Stock Market Lingo Part II

Abdelazim ElToukhy
January 6, 2021

In Module 2, we will go over terminology that you hear frequently when experts discuss stock markets, whether it is on TV or online. After this module, you will be able to effectively understand the terms that stock market experts use. 

What does a Stock Dividend mean? 

A portion of a company’s profits that is paid out to shareholders on a quarterly basis. The Board of Directors of the company declares dividends. It is not mandatory to declare dividends on common stock even though the company is making good profits. For example, if company Y made 1 million in profit this year and decided it will give back $10,000 as dividends to its shareholders. Assuming the company has 10,000 shares traded, each stock makes $1 in dividends. 

What is a Stock Broker? 

 A stock broker is an entity that buys or sells an investment for you in exchange for directly dealing with financial entities, such as NYSE and NASDAQ. A broker facilitates the transactions between the investor and stock exchanges.

What is a Blue Chip? 

A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. For instance, if a company consistently exceeds its forecasted earnings it is referred to as a blue chip. 

What is the Dow Jones Industrial Average (DJIA)?

It is the most popular and widely used measure of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies. The Dow is watched by investors as an indicator of the health and direction of the stock market. This why almost all financial experts refer to the movement of the Dow when referring to the stock market performance.

What is a Bull Market? 

When most stock prices are rising over several months. E.g. if the Dow has gained 10% over the last few months. A bull investor is someone who believes the market as a whole or a particular stock will rise. A bull is the opposite of a Bear. If you are optimistic about the market, you are considered a bull investor.

What is a Bear Market? 

When most stock prices are falling out several months. E.g. if the Dow has dropped 10% over the last few months. A bear is an investor who believes the market as a whole or a particular stock will decline. A bear is the opposite of a Bull. If you are pessimistic about the market, you are considered a bear investor.

Why Companies Release Earnings? 

Earnings are the portion of income left over after meeting all costs, overhead, and taxes during a reporting period. Usually, companies release their earnings every quarter if earnings exceed or meet expectations usually the stock price soars. If it misses its forecasted earnings by more than the predicted about the stock price falls. 

What is a Market Cap? 

A market cap is calculated by multiplying the current price per share with the number of shares outstanding. If ticr is trading 1000 shares at $50 per share, its market cap is $50,000.

What is a Mutual Fund? 

A mutual fun is an open-end professionally managed investment fund  that combines the money from a large group of investors and invests their money in stocks, bonds and other securities.

What is the P/E Ratio? 

How much money you are paying for $1 of the company’s earnings. If a company reports a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings ($20 per share divided by $2 per share earnings = 10 P/E).