Udemy Investing Flashcards
What is Inflation?
In economics, inflation or price inflation is a general rise in price level relative to available goods resulting in a substantial and continuing drop in purchasing power in an economy over a period of time.
What is Inflation often measured by?
Using the CPI (Consumer Price Index), which tracks the prices of a basket of goods and services each year.
What is Compound Interest?
Compounding your interest is the process of re-investing the interest earned on your investment so that during the next period you can earn interest not only on your invested capital but also on the accumulated interest.
What is a Private Corporation?
A company whose shares are not traded publicly and who are owned by a small group of people (owners, employees, friends and family and qualified investors.
What are Stocks (or Shares)?
An investment that represents part ownership in a corporation. When you buy shares in a company you own proportionally part of that company.
What is an Auction Market?
A market in which the buyers compete on buying prices, and sellers compete on selling prices simultaneously.
What is the Stock Market?
A market in which shares of publicly traded companies are issued and traded. The stock market provides companies with access to capital and provides investors with an easy way to have ownership in companies. It’s just a place where buyers and sellers of stocks meet to transact.
What is the Stock Exchange?
A place where market participants can trade stocks with one another.
What are the three US Stock Exchanges?
NYSE, NASDAQ, AMEX
What is Market Cap?
The total market value of a company (can be calculated by multiplying the current price of the stock times the total shares outstanding)
What is the market cap called for >$200 billion?
Mega-cap (Huge companies e.g) Tesla, Amazon, Google, Netflix (safe)
What is the market cap called for $10 billion - $200 billion?
Large-cap (Blue chip companies, safe to invest in large cap stocks)
What is the market cap called for $2 billion - $10 billion?
Mid-cap (risky)
What is the market cap called for $300 million - $2 billion?
Small-cap (risky to invest in)
What is the market cap called for $50 million - $300 million?
Micro-cap (risky)
What does Screening mean?
Process of looking for information. So whenever you’re looking for different stocks, different ETFs, different criteria.
For example, you can look for stocks that have made positive earnings.
You can look for stocks that trade more than X shares, and you can look for funds that are in the oil sector.
What are Financial Statements?
Companies are obliged to release financial statements on a quarterly basis. These statements are: Balance Sheet, Income Statement, Cash Flow Statement
What is a Balance Sheet?
This form reports on the company’s assets, liability, and owner’s equity. It also has a section for management discussions and analysis.
Liabilities + Equity =
Assets. (Assets is everything that the company owns: cash, building equipment, everything that’s worth something.)
Assets - Liabilities =
Equity. Equity is basically shareholders equity, what the owners have put in.
Assets - Liabilities =
Equity. Equity is basically shareholders’ equity, what the owners have put in.
What is an Income Statement?
Also called earning statement, this form reports on the company’s financial performance. This is the form where the earnings are disclosed. This form will show the company’s revenues, expenses and net profits.
What is a Cash Flow Statement?
This form reports on the company’s cash flow (cash entering the company and cash exiting the company). Cash Flow is divided into 3 parts. Cash from core operations, investing, and financing.
What are Earnings?
The net profit made by a company in a period. Revenues - Expenses
What are Earnings Per Share (EPS)?
The earnings made in a period are divided by the number of shares outstanding. In a way, this tells you how much each share’s allocation of the total earnings.
What are Price to Earnings (PE)?
This is the ratio of the company’s share price divided by the company’s Earnings Per Share. In a way, it tells you how much you are paying for each dollar of earnings the company makes. It’s used to see if a company is overvalued or undervalued.
Who gets access to the primary markets?
Only huge corporations get these block trades.
What happens when a company goes public?
An underwriting firm looks at its statements to figure out what price they can IPO them at and sells the shares to their connections.
What happens after the shares are sold on the primary market?
At a specific date, after they’re allowed to start selling on the secondary market, the secondary market is where all the shares are traded, where you and I and everybody else can go and buy the shares from one another.
A stock market is a market in which shares of _______ _______ ______ are issued and traded.
publicly traded companies
Why is the New York Stock Exchange the most stringent exchange in the US?
They have higher requirements for a company to be listed, meaning they’re going to ask a company to be very big to be listed on their exchange. They have to have more than x amount of employess.
T or F: Companies need to pay a good chunk of money to be listed on the New York Stock Exchange.
True
What is a broker?
A firm that facilitates the execution of a financial transaction for free. You want to buy shares, and somebody else somewhere wants to sell shares. They go to their broker.
