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10-K: annual report required by the SEC.

10-Q: quarterly report required by the SEC.

12b-1 Fee: Annual marketing fee charged by some mutual funds. Named after SEC regulation allowing such fees.

Accounts Receivable: money owed by customers for received goods or services. Customers must have been billed for items to be included in receivables. 

After-Hours Trading: stock trading when the major stock exchanges are closed. 

Aftermarket: public trading of a company’s shares after its IPO.

Alpha: a statistical concoction that’s supposed to measure the excess performance of a mutual fund compared to the performance expected for its Beta. Higher is better. 

American Depositary Receipt (ADR): A certificate trading on a U.S. stock exchange that represents shares of a foreign corporation. 

Analyst: someone typically working for a brokerage house, who publishes buy/hold/sell recommendations and earnings forecasts for a stock. Buy side analysts work for institutional buyers, and sell side analysts work for brokerages. 

Annuity: a contract sold by life insurance companies that guarantees a specified payment at some future time, usually retirement. 

Arbitrage: the act of taking advantage of the difference in price of the same security traded on two different markets. For instance, if Nortel Networks were trading at $100 (US) on the Toronto exchange and $99 on the NYSE, an arbitrageur would buy shares on the NYSE and sell them on the Toronto exchange.

Ask Price: The price you are asked to pay when you buy a stock.

Asset Allocation: the process of dividing your funds among different classes of investments such as stock, bond, or real estate. You could further allocate your stock funds into value, growth, foreign, etc.

Average Daily Volume: average number of shares traded per day over a specified period.

Average P/E Ratio: Average price/earnings ratio of stocks owned by a mutual fund.

Back-End Load: sales charge paid when selling a mutual fund. 

Backtesting: determining the results of using particular screening criteria, as if the screen had been run at some point back in time, and the selected stocks or funds were held for a predetermined time period and then sold.

Basis Points: one basis point is 0.01 percent. Usually used to describe changes in bond yields. For instance, a ten basis point increase means the interest rate went up 0.10 percent. A 100 basis point change is 1 percent. 

Bear Market: a period when most stocks are declining in value. 

Beta: compares a mutual fund or stock’s volatility to a benchmark (usually the S&P 500 Index). A beta greater than 1 is more volatile than the index. For instance, a beta of 1.5 mean the fund or stock is historically 50% more volatile than the index.

Bid Price: the price you’re offered when you’re selling a stock.

Big Board: the New York Stock Exchange (NYSE). 

Block Trade: a single purchase or sale of a stock involving 10,000 or more shares. 

Blue Chips: large, stabile companies. 

Boiler Room: a high-pressure, often fraudulent, telephone sales operation. 

Bond: a long-term promissory note issued by a corporation. 

Bond Rating: a grade evaluating the quality of a bond. 

Book to Bill Ratio: the ratio of a company’s new orders to shipments in the same period. A book to bill ratio greater than 1.0 indicates sales growth. Ratios less than 1.0 reflect shrinking sales. Used mostly in the semiconductor industry.

Book Value: total shareholder’s equity from balance sheet divided by the number of shares outstanding.

Bottom Line: after-tax earnings. Literally, the bottom line on an income statement.

Breakout: a charting (technical analysis) term meaning a stock price has moved above or below a previous trading range.

Bulletin Board System: stocks that don’t qualify for NASDAQ listing are traded here or by Pink Sheets. Stay away! 

Bull Market: a period when most stocks are increasing in value. 

Buy Side Analyst: analyst working for mutual fund or other institutional investor. We don’t usually get to see their reports.

Call Option: an option to buy 100 shares of a specified stock at a predetermined price (see LEAPs and put options). 

Capital Gains Distribution: payments to mutual fund holders representing the fund holders share of the fund's profits resulting from the sale of stocks in the fund's portfolio. The fund reduces its share price by the same amount, so the fund holder doesn't gain from the transaction, however the fund holder is liable for payment of any resulting capital gains taxes. 

