passively managed
No voting rights
Price is valued at the end of the day, so buying and selling takes place after the stock market closes for the day.
What are ETFs?
Exchange traded funds. Similar to index funds, often invest in the same things. Some ETFs track specific index funds.
Difference with Index funds:
- Lower barrier entry: you buy a fraction of the basket at a fraction of the costs;
- You can buy & sell throughout the day, not just when the market closes.
Market ETFs =
Invest in indexes like the S&P 500.
Bond ETFs =
You can buy a basket of bonds as an ETF.
Sector ETFs =
ETFs that invest in just one sector (usually tech).
Foreign market ETFs =
Let you invest in overseas companies outside of your home country.
What are REITs?
Real estate investment trusts. The funds of the real estate world, usually commercial real estate.
> You don’t have to manage the real estate.
> Can be bought as mutual funds or as an ETF.
> Can also be broken down into sectors.
> They provide high-yield dividends.
!! They shouldn’t replace your entire portfolio !!
> When it comes to physical/ real real estate investing, it often beats out the REIT returns.
> Sensitive to interest rate changes
> Often taxed higher than stock dividends.
What are hedge funds?
Mutual funds on steroids.
> Run by investment fund managers who are allowed to make riskier investments on behalf of their investors in the hope that they outperform the market average.
> Notoriously expensive to invest in.
> Take a high cut of the profits (20%)
> Main purpose: to maximise returns and remove as much risk as possible.
Hedging =
an investment technique to off set the risk of other investments
Ticker =
A symbol made up of 2 - 5 letters given to every stock or fund (like an ID). E.g.: GOOG = Google
What are commodities?
> Stocks in physical things: metals like gold and silver, agricultural products like wheat and livestock, and energy like crude oil and natural gas.
You can buy commodities directly: most common is through stocks or funds (e.g. an energy ETF)
Types of investments that help provide diversification and help to hedge against inflation: Inflation causes stock prices to go down because inflation means more costly materials and thus lower profits, hene lower share prices.
Capital gains =
Profit. Until you sell stock, the capital gains aren’t money in your pocket. This is then called unrealised gains.
What are dividends?
> They pay you a small percent of their profits, usually every quarter.
You will still get dividends of companies if you hold them inside a mutual fund.
With dividends and capital gains, companies usually prefer to give you one or the other; a company that needs to grow to give you that capital gain needs the money; a company like a bank or utility provider that gives you dividends is not interested in putting money into development, and they instead share their profits with you.
Which 3 factors are there to consider with dividends?
- Aristocrats = dividend stocks that have consistently paid dividends every year to their investors for 25 years straight and include companies such as Coca-Cola and AT&T.
- Burners = Companies that give dividends don’t actually owe it to you - it’s just a nice little bonus. Dividends come from the profit a company makes, so if profits are low or nonexistent, they may choose not to pay out to their shareholders - and there’s nothing you can do about it.
- Calculations = High-yield dividend offers. !! Those who speak the loudest have the most to hide !! Anything > 6% is usually bad news.
What are blended funds?
> Picked to have a mixture of some growth companies that provide dividends, but also some companies that reinvest their dividends so they can continue to grow and create capital gains (and potentially even larger dividends later on).
Why does the market move? What are the 3 main causes for stock & fund price fluctuations?
- A market correction of around 10% occurs every 2 years.
- A bear market, where the market falls 20%, occurs about every 7 years.
- A crash of 30% occurs every 12 years.
3 main causes for stock & fund price fluctuations:
1. Supply & demand
2. Company earnings
3. Investor sentiment
What is earnings season?
When companies all release earning reports around the same time. These financial statements show their balance sheet (assets & debts), their cash flow & their income.
Bull market =
When stock prices are rising, and investors feel good.
> Defined as a moment when the market is up 20% after two drops of 20%, and it is named after the upwards motions bulls make when they fight.
Bear market =
Opposite of a bull market. Feels depressing. Stocks are down. Morale is low. People are scared & less likely to invest. Occurs when the entire market is down 20% for at least a 2 month period.