Why has it become extremely cheap to buy shares now?
Because brokers on the floor getting your stocks has been removed. Its now all online. Orders are routed automatically and they’re sent automatically for you to get your shares.
What time does the stock market open in the U.S?
9:30am to 4pm ET
What is a Limit Order?
The order you are instructing your broker to buy or sell a financial product at a specific price or better. You are not guaranteed to get filled on this order type.
What is a Market Order?
With this order you are instructing your broker to buy or sell a financial product right away no matter the price.
What is the Last Price?
The last executed price between two market participants on a financial product.
What is a Bid?
The highest price a buyer is willing to pay. This is the best available price for a seller to sell at right away.
What is an Ask?
The lowest price a seller is willing to sell at. This is the best available price for a buyer to buy at right away.
What is Volume?
The quantity of shares traded in a specific period.
What are the 3 financial statements companies are obliged to release?
- Balance Sheet
- Income Statement
- Cash Flow Statement
What do investors wait to see every quarter to see how much money each company made?
Income Statement
Why are cash flow statements not popular with the public but analysts really look into it?
They look into it because a company might show that they’ve made a lot of money in one year but they only made money because maybe they sold a building. So everybody thinks they’ve made a lot of revenue, but that revenue came from a non-recurrent thing. So it’s not something that’s going to happen all of the time. So Analysts are going to look at the cash flow to see where did this cash come from, it came from their core operations or is it a nonrecurring event because they just sold a building?
What are Growth Companies?
Companies that are not generating as much income relative to their price, but that are expected to have high earnings growth in the future. These companies usually have a high PE ratio, high PB ratio and do not give out dividends.
What are Value Companies?
Most companies that are mature and generating good income relative to their price. These companies are not expected to grow their income by much in the future. They usually have a low PE ratio, and low PB ratio and give out dividends.s
What is a Book Value?
The book value literally means the value of a business according to its books (accounts) that are reflected through its financial statements. Theoretically, book value represents the total amount a company is worth if all its assets are sold and all the liabilities are paid back.
Book Value per Share (BVPS)
This ratio tells us the book value of a company on a per-share basis. It’s calculated by dividing the Company’s book value by its number of outstanding shares.
Price-to-Book (P/B)
This ratio compares the price of the stock to the BVPS. It’s calculated by dividing the company’s stock price by its BVPS. It tells us how much we are paying for each dollar of book value.
What is a Dividend?
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business.
What is a Declaration Date?
The date when the company declares that they will pay a dividend.
What is a Record Date?
The company records the names of all shareholders at the end of this day. These shareholders are the ones who will receive the dividend.
What is the Ex-dividend date?
If you buy on this date or after, you will no longer receive the dividend. In North, America stocks take two business days to settle (think of it as it takes 2 business days for your name to be on the stock certificate. Because of this ex-dividend dates will be one business day before the record date (always check the ex-dividend date online because of holidays and weekends).
Which companies have a high PE ratio, high PB ratio and DOES NOT give out dividends?
Growth companies
Which companies have a low PE ratio, low PB ratio and give out dividends?
Value companies
What is Technical Analysis?
The study of charts (price and volume), to predict future price movement.
What is Fundamental Analysis?
The analysis of everything that can impact the financial health of the company: earnings, competitors, the economy, interest rates, employment, laws, etc.
What type of Analysis do long-term investors use?
Fundamental analysis
What type of Analysis do short-term investors use?
Technical Analysis
What are Indexes?
They are used to track the value of something.
What are Logarithmic charts?
Charts that scale in percentage instead of dollars.
What are Index Funds?
Funds that seek to replicate the performance of an index they are replicating.
What are ETFs?
An investment fund that holds assets like stocks, bonds, commodities or other investment products. ETFs can be traded on a stock exchange just like a stock.
What are Mutual Funds?
Investment fund where individuals can pool in their money and have it managed by a professional (portfolio manager).
What is a Close End Fund?
A fund that has a fixed unit of shares available. It does not issue new shares for individuals to add money to the fund. Individuals on the other hand can trade the shares of that fund on an exchange.`
What does Beating the market mean?
Trying to have a better return than the stock market.
Risk
The volatitlity of an investment that your in
Standard deviation
A measure of volatility is how volatile something is
What are the 11 global industry classification standard (GICS) sectors?
