For now, let's put aside the more complex terms about the stock market. Here's a list of facts -- call it "Stock Investing 101" -- that every novice investor wishes that he or she knew about the stock market, but felt too self-conscious to actually ask.
More importantly, the following list encompasses basic concepts that even many sophisticated, experienced stock investors have either forgotten, thought they knew, or never knew to begin with. Although hardly a comprehensive list, I chose crucial terms that, according to my experience, are neglected or misunderstood, but nonetheless form the basis of sound stock investing knowledge:
1. The ease with which you can buy or sell shares is called market liquidity.
2. Volume is how many shares are traded over a given period of time. The higher the volume, the greater the liquidity.
3. Companies often launch stock splits to boost liquidity.
4. The larger markets have market makers, who buy and sell to keep trading liquid.
5. The ask is the amount a market maker will sell to you for.
6. The bid is the amount a market maker will buy from you for.
7. The spread is the difference between the ask and the bid prices, and it's how the market maker profits.
9. The dividend yield is the percentage of invested money that will be returned to the investor every year in dividends.
10. Ex-dividend date is the date at which you must own the stock, to get the next dividend.
12. To get its stock listed on the New York Stock Exchange (NYSE), a company's earnings must be more than $5 million a year and have more than 2 million shares to trade.
13. Stock shares are often categorized into certain groups, typically known as Class A and Class B stock. They're usually identical, except the holders exercise different voting rights.
17. Technical traders and analysts act according to the theory that everything you need to know about a particular stock is priced into that stock, and the vicissitudes of the price are more revealing about the future price than the underlying business and economic fundamentals. (Smart investors are non-dogmatic about these two schools of thought and blend the two philosophies into a hybrid one.)
18. Resistance is the price point that appears to impede the rise of a stock price.
19. Support is a price point that appears to halt a stock price's decline.
Need to brush up on the basics some more? For a more comprehensive lesson on Investing 101, check out our tutorial: Investing Basics for the New Investor.
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