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Learning Essential Terminology for Investing

by Olufisayo
Investing Terminology

What are dividends?

As many people know, a company that sells products and is not a private company has stockholders. A stockholder pays to have a “share” in the company.

A “share” in the company is a portion of the publically traded company divided into small portions called shares. When the company performs well on a major stock exchange like the NYSE or the DOW, the stock prices increases.

On the other hand, when the stock performs poorly, the stock value is reduced. There are advantages and disadvantages in having stocks that share their dividends with shareholders.

Understanding Dividends

A dividend is a profit originating from the increase in the stock price during a certain time traded. Most stocks are distributed quarterly, but they can also be shared yearly or semi-annually.

You can understand stock dividends by using this analogy. You and your sister have a small ice cream stand that your parents have paid to set up for you. It is summer, and you have lots of customers. The first day you make $20. For days two through four, you make $70.

       

Finally for days five through six, you and your sister make $100 (that was a scorching day, and you offered a 50% discount on all ice cream).

When you count your profits, you realize you made $190 that week. You decide to share your profits with mom and dad and also you and your sister. You decide that 10% will go to all those involved in “Tom & Jerry’s Pop Rocket Ice Cream Stand.” You and your sister are the owners, so you are like the board members that make all the decisions of the company.

Ten percent of $190 = $19. Divided by 4 = $4.75. The dividends you hand to your parents is $9.50 or $4.75 each. You and your sister receive the same amount. What was explained above is the same way a large corporation with millions of dollars share dividends.

Bull Market

A bull market occurs when a group of securities in a significant stock exchange continues to rise consistently or is expected to increase dramatically. A bull market can be a short time, as little as a quarter, to as much as ten years.

Presently, the S&P 500 is celebrating the tenth anniversary of the longest bull market in its history. The present bull market began in 2009 after the post-financial crisis and has endured through President Obama’s second term and now into President Trump’s first term.

       

Should We Invest Locally or Globally?

When considering globally or locally, an investor needs to find what stock exchanges are available to him. Not all foreign stock exchanges are open to everyone.

If there are appealing stocks and the investor has access to them, there is no reason why an investor would not consider them. Take, for example, China as an investment. China, as a nation, is undergoing a massive boom of growth and billions of dollars of private money is being invested in business and infrastructure.

China is a great country to invest, but a person must be able to access those stock from within his own country of origin. So the answer to the question to spend global or local is going to depend upon the available stocks available within the country in which the investor lives.

Initial Public Offering

An initial public offering (IPO) is a process where a new company is transitioning from a private company to a publically traded company. There are many steps in the process.

Primarily, the company works with investment companies or banks to underwrite its company. The underwriter works with the company to decide how much the company is wanting to raise in its IPO. Once a number is agreed upon, they divide that number into shares to sell.

       

The company launching an IPO must register with the FTC a certain amount of time before the initial public offering to satisfy the requirements by the FTC. Once all the elements are satisfied for local government, as well as the US Government, then a day is set to launch the IPO on a major stock exchange.

Elements of Success in the Stock Market

This article covered some essential elements in becoming successful in the stock market. May websites are helpful and can be very educational in learning more investment terminology as you continue your journey into professional investing.

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