General Investing Flashcards

All 65 terms in this deck

The full list, for reference and search.

401(k)

A 401(k) is an employer-sponsored retirement account that lets employees contribute a portion of pretax salary, often with an employer matching contribution up to a set percentage.

Arbitrage

Arbitrage is the practice of simultaneously buying and selling related securities to profit from a temporary price discrepancy, with little or no net risk if executed correctly.

Asset Allocation

Asset allocation is the split of a portfolio across asset classes, stocks, bonds, cash, and sometimes real estate or commodities, expressed as target percentages like the classic 60/40 stock/bond mix.

Asset Class

An asset class is a group of investments that share similar characteristics and behave similarly in the market: stocks, bonds, cash and cash equivalents, real estate, and commodities are the major traditional categories.

Beta

Beta measures how much a stock tends to move relative to the overall market: a beta of 1.0 moves with the market, 1.5 amplifies it by half, and 0.5 dampens it by half.

Blue Chip Stock

A blue chip stock is shares of a large, well-established, financially sound company with a long history of reliable performance, often (though not always) paying a dividend.

Bond

A bond is a loan an investor makes to a borrower, government or corporate, in exchange for periodic interest payments (the coupon) and repayment of the original amount (the principal, or face value) at a set maturity date.

Buffett Indicator

The Buffett Indicator divides the total market capitalization of a country's stock market by its GDP, gauging how large equity valuations have grown relative to the economy beneath them.

Capital Gains

A capital gain is the profit from selling an asset for more than its cost basis, and the US tax code splits it by holding period: positions held one year or less are short-term gains taxed at ordinary income rates (10-37%), while positions held more than one year qualify for long-term rates of 0%, 15%, or 20% depending on income.

Closed-End Fund

A closed-end fund raises a fixed amount of capital in an initial public offering and then trades on an exchange like a stock, with a fixed number of shares, rather than continuously issuing and redeeming shares the way an open-end mutual fund or ETF does.

Commission

A commission is the fee a broker charges for executing a trade, historically a flat or per-share charge on every buy and sell order.

Common Stock

Common stock is the standard form of equity ownership in a company, giving holders voting rights on major corporate matters and a claim on residual profits (through dividends, if declared) and residual assets in a liquidation, after all creditors and preferred shareholders are paid first.

Compounding

$10,000 growing at 8% a year becomes $21,589 in 10 years, $46,610 in 20, and $100,627 in 30.

Convertible Bond

A convertible bond is a corporate bond that can be exchanged for a predetermined number of the issuing company's shares, at the bondholder's option, instead of being repaid in cash at maturity.

Corporate Bond

A corporate bond is debt issued by a company to raise money, paying investors a fixed or floating interest rate in exchange for the loan.

Cost Basis

Cost basis is what you paid for an investment, including commissions, adjusted for events like splits, return-of-capital distributions, reinvested dividends, and wash sales.

Credit Rating

A credit rating is a letter-grade assessment, issued by agencies like S&P, Moody's, and Fitch, of how likely a borrower is to repay its debt in full and on time.

Diversification

Diversification is spreading a portfolio across enough different holdings that no single position, sector, or country can sink it.

Dividend Aristocrat

A Dividend Aristocrat is an S&P 500 company that has increased its dividend every year for at least 25 consecutive years, a formal designation tracked by S&P Dow Jones Indices.

Dividend Growth Rate

Dividend growth rate is the annualized pace at which a company raises its per-share dividend, usually quoted as a 3-year, 5-year, or 10-year compound annual growth rate.

Dollar-Cost Averaging (DCA)

Dollar-cost averaging is investing a fixed dollar amount on a fixed schedule regardless of price, so the same $500 buys more shares when the price is low and fewer when it is high.

DRIP (Dividend Reinvestment Plan)

A DRIP is a dividend reinvestment plan: instead of receiving cash dividends, the payout automatically buys more shares (including fractional shares) of the same stock or fund, usually commission-free.

Efficient Market Hypothesis (EMH)

The efficient market hypothesis holds that asset prices fully reflect all available information at all times, which implies it should be impossible to consistently beat the market through stock picking or market timing, since any advantage would already be priced in.

Equity

Equity is ownership: a claim on an asset after all debts against it are subtracted.

Expense Ratio

An expense ratio is a fund's annual fee expressed as a percentage of assets, deducted continuously from the fund's returns rather than billed to you.

Fiduciary

A fiduciary is legally required to act in a client's best interest, ahead of their own financial interest, when giving advice or managing money.

Futures Contract

A futures contract is a standardized, exchange-traded agreement to buy or sell an asset (a commodity, an index, a currency, or an interest rate) at a set price on a set future date.

Graham Number

The Graham Number is the square root of 22.5 x EPS x book value per share — a ceiling price a defensive investor should pay for a stock under Benjamin Graham's rules.

Growth Investing

Growth investing focuses on companies expected to grow revenue and earnings faster than the market average, often paying a premium valuation (a high P/E or P/S ratio) for that expected growth rather than looking for statistically cheap stocks.

Income Investing

Income investing prioritizes generating regular cash flow from a portfolio, through dividends, bond interest, or other distributions, over pursuing capital appreciation.

Index Fund

An index fund is a mutual fund or ETF built to replicate the holdings and weighting of a specific benchmark, like the S&P 500, rather than trying to beat it through active stock picking.

Insider Ownership

Insider ownership is the percentage of a company's shares held by its officers, directors, and beneficial owners of more than 10% — the people the SEC formally classifies as insiders.

Investment Grade

Investment grade describes a bond rated BBB-/Baa3 or higher by the major credit rating agencies, signaling a relatively low risk of default.