- Energy
- Materials
- Industrials
- Consumer Discretionary
- Consumer Staples
- Health Care
- Financials
- Information Technology
- Communication Services
- Utilities
- Real Estate
health care is sensitive to
noncyclical as the demand is usuablly the same regardless of economic outlook
-sensitive to government policies.
Health care?
health care sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of health care to patients.
Consumer discretionary is sensitive to?
The health of the economy (GDP, employment rate, etc.)
- Disposable income
- Consumer confidene
Consumer discretionary
It’s dominated by companies that product products and services that consumers often do without when they are under financial stress or worried about their job security, such as new clothes, new cars or entertainment.
What does the Industrials sector comprise of?
Companies that provide commercial and industrial products and services. The industrial sector is similar to the materials sector, but there are two key differences. First, the products manufactured by companies i the industrial sectors are not raw materials. eg. a company that produces farming tractors would be classified in industrials, but a mining company would be classified in materials. second, the industrials sector includes companies that provide products and services, whereas companies in the materials sector mainly create products.
What is the Material sector sensitive to?
- The health of the economy (GDP, employment rate, etc.)
- The demand fo consumer goods
- Housing market
What does the Material sector encompass?
A wide range of commodity-related manufacturing industries. Included in this sector are companies that manufacture chemicals, construction materials, glass, paper, forest products, and related packaging products, and metals, minerals, and mining companies, including producers of steel.
Materials
- Chemicals
- Construction Materials
- Containers & Packaging
- Metals & Mining
- Paper & Forest Products
Financial sector
Composed of companies the provide financial services to other companies and/or to consumers. This includes services such as loans, credit, mortgages, insurance, wealth management, and real estate.
Information Technology
The category of stocks relates to the research, development, and or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of eletronics, the creation of software, computers, or products and services relating to information technology.
Communication Services
Companies that provide communication services using fixed-line networks or those that provide wireless access and services. This sector also includes companies that provide internet services such as access, navigation, and internet-related software and services.
Sensitive to?
- the health of the economy
- Used to be telecom sector (changed to communication services in 2018)
- Now includes FB, NFLX, GOOG so is more cyclical than before (used to only include telecom which are more stable throughout the business cycle)
Utilities sector?
Comprised of companies that provide or transmit electricity, gas or water to businesses and consumers. This sector also includes companies that provide electricity through renewable energy sources, such as solar or hydropower, and companies that generate and sell energy to utility companies
Electric Utilities
Gas Utilities
Multi Uitilies
Water Utilities
Independent Power and Renewable Electricity producers
Utitilies sectors are sensitive to?
Real Estate?
Includes Equity real estate investment trusts (REITs) and companies engaged in real estate development and operation. Over recent years, the real estate sector’s domestic orientation and relatively high payout yields have made it attractive, particularly in an environment of low and falling interest rates.”
Real estate is senstivie to
The health of the economy (gdp, employment rate, etc.)
- Interest rates
Utitilies is senstive to?
Noncyclical as the demand is usually the same regardless of economic outlook
-considered a defensive sector
-usually highly regulared by the government
What are the three portfolios you can have?
- Equity
- Equity & Bonds
- Equity, Bonds, & Gold
What do you invest in if you want to be a passive investor?
ETFs and Index Funds
What do you invest in if you want to be an active investor?
ETFs, Index Funds, Stocks
What does it mean when you are being an active investor?
You’re proactively making decisions in order to try and beat the market.
Somebody who’s active is somebody who’s actively making decisions either on asset allocation or security.
What does it mean when you are being a passive investor?
It’s somebody who’s really trying to get his fair share of the stock market or market returns, get whatever the market is doing.
What are the 4 activity levels of being an active investor?
- Select Asset Allocation
- Select Securities
- Reblancing
- Tactical Asset Allocation
What is the Efficient Market Hypothesis (EMH)?
The efficient-market hypothesis is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to “beat the market” consistently on a risk-adjusted basis since market prices should only react to new information.
_______ Investing is You are getting your fair share of the market value.
Passive
_______ Investing is You are trying to beat the market. You can only achieve this by being differently diversified than the market (and thus take on the risk of achieving less return than the market)
Active
So if you’re older and you want to retire soon or you need your capital soon, it’s not smart to be
just in equities because if the market crashes 50 percent and then you need money, then you’re selling
at a loss.
If you’re younger and you have a lot of time in front of you, it’s OK to just be in equities because
you can withstand those volatilities and the average return on equity is going to be higher in the long
run if you can hold long enough.