Capitalization Weighted Index: largest companies have most influence on index price action.

Cash & Cash Equivalents: cash in bank and all securities that can readily be converted to cash.

Cash Flow: After tax income minus preferred dividends and general partner distributions plus depreciation, depletion, and amortization (Market Guide definition). See Operating Cash Flow and Free Cash Flow.

Charting: making buy and sell decisions based entirely on stock price and volume history (same as technical analysis).

Chat Room: a real-time message area usually dedicated to a particular topic.

Closed-End Fund: investors buy shares from other share holders, and sell shares to other investors. Share price is determined by supply and demand for fund shares (as opposed to Net Asset Value for open-end Funds). 

Commission: fees paid to a broker to execute a stock or mutual fund trade. 

Commodities: minerals such as gold or silver, food such as corn or wheat, animal products, and the like.

Common Stock: shares of a publicly held corporation, usually includes voting rights. Common stock has lower priority in event of liquidation than preferred shares.

Conference Call: a multi-party telephone call hosted by a company, primarily for analysts, shortly after making an earnings announcement. 

Confirmation: notice from a stock broker giving details of a stock or mutual fund purchase or sale. 

Consensus Estimate or Rating: the average of analysts individual earnings forecasts or buy/sell ratings. 

Consolidation: a charting term meaning a stock price is in a trading range, not moving significantly up or down.

Contrarian: similar to value investor. Looks for stocks with prices beaten down out of proportion to fundamentals. 

Convertible Bond: a bond that can be exchanged for shares of stock. 

Coupon Rate: the interest rate on a bond. 

Current Ratio: current assets (cash, inventories, and accounts receivables) divided by liabilities due within one-year.

Days Sales Outstanding: a measure of accounts receivables compared to sales. Higher DSOs means a company’s receivables as a percentage of sales have increased, not a good sign.

Debt to Equity (Long Term): total long term debt divided by total shareholder equity.

Debt to Equity (Total): total (short and long term) debt divided by total shareholder equity.

Diluted Earnings (a.k.a. fully diluted earnings): total of after tax (bottom line) earnings divided by number of common shares including unexercised stock options, and unconverted preferred stock and convertible bonds. Undiluted earnings would be after tax earnings divided by issued stock only, not considering outstanding options, etc.

Direct Stock Purchase Plan (DSP): a plan implemented by a corporation allowing purchase of shares, or fractions of shares, directly from the company, usually on a regular basis. 

Discount: the difference between a bond's face value and its current market price. 

Dividends: cash or stock paid to shareholders, usually on a quarterly schedule.

Dividend Reinvestment Plan (DRIP): a plan implemented by a corporation to allow investors to collect dividends in shares (usually fractions of shares) of stock rather than in cash.

Derivatives: options and other instrument whose value depends on an underlying security. For instance, the value of a call option on Cisco Systems (derivative) fluctuates with the price of Cisco System’s stock.

Discount Broker: a stockbroker charging lower commissions than full-service brokers. Discount brokers do not give investment advice.

Dividend Yield: the annual dividend paid divided by the latest share price.

Dogs of the Dow: a contrarian stock selection strategy based upon buying the cheapest stocks of the Dow Jones Industrial Average.

Dow Jones Industrial Average: unweighted index of thirty of the largest U.S. corporations. 

Downtick: a stock trade executed at a lower price than the previous trade. 

Downtrend: stock price is heading down.

Due Diligence: the process whereby an in-depth examination of a company’s business prospects is conducted.

Dutch Auction: a method of allocating shares in an IPO where you specify how much you’re willing to pay for how many shares.

Earnings per Share (eps): after tax annual earnings divided by the number of shares outstanding.

EBITDA: Earnings before interest, taxes, depreciation and amortization. Adds these items back to reported earnings to more accurately reflect real cash earnings of company. Similar to operating cash flow, except operating cash flow also considers changes in levels of inventories and receivables.

