When you first start investing, it’s easy to get overwhelmed by the sheer volume of strange investing lingo floating around. This can make the investing process confusing and stressful – but it doesn’t have to be.
Blue chips are stocks issued by large, well-established companies, such as Microsoft and Apple. These entities often have a history of generating profits and increasing dividends, sometimes over decades.
Unicorns are privately held startups that rocket their way to $1 billion in value. This term is recent, only coined in 2013, and so-called due to the “mythical” growth these companies enjoy.
Zombie stocks are unfortunately growing in the market due to the pandemic economy. These companies are unable to pay their debts, but still bring in enough revenue to fund operational costs.
Assets are things you purchase to make money or sell at a later date. Examples include stocks, bonds, funds, or commodities, to name a few.
An asset bubble forms when the price of assets exceeds its fundamental value. When an asset bubble bursts, it can devastate the market and even lead to a full-blown recession, as did the housing bubble collapse in 2008 (and the dot-com crash in 2001).
Earnings Per Share (EPS) is an indicator of a company’s profitability. To calculate EPS, you divide the company’s profit by the number of shares outstanding (the number of shares owned by investors)
The moving average is a technical indicator that updates a stock’s average price over a set period of time. It’s common to see moving averages across 50, 100, and 200-day increments.
Operating income is a company’s profit after deducting expenses, wages, depreciation, and the cost of goods sold. Investors can use operating income to evaluate a company’s financial standing.
Valuation is a method of calculating how much a company or stock is worth in theory and is not tied to the actual share price. A company’s valuation can indicate if a stock is over- or undervalued.
A bear market is when investor pessimism, growing unemployment, or economic recession spurs falling stock prices. Official bear markets start when stocks have fallen 20% from their high point.
A person who is bearish believes that the value of a security or the market will begin or continue to fall. If the investor owns securities that profit when the market goes down, they are considered short on the market.
A bear hug occurs when one company offers to buy out the shares of another for much more than the company is worth. This is sometimes viewed as a hostile takeover strategy, as the offer is often unsolicited by the target company – but if the target company says no, it risks a lawsuit from the shareholders for turning down a lucrative opportunity.
On the other hand, we have a bull market, also known as a bull run. This is any market in which prices maintain an upward trend. Bull markets are marked by their strong demand and weak supply, which can further push share prices up as investors seek to acquire more equities.
A bullish investor believes that a security or market will continue to rise in value. If the investor owns the security in question, they’re considered to be long on the market.
A choppy market occurs when securities move swiftly and erratically within a short margin. These typically produce neither long-term gains nor losses.
A correction happens when an index falls between 10-20%. This can be a brief dip or a prolonged downtrend. Corrections are so named because the fall often “corrects” prices against longer-term trends.
Dead cat bounces occur when stocks drop substantially and experience a moderate bounce up soon thereafter, before continuing their downwards or sideways trend.
A rally is when the market experiences a rapid increase in value. Depending on the state of the market, a rally can either be a bull rally or a bear rally.
V-rallies occur when the market bounces back immediately after a large sell-off. Also known as the rubber band effect, modern v-rallies are largely the result of computerized trading programs.
Essential Economic Terms
In our last section, we’ll discuss three essential economic terms you may encounter in your investment adventures.
Dovish vs Hawkish
The Federal Reserve, or “the Fed,” is the central banking system of the United States. It’s responsible for conducting monetary policy, regulating financial institutions, and promoting financial stability.
Sometimes, this means adjusting the interest rates to stimulate the economy in the right direction.
When the Fed is concerned about deflation, weak growth, and high unemployment, they may lower interest rates to encourage lending and spending. This is known as being dovish.
On the other hand, when the Fed is focused on guarding against inflation, they may consider raising interest rates instead. This makes them hawkish.
When the economy experiences a sharp decline followed by a quick, strong recovery, economists and investors say that it has undergone a V-shaped recovery. This comes from the shape the data points paint on a graph.
Investing doesn't need to be difficult. Refer to this as your cheat sheet whenever you need it, and check out the other investing content on our Learn Center to dive deeper.
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