If you want to succeed in anything you have to put a lot of effort and time into it and investing is no exception. This section of Financial Dictionary defines the most important terms every investor must know.
Many investors invest into different asset classes (asset allocation), with the expectation of appreciation of their assets. Others put their capital to work in expectation that they'll get a positive cash flow from their investment. All these investors have one common goal and that is to make money.
One of the mainstream ways to invest is to put your money in common shares also known as stocks. When an investor buys common shares in a company they become a shareholder in the company. Stocks are traded on stock exchanges like NYSE, Chicago Stock Exchange, Chicago Board of Trade, American Stock Exchange (AMEX), NYMEX, Australian Stock Exchange, Bombay Stock Exchange, Frankfurt Stock Exchange, Hong Kong Stock Exchange, Tokyo Stock Exchange, Shanghai Stock Exchange, London Stock Exchange, NASDAQ, and Toronto Stock Exchange – TSX. Investors worldwide follow several important stock market indices like Dow Jones, S&P 500, FTSE 100, DAX, CAC 40, Nikkei 225, Hang Seng, and Straits Times.
There are many other investment vehicles used by investors including bonds (see junk bonds and convertible bonds), certificates of deposit (CD), options, warrants, futures, index funds, exchange traded funds, derivatives, treasury bills, financing instruments and various other securities.
Some investors don't believe in fiat money and invest only in gold, silver, precious metals and commodities (oil for example). More risk inclined investors use leverage (see margin) when investing, and speculate in penny stocks. Others use the Dollar Cost Averaging investment strategy, ordering stocks gradually over time. Technical analysis is indispensible tool for some investors, while others dismiss it and concentrate on the big market trends. Some investors prefer FOREX markets (see currency), and others do day trading for a living. Most investors have long positions in company shares (expecting dividends and/or appreciation), but some use advanced investment techniques like short selling and arbitrage. At the end of the day what counts is the return on investment (ROI) they all made and have their investments increased their net worth. Some investors use tax-loss selling as a part of their investment strategy.
If an investor wants to be successful, they will have to do their due diligence, learn how to do a valuation of an investment, understand the difference between book value and face value, and learn to read company's balance sheets, earnings reports and income statements.
There are many other key investment terms that must be understood by investors no matter what their level of experience is. These terms include, but are not limited to market capitalization, capitalization, capital gain, P/E ratio, net income, profit, current assets, fixed assets, liquid assets, dividend, earnings per share (EPS), buyback, preferred stock, quick ratio, revenue, bear market, bull market, goodwill, IPO, and opportunity cost.
You will also learn what depreciation, equity and hedge funds, demand, EBITDA, Economy of Scale, IRA, LIBOR are, and how venture capital helps small business with big ideas to succeed.
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