ECN: electronic trading network. ECNs are expected to supplement or even replace conventional stock exchanges over the next one to two years.

EDGAR: database maintained by the U.S. Securities & Exchange Commission (SEC) containing government required reports filed by corporations.

Emerging Markets: developing countries.

EPS: earnings per share.

Ex-Dividend: the day after dividends are paid.

Execution: a trade completion. For instance, your trade was executed at $12.00.

Expense Ratio: all expenses incurred by mutual fund management in operating and marketing the fund. Includes management and 12b-1 fees. Doesn’t include loads or redemption fees. Expense ratios are deducted before computing fund returns.

Extended Hours Trading: trades executed outside normal market hours.

Fair Value: the true value of a stock based on criteria of the user’s choosing. A stock is said to be overvalued when the share price exceeds the fair value.

Fallen Angel: an IPO trading below its issue price in the aftermarket.

Fed (The): Federal Reserve Board.

Federal Open Market Committee (FOMC): the Fed’s monetary policy committee, chaired by Alan Greenspan.

Financials: financial statements including operating statement, balance sheet, and statement of cash flows.

Fiscal Year: any 12-month period designated by a corporation as their accounting year. Once set up, a corporation's fiscal year does not change.

Flipping: the practice of buying IPO shares at the issue price and reselling them on the first day of trading.

Float: shares outstanding less shares held by insiders. Insiders cannot readily trade shares, so float is considered to be the number of shares available for trading.

Forex: foreign currency exchange markets.

Free Cash Flow: operating cash flow minus amounts spent on plants and equipment and minus dividends. 

Front-End Load: sales charge paid when purchasing a mutual fund. 

Full Service Broker: a stockbroker offering investment advice and other services not usually offered by discount brokers.

Fully Diluted: number of shares outstanding including options granted but not yet exercised.

Fundamental Analysis: analyzing stocks by looking at earnings, sales, profit margins, etc. 

Fund Family: a group of mutual funds owned by the same company. 

Funds From Operations (FFO): Used in place of earnings per share (EPS) to measure the performance of REITs. FFO, similar to cash flow is the REITs net income less gains and losses from sales of property or debt restructuring, and adding back real estate depreciation back in. 

GARP: growth at a reasonable price. A strategy of buying stocks whose price/earnings ratio is equal to or less than the estimated annual earnings growth rate.

Generally Accepted Accounting Principals (GAAP): Accounting rules and procedures established by the Financial Accounting Standards Board, an independent self-regulating organization. 

Geographic Funds: mutual funds specializing in a specific geographic area such as Europe.

Good For the Day: buy or sell limit order will expire at close of trading if not executed.

Good til Canceled: buy or sell limit order remains active until you cancel it.

Goodwill: the amount of a company's shareholder's equity that exceeds the value of its hard assets. 

Green Shoe: an agreement allowing the lead underwriter to buy additional shares of an IPO at the offering price after the IPO begins trading.

Gross Margin: profit a company makes on goods and services before considering overhead expenses.

Growth Stocks: companies with consistent annual earnings and sales growth of at least 15%. 

Hypothecation: pledging of assets as collateral. 

Index: a composite representing the value of a group of stocks. 

Industry Group: companies in related businesses.

Initial Public Offering (IPO): first sale of stock to the public by a corporation.

Insiders: Officers, directors and anyone else owning more than 10% of stock outstanding.

Insider Ownership: number of shares owned or controlled by insiders.

Insider Trading: shares bought and sold by company insiders. It’s legal as long as they follow the SEC’s reporting requirements.

Interest Coverage: a measure of a company’s ability to pay interest on its debts (operating income divided by interest expenses).

Institutional Ownership: Shares owned by pension funds, mutual funds, banks, etc.

Intraday: stock trading tracked in periods shorter than one day.

Intrinsic Value: a term favored by value oriented fundamental analysts to express the actual value of a corporation, as opposed to the current value based on the stock price. Usually calculated by adding the current value of estimated future earnings to the book value.