IRA (Individual Retirement Account)

An IRA is a tax-advantaged retirement account individuals can open independently of an employer, with annual contribution limits set by the IRS.

Junk Bond (High-Yield Bond)

A junk bond is a corporate bond rated below investment grade (BB+ or lower at S&P, Ba1 or lower at Moody's), issued by a company with a higher perceived risk of default.

Large-Cap Stock

A large-cap stock is generally defined as a company with a market capitalization above $10 billion, a threshold that includes most household-name businesses and the bulk of the S&P 500's total value.

Load Fund

A load fund is a mutual fund that charges a sales commission (the "load") on top of its ongoing expense ratio, either when you buy shares (front-end load) or when you sell them (back-end load, sometimes called a contingent deferred sales charge).

Magic Formula

The Magic Formula ranks every stock twice — once on earnings yield (EBIT / enterprise value) and once on return on capital (EBIT / (net working capital + net fixed assets)) — then adds the two ranks and buys the best combined scores.

Mega-Cap Stock

A mega-cap stock is a company with a market capitalization above roughly $200 billion, a tier occupied by only a handful of the largest companies in the world at any given time.

Micro-Cap Stock

A micro-cap stock generally has a market capitalization between $50 million and $300 million, sitting just above penny stocks in size.

Mid-Cap Stock

A mid-cap stock generally falls between $2 billion and $10 billion in market capitalization, occupying the space between small, higher-growth companies and large, more mature ones.

Municipal Bond

A municipal bond ("muni") is debt issued by a state, city, or local government agency, typically to fund public projects like schools, roads, or utilities.

NAV (Net Asset Value)

NAV is the per-share value of a fund's holdings: total assets minus total liabilities, divided by shares outstanding.

Net Current Asset Value (NCAV)

Net current asset value is current assets minus total liabilities — what would be left for shareholders if a company's factories, patents, and goodwill were all worth zero and only the cash, receivables, and inventory counted.

Peter Lynch Fair Value

Peter Lynch fair value is a heuristic, not a valuation model: it says a growth stock is fairly priced when its P/E equals its earnings growth rate, so fair value = growth rate x EPS.

Portfolio

A portfolio is the full collection of investments an individual or institution holds, considered together rather than position by position.

Prospectus

A prospectus is the legal document a company or fund must file and provide to investors before selling securities to the public, disclosing the business, the risks, the terms of the offering, and (for funds) the fees and past performance.

Random Walk Theory

Random walk theory holds that stock price changes are unpredictable and independent of past movements, meaning a stock's chart history contains no reliable signal for where the price goes next.

Rebalancing

Rebalancing is selling what has grown past its target weight and buying what has shrunk below it, restoring a portfolio to its intended allocation.

REIT (Real Estate Investment Trust)

A REIT is a company that owns, operates, or finances income-producing real estate, and trades on an exchange like a stock, giving investors a way to own real estate without buying property directly.

Robo-Advisor

A robo-advisor is an automated investment service that builds and manages a diversified portfolio, usually of low-cost ETFs, based on an investor's goals and risk tolerance, with little or no human advisor involvement.

Roth IRA

A Roth IRA is a retirement account funded with after-tax contributions, meaning there is no upfront tax deduction, but qualified withdrawals in retirement, including all investment growth, are entirely tax-free.

Rule of 72

The Rule of 72 is a quick mental-math shortcut for estimating how many years it takes an investment to double at a given annual rate of return: divide 72 by the rate.

Sector Rotation

Sector rotation is the strategy of shifting portfolio weight between different market sectors (technology, energy, financials, healthcare, and so on) based on where each sector sits in the economic cycle.

Shiller P/E (CAPE)

The Shiller P/E divides an index's price by its average inflation-adjusted earnings over the trailing ten years, smoothing out the boom-bust earnings swings that make a single-year P/E lie at cycle turns.

Small-Cap Stock

A small-cap stock generally has a market capitalization between $300 million and $2 billion.

Tax-Loss Harvesting

Tax-loss harvesting is selling an investment at a loss to realize that loss for tax purposes, then using it to offset capital gains elsewhere in the portfolio (and up to $3,000 of ordinary income per year), while staying invested by buying a similar (but not "substantially identical") replacement security.

Total Addressable Market (TAM)

Total addressable market is an estimate of the total revenue opportunity available to a company or product if it captured 100% of its potential market, used most often to argue how much room a growth company has left to expand.

Treasury Bill (T-Bill)

A Treasury bill is short-term US government debt with a maturity of one year or less, sold at a discount to its face value rather than paying a periodic coupon: you buy it below par and it matures at par, with the difference being your return.

Treasury Bond

A Treasury bond is a long-term debt security issued by the US federal government, with maturities of 20 or 30 years, paying interest every six months until maturity.

Treasury Note

A Treasury note is US government debt with a maturity between 2 and 10 years, paying interest every six months, sitting between the short-term T-bill and the long-term Treasury bond in maturity.

Value Investing

Value investing is a strategy of buying stocks that appear cheap relative to their fundamentals (low P/E, low price-to-book, high dividend yield) on the theory that the market has temporarily mispriced them below their intrinsic worth.

Wash Sale Rule

The wash sale rule is an IRS regulation that disallows a tax loss on a security if you buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window counting the sale date itself.

Yield on Cost

Yield on cost divides a stock's current annual dividend by the price you originally paid, rather than by today's price.

Yield to Maturity (YTM)

Yield to maturity is the total annualized return a bond will deliver if held until it matures and all coupon payments are reinvested at the same rate, accounting for the bond's current price, coupon, face value, and time remaining.