Whether you’re sitting on $5 worth of loose change or a $5 million piggy bank, if you intend to play the long game, the most valuable investment you could ever make doesn’t have anything to do with dollars and cents: it’s time.
Setting aside the time to learn the mechanics of buying and selling stocks (valued stocks, none of this speccy pub chat BS). Understanding how it’s all about time in the market, not timing the market. And most importantly, setting aside the time to get acquainted with all the necessary definitions. The first barrier, of course, is built by the bricks of complicated jargon which, as you’ll soon discover, can all be broken down into easy-to-digest terms. That’s why our friends at Sharesies – who want to help financially empower the average punter – have tasked us with creating this guide that you can refer back to when you need it. Even better – they are giving you $5 when you sign up to the Sharesies platform and use code “BOSS” to put your new knowledge to practice.
While you won’t exactly be assuming the position behind a Bloomberg rig, nor is there a guarantee you’ll outperform Warren Buffett like a certain crypto-trading hamster, at the very least, you’ll become a savvier operator.
Check it out below, bookmark it for later, and come back whenever you find it necessary.
Ask: The lowest price someone is willing to accept for their asset.
Asset: Something that has the potential to earn money, e.g. stocks, bonds, commodities, real estate, other.
ASX: The ASX is the primary securities exchange within Australia, per its name ‘Australian Securities Exchange’.
Balance Sheet: A financial statement for a point in time, outlining what a company owns, its liabilities, as well as the outstanding shareholder equity.
Bear Market / Bull Market: The former refers to when investor outlooks are pessimistic and markets are falling. The latter refers to the opposite when it’s all optimism and those numbers keep climbing. An easy way to distinguish the two is by remembering bears swipe down at you while bulls buck upwards.
Bid: The price someone is willing to pay for an investment.
Blue Chip: Companies with an established history of healthy earnings, balance sheets, and sometimes even regularly increasing dividends. Generally, they are from consistent, large industries , e.g. banks, telcos, and the like.
Bond: An investment that represents what a certain entity owes you. Think of it as if you’re lending cash to a company, government, or whatever, with the promise the principal will eventually be paid back with interest.
Book Value: Subtract all the liabilities of a company from the assets and common stock equity. What remains is the book value. It’s regularly used as an evaluative tool as opposed to the company’s market value.
Broker: The entity that buys and sells investments on an investor’s behalf. A fee or commission is usually charged when using a broker.
BTFD: “Buy The F*cking Dip”, which refers to buying into an investment when prices are low.
Capital Gain / Capital Loss: The difference between what you purchased an investment for and what you sell it for.
Capital Gains Tax: What you owe the government based on the profits realised from selling an investment. In Australia, capital gains tax is paid at your individual income tax rate. But by holding an investment for over 12 months, capital gains tax is reduced by 50%. This could be a reason to act like Buffett and play the long game.
CBOE: Once known as the Chicago Board Options Exchange, now just known as CBOE, the exchange offers options on companies, indices and ETFs.
Diversification: When your portfolio includes more than one kind of asset; as well as when your investments are from different industries, sectors, and geographic locations. Like the old adage about not “putting all your eggs in one basket,” the idea is that spreading out your investments could help lessen the impact on your portfolio if a certain industry or market isn’t performing as well.
Dividend: When a company divides some of its income among shareholders. It can be monthly, quarterly, every six months, or even just once under special conditions.
ETF: Exchange-Traded Funds are a type of investment fund that tracks an index, sector, commodity, or other asset and trades like a stock. While all forms of investing come with some level of risk, ETFs are widely considered safer investments.
Exchange: Where investments and assets can be bought and sold. Physical exchanges with trading floors still exist, but these days, most of the action occurs digitally.
Hedge Fund: A pooled investment fund actively managed by a professional and reserved for wealthier clients that deal in relatively liquid assets. As far as investment choices go, there’s more risk attached because of the various strategies, i.e. buying with borrowed money, specialised assets, high minimum investment.
Hold The Line: To stand your ground and not sell a stock. This may be a variety of reasons.
Index: A tool used to statistically measure the progress of stocks, bonds, or other assets with common characteristics.
Index Fund: A type of mutual fund that allows an individual to buy investments replicating the trends of an index. In contrast to mutual and hedge funds, they’re generally more passive investments with lower fees.
IPO: Initial Public Offering – the process of when a private company begins publicly trading.
Leverage: Using borrowed capital – or money – for an investment. The expectation is an investment’s profits will exceed both the principal and interest incurred. It’s worth noting that leverage increases the riskiness of an investment.
Long: Long positions or “to be long on something” means an investor owns a stock.
Margin: In the same vein as “leverage”, margin refers to the money borrowed from a broker to purchase an investment, and represents the difference between the initial loan and the investment’s total value. Margin trading is when you borrow money from a broker to trade an asset, which becomes the collateral for the loan. Similar to leverage, margin increases the riskiness of an investment.
Market Capitalisation: The total market value of a company calculated by multiplying the current share price with the number of shares outstanding.
Managed Fund: A fund managed by a professional portfolio manager who purchases securities with capital pooled together from individual investors. Managed funds are called “mutual” funds in the US and on US exchanges.
NASDAQ: One of the world’s most famous stock exchanges based in the US. Its initials stand for the National Association of Securities Dealers Automated Quotations.
NYSE: Another one of the world’s most prolific stock exchanges is the New York Stock Exchange, which trades stocks in companies all over the United States and some international operations.
NZX: This acronym stands for New Zealand Exchange and operates the capital, risk and commodity markets within New Zealand.
Options: Contracts between two parties that give holders the right to buy or sell an underlying asset at a certain price within a specific amount of time.
P/E Ratio: How much you pay for each dollar a company earns. This is how investors can decide whether a stock is overvalued (high P/E ratio) or undervalued (low P/E ratio).
Pump & Dump: Stock price manipulation involving artificial inflation through false or misleading positive statements before selling the affected stock for a quick profit.
Recession: A period of two consecutive quarters wherein a country experiences negative economic activity. Negative economic activity, of course, is often determined by a decline in gross domestic product (GDP).
Short: A short or short position is when someone “borrows” securities instead of holding them (or being long on them). The borrowed securities are then sold with the intention of repurchasing and returning them at a lower price. The more its value decreases in the time between selling it off and repurchasing, the more profit is gained. If the value increases, the individual(s) holding the short position loses money. Increasing the value en masse in such a manner is what’s known as a short squeeze.
S&P 500: The Standard & Poor’s 500 is a stock market index that tracks the value of 500 companies in the US.
Stocks / Shares: Part ownership of a company in exchange for money. The amount of stocks or shares you own is obviously indicative of your ownership level (also known as Stonks which, contrary to the assertions of many on the internet, don’t only always rise).
Yield: The ratio between what you paid for a stock and the dividend paid expressed in a percentage.
This glossary kicks off a partnership with the folks at Sharesies, which will inform and empower the average punter who wants to take the leap and start investing in the ASX, NZX and US stock exchanges. Not quite sure where to begin? Claim your $5 sign-up bonus today when you sign up to the Sharesies platform and use promo code “BOSS,” and bookmark this article for when you next give Warren Buffet a run for his money.
Promotion T&Cs apply. $5 applies to new accounts only. T&Cs and fees apply for use of the platform provided by Sharesies Limited. This article is sponsored by and promotion is provided by Sharesies AU Pty Limited, as an authorised representative of Sanlam Private Wealth Pty Limited (AFSL No. 337927). All investing involves risk.