Inventory: raw materials, work in process, and finished goods that haven’t been shipped to customers.

Investment Bank: an organization, usually a stock brokerage firm, involved in taking a new company public (IPO), consulting on mergers and acquisitions, handling corporate borrowing, etc.

January Effect: supposedly, small stocks make a big move up in January.

Junk Bonds: bonds with poor credit ratings. 

Large-Cap: company with market capitalization greater than $8 billion.

Lead Underwriter: brokerage house in charge of IPO.

LEAP: a long-term put or call option (as long as three years).

Limit Order: order with broker to buy stock at limit price or less, or to sell stock at limit price or higher.

Liquidity: a measure of the number of shares, or dollar value of shares traded daily. Mutual funds and other institutional buyers prefer high liquidity stocks so they can easily move in and out of positions.

Load: a sales commission paid when you buy (front-end) or sell (back-end) a mutual fund.

Lockup Period: time after IPO, typically 180 days, when insiders are prohibited from selling their shares.

Margin: borrowing funds from your broker to buy stock.

Margin Account: a brokerage account with approved credit so you can buy stock on margin.

Market Capitalization: latest stock price multiplied by number of shares outstanding (shares issued).

Market Maker: intermediary for stocks traded on NASDAQ, and for off-hours trading in NYSE stocks. When you trade NASDAQ stocks, you buy your shares from the market maker. When you sell shares, you sell them to the market maker. The market maker keeps the difference between the bid and asked prices.

Market Order: order with broker to buy or sell stock at current market price. 

Master Limited Partnership (MLP): Similar to a real estate investment trust (REIT), except MLPs are not limited to a specific industry compared to REITs which must invest in real estate. Both types trade like stocks on the New York Stock Exchange, and both types must distribute most of their earnings in the form of dividends. 

Median Market Cap: the average market capitalization of stocks owned by a mutual fund.

Message Board: a location on a Web site dedicated to the discussion of a particular topic, usually a single stock or industry sector. Discussions are not real-time. Someone posts a message, and then others respond over a period of hours or days.

Mid-Cap: company with market capitalization between $2 billion and $7 billion.

Model: a strategy for selecting stocks using screening criteria that have been found to work in the past.

Momentum Analysis: usually involves looking for stocks in a strong uptrend (high relative strength), strong earnings growth, and increasing earnings forecasts. In today’s market, may include relative strength only.

Momentum Stocks: companies currently in favor by investors (price/sales greater than 10, price/earnings greater than 35 or so).

Money-Center Bank: the largest banks such as Citigroup and Bank of America.

Money Supply: the amount of money in circulation. The Federal Reserve Board attempts to control the growth of the US economy by regulating the increase in money supply.

Morningstar: mutual fund rating service. 

Mortgage REIT: A real estate investment trust (REIT) whose primary business is investing in real estate loans. 

Most Recent Quarter (MRQ): as of the last date of the last reported fiscal quarter.

NASDAQ: national market for trading stocks.

NASDAQ 100 Index: index of 100 largest companies on NASDAQ. The NASDAQ trades like a stock under the symbol QQQ.

Net Asset Value: value of all stock and other assets owned by mutual fund divided by total number of shares fund has outstanding.

No Load Mutual Fund: no sales commission is charged if you buy shares directly from the fund. There may or may not be a commission charged if you buy the fund through a broker.

Non-Operating Expenses: expenses not due to basic business of company.

Non-Operating Income: income not derived from basic business of company.

Open: trade price of the day’s first transaction.

Open End Mutual Fund: investors buy shares directly from fund, and sell shares directly to fund. Share price is Net Asset Value (NAV).

Operating Cash Flow: surplus cash generated from company’s basic operations without regard to income tax entries such as depreciation and amortization. Changes in levels of inventories, accounts receivable and accounts payable also affect cash flow. Also see Free Cash Flow.

Operating Income: sales minus all expenses except income taxes and other items not related to basic business.

