Stock market jargon
You will have to be familiar with stock market jargon if you want to ever be anymore than an elementary investor.
Here are a few terms that you should know:
- Dividends: These are what some companies directly pay to their shareholders as a bonus of sorts for owning their stock. This is also done to help directly share the profits of a company. A company thats stock price is 50 dollars might pay out 1 dollar worth of dividends over a year, 2%. Dividends are usually payed quarterly which means that 25 cents would be given to an investor every 3 months for each share of stock owned.
- DRIP: This stands for Dividend reinvestment program. Some companies offer this. DRIP is where you use the dividends you are payed quarterly to buy more stock of the company. It is a great way to use compound interest to your advantage.
- PE ratio: This stands for price to earnings ratio. If a company earns 1 dollar a share a year and its stock price is 20 dollars that means its PE is 20/1= 20.
- PEG ratio: This stands for price to earnings ratio divided by estimated growth of the company. If the company above had a 20% growth rate its PEG would be 20/20 which is 1.
- Market Cap: This stands for what the entire company is valued at. You can calculate the Market Cap of a company by multiplying the share price of a company by the number of shares of the company that are out their for trading. If a company has 1 million shares and is trading at 50 dollars a share its market cap is 50 million.