Stocks Flashcards
Dividends
cash payments issued by a company to the investors on a regular basis
Market Capitalization
total market value of a company
used by investors to get a sense of how large or small the scale of a company is
Ex. 145 million shares outstanding multiplies by share price of $41.50 you arrive at market capitalization of 6.4 billion
Price/Earnings Ratio (P/E)
Helps tell if a company’s stock price is overvalued or undervalued and can reveal how a stock’s valuation compares with its industry group or a benchmark like the S&P 500 Index.
The stock price per share/annual earnings per share
High P/E is considered expensive/more dollars must be spent for each dollar of earnings
Low P/E are cheap in a good way
Ex.
A - 20 million price/1 million in earnings = 20
B - 28 million price/1.5 million in earnings = 18.5
B is the better deal
Dividend Yield
Tells you how much is paid out on dividends
Ex.
1.02% - For every share owned, the company will pay $1.02.
Dow Jones Industrial Average (DJIA) Index
Generated by the performance of 30 large publicly traded companies from tech, finance, retail, and Pharma industries
Standard & Poor’s (S&P) 500 Index
Measures the performance of 500 stocks in the US markets
Nasdaq Composite
Index measures stocks that are only traded on the Nasdaq Stock Market
Nasdaq created in 1998 separate from NY Stock Exchange. First market to trade through telecommunications rather than a physical trading floor
These are generally tech stocks
Includes all 3000 stocks trading on Nasdaq
Mutual Fund
Investors hand over money to a fund manager who chooses an assortment of stocks, bonds, and other securities.
Actively Managed - More costs involved and usual a Mutual Fund
Strive to BEAT the market (different from index funds that try to align with market)
Mutual Funds DO NOT change share price throughout day.
Funds calculate by net asset value (NAV) at the close of each day
Expense Ratio
How much it costs to carry a mutual fund
Total Fund Costs/Total Fund Assets = ER
Administrative costs, pays those who manage it
Exchange Traded Funds (ETFs)
Similar to a mutual or index fund, but like stocks they always trade on the open market
Include many different securities and investment strategies
Index Funds vs ETF Investing
ETF is more liquid because index funds can only be bought and sold at the end of the day
Some index funds impose a minimum requirement
Both passively managed so low expense ratios
ETFs are most tax efficient. To cash out of an index fund you have to sell it to the manager, so capital gains will have to be paid by everyone in the index fund
Money Market Funds
a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents.
minimal volatility
Cash Management Account is a money market fund
Hedge Funds
complicated, expensive, exclusive with an annual fee
wide variety of investment and risk management tactics such as short selling
Annuities
An annuity is a contract that’s issued and distributed by an insurance company and bought by individuals. The insurance company pays out a fixed or variable income stream to the purchaser beginning right away or at some time in the future in exchange for premiums they’ve paid.
Fixed - self-commissioned pension plans - you put money in and the annuity pays you regularly until you die
Variable - More investment orientated, invested in market funds - results in higher fees
Commissions are paid to insurance brokers who sell them so some people don’t like them
What are options?
An option is a legal contract that gives you the right to buy or sell an asset (think: a stock or ETF) at a specific price by a specific time.