Operating Margin: operating income divided by sales.

Over-the-Counter-Market: older name for stocks traded on NASDAQ. Also refers to bulletin board and Pink Sheet stocks.

Payment for Order Flow: a payment made by a market maker to a broker as a thank you for directing your stock trade to that market maker.

Payout Ratio: Percentage of earnings paid out in dividends.

PEG: price to earnings ratio divided by the forecast annual earnings growth rate. Traditionally, stocks were said to be fairly valued when the p/e and the forecast growth rate were equal.

Phase 1, Phase 2, & Phase 3. the series of FDA required tests before a new drug can be placed on the market.

Portfolio: a group of stocks, mutual funds, or other securities.

Post-Offering Shares: the number of shares that will be outstanding after an IPO.

Preferred Stock: debt instruments. Preferred shareholders are paid ahead of common stock holders in the event the corporation is liquidated. Convertible preferred shares can be converted into common stock according to predetermined conditions.

Price to Book Ratio (p/b): latest share price divided by book value stated in latest report.

Price to Earnings Ratio (p/e): latest share price divided by 12-month earnings per share (eps). Also a measure of the market's enthusiasm for a company.

Price to Sales Ratio (p/s): latest share price divided by 12-month sales per share.

Profit Margin: bottom line (after tax) earnings divided by sales.

Prospectus: a document circulated to potential investors prior to an IPO describing a company’s business plan. 

Proxy Statement: material given to stockholders when the corporation solicits shareholder votes. The proxy statement usually contains details on the corporation's executive compensation plans. 

Put Option: an option to sell 100 shares of a specified company’s shares at a predetermined price (also see LEAPs and call options).

Quick Ratio: cash and cash equivalents plus accounts receivables divided by current liabilities (aka Acid Test Ratio)

Quiet Period: time after IPO, typically 25 days, when all parties involved in IPO are prohibited from commenting on the company’s future prospects. Analysts employed by underwriters are free to make buy/hold/sell recommendations after the Quiet Period expiration.

Quote: information on the last trade, and current bid and asked prices. Most quotes are intentionally delayed about 20 minutes.

Range: high and low trade prices for the day, week, or month.

Real-Time Quotes: stock trading price reports that have not been artificially delayed.

Receivables: See accounts receivable.

Redemption Fee: Fee charged when you sell a mutual fund, if you haven’t held the fund for the prescribed minimum time.

REIT: real estate investment trust. A special form of mutual fund investing only in real estate. REITs must pay out most of their earnings as dividends to share owners.

Relative Dividend Yield: dividend yield of a stock compared the dividend yield of the S&P 500.

Relative Strength: stock price performance compared to the S&P 500, or to the entire stock market. Can measure performance over any time span, but most often uses 12 months. Relative strength is different from RSI (Relative Strength Indicator) indicator used in technical analysis.

Return on Assets: after tax income divided by total assets.

Return on Equity: after tax income (latest 12 months) divided by shareholder’s equity (from balance sheet).

Return on Investments: after tax income (latest 12 months) divided by total of shareholder’s equity plus long term debt, plus other long term liabilities.

Revenues: a company’s sales.

Road Show: presentations made by underwriters and IPO company officials to institutional buyers to create interest in the offering.

Russell 2000 Index: the Russell 3000 is an index of the 3,000 largest US publicly traded corporations. The Russell 2,000 is a capitalization-weighted index of the 2,000 smallest companies of the Russell 3000.

S&P 500: capitalization weighted index of 500 of the largest U.S. corporations.

Sales: services and products sold by a company. Sales and revenues mean the same thing.

Sales per Share: annual sales divided by the number of shares outstanding.

Same Store Sales: sales at retail stores or restaurants open at least one year. A chain’s same store sales growth excludes gains due to increases in the number of stores. Same store sales growth in the 5 percent to 10 percent range is considered good.

Screening: searching the entire universe of mutual funds or stocks meeting user-specified criteria.

Sector Funds: mutual funds specializing in a particular industry sector such as computers, or health care.

Sell Side Analyst: an analyst employed by a brokerage house such as Merrill Lynch.

Settlement: the process of paying for stocks you purchase, or receiving credit from your broker for the stocks you sell. Most stock transactions must be settled within three business days.

Shareholders Equity: the difference between the total of assets and liabilities shown on a company’s balance sheet. Book value is the shareholders equity divided by the number of outstanding shares.

Shares outstanding: the total number of shares issued by a corporation.

Sharpe Ratio: An attempt to compare a fund’s performance to risk. Higher Sharpe Ratio funds are said to be better performers than lower ratio funds.

Short Interest: number of shares borrowed by short sellers.

Short Interest Ratio: number of days it would take to cover short interest at average daily volume (short interest divided by average daily volume).

Short Sale: selling stock you don’t own. You hope it drops in price so you can buy it back later at a lower price. You must have a margin account with your broker to sell short.

Short Squeeze: a sharp move up in stock price forcing short sellers to liquidate their positions.

Small Cap: company with market capitalization less than $1 billion.

Specialist system: a person on a stock exchange floor (specialist) matches buy and sell orders (used on New York and American stock exchanges).

Spider: a security representing one-tenth the value of the S&P 500 index. Spiders trade like a stock. Spiders are a means of owning the index without buying mutual fund shares. 

Spread: the difference between the bid and ask prices for a stock. 

Standard Deviation: a measure of a mutual fund or stock’s historical volatility.

Stop Order (stop loss): order with broker to sell stock at market price when it goes down to specified (limit) price.

Stop Limit Order: a combination of a stop order and a limit order. The limit order becomes effective when the stock hits the stop price.

Surprise: difference between reported earnings and analysts’ consensus forecasts. It’s a positive surprise if reported earnings exceed forecasts, and a negative surprise when reported earnings come in below forecasts.

Sweep: movement of funds from a non interest-bearing account to an interest bearing account.

Tangible Book Value: Book Value minus goodwill and intangible assets.

Technical Analysis: making buy and sell decisions based entirely on stock price and volume history (same as charting).

Top: a charting term meaning the stock price is going down from here.

Top-Line: sales or revenues.

Triple Witching: the third Friday of March, June, September and December is the day when index futures, index future options, and certain stock options all expire. Triple Witching Fridays are know for high volatility.

Trailing Twelve Months (TTM): the last four reported quarters.

Turnover Ratio: how often a mutual fund changes its portfolio holdings. 100% turnover means a fund, on average, changes all the stocks in its portfolio once a year.

Undervalued: a stock trading below its fair value.

Underwriter: brokerage house participating in an IPO. 

Uptick: a stock trade executed at a higher price than the previous trade. 

Uptrend: stock price is trending higher. 

Value Investor: one who looks for out of favor (value priced) stocks.

Value Stocks: companies currently out of favor with investors. These companies usually have low valuation ratios (price/earnings less than the S&P 500, price/sales ratio less than 2, price/book ratio less than 2). 

Venture Capitalist: an investor involved in financing a company’s operations before going public in exchange for an ownership percentage.

Volume: number of shares traded during a specified time, usually one day.

Watch Portfolio: a group of stocks or funds that you are tracking, but don’t currently own.

WEBS (World Equity Benchmark Shares): country-specific indexes that trade like stocks. WEBS give investors the opportunity to invest in 17 different foreign countries. 

Whisper Number: analysts publish earnings forecasts for companies they follow. Sometimes analysts publish a lower number than they really believe to reduce chances of a negative surprise, but they "whisper" what they really think to their best customers.

Yield: Interest and dividends paid to mutual fund shareholders as a percentage of share price (Net Asset Value). Also the effective interest rate on a bond. For instance, if a bond pays $1.00 interest annually, and is selling for $10.00, the yield is (1.00/10.00) 10 percent.