20 Key Terms That Any Investor Must Know If They Are To Have A Successful Investment Journey

By Steve Biko Wafula / Published March 14, 2023 | 7:19 pm

KEY POINTS

Blue-chip stocks are large, well-established companies that have a history of stable earnings and dividend payments. They are typically considered to be less risky than other stocks and are often used as core holdings in a diversified portfolio.

KEY TAKEAWAYS

Market capitalization refers to the total value of a company’s outstanding shares of stock. This is calculated by multiplying the number of outstanding shares by the current market price.

A dividend is a payment made by a company to its shareholders, usually in the form of cash or additional shares of stock. Dividends are typically paid out of a company’s profits.

Investing in the stock market can be a daunting task, especially for novice investors. There are several terms and concepts that every investor should understand to be successful in the stock market. Here are 20 complex terms that every investor must know and understand:

Stock: A stock represents ownership in a company, and it is issued by a company to raise capital. Investors can purchase shares of stock in a company, which entitles them to a portion of the company’s profits and a say in company decisions.
Market Capitalization: Market capitalization refers to the total value of a company’s outstanding shares of stock. This is calculated by multiplying the number of outstanding shares by the current market price.
Dividend: A dividend is a payment made by a company to its shareholders, usually in the form of cash or additional shares of stock. Dividends are typically paid out of a company’s profits.
Price-to-Earnings Ratio (P/E Ratio): The P/E ratio is a valuation metric used to determine a company’s current stock price relative to its earnings per share. A high P/E ratio may indicate that the stock is overvalued, while a low P/E ratio may indicate that the stock is undervalued.
Earnings per Share (EPS): EPS is a financial metric that represents a company’s net income divided by its outstanding shares of stock. It is a key factor in determining a company’s profitability.
Beta: Beta is a measure of a stock’s volatility relative to the overall market. A beta of 1 indicates that the stock’s price will move in line with the market, while a beta greater than 1 indicates that the stock is more volatile than the market.
Market Order: A market order is an order to buy or sell a stock at the current market price. This is the most common type of order and is typically executed immediately.
Limit Order: A limit order is an order to buy or sell a stock at a specific price or better. This type of order allows investors to control the price at which their trade is executed.
Stop-Loss Order: A stop-loss order is an order to sell a stock if its price falls below a certain level. This type of order can help investors limit their losses in the event of a sudden drop in the stock price.
Bull Market: A bull market is a period of time when stock prices are rising, and investor confidence is high.
Bear Market: A bear market is a period of time when stock prices are falling, and investor confidence is low.
Index: An index is a group of stocks that represent a particular segment of the stock market. The most well-known index is the S&P 500, which includes 500 large-cap U.S. stocks.
Exchange-Traded Fund (ETF): An ETF is a type of investment fund that is traded on stock exchanges. ETFs typically track a particular index or sector of the market.
Mutual Fund: A mutual fund is a type of investment fund that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, and other securities.
Diversification: Diversification is the practice of spreading investments across multiple stocks, sectors, and asset classes to reduce risk.
Margin: Margin is the amount of money an investor borrows from a broker to purchase stocks. Margin trading can be risky and is only recommended for experienced investors.
Broker: A broker is a person or company that executes trades on behalf of investors. Brokers can provide valuable advice and research to help investors make informed decisions.
Fundamental Analysis: Fundamental analysis is a method of analyzing stocks based on a company’s financial and economic fundamentals, such as revenue, earnings, and profit and or loss and financial statements.
Technical Analysis: Technical analysis is a method of analyzing stocks based on historical price and volume data. It involves using charts and other tools to identify patterns and trends in stock prices.
Blue-Chip Stock: Blue-chip stocks are large, well-established companies that have a history of stable earnings and dividend payments. They are typically considered to be less risky than other stocks and are often used as core holdings in a diversified portfolio.

Understanding these 20 complex terms can help investors navigate the stock market with greater confidence and success. However, it is important to note that investing in the stock market always carries some degree of risk, and investors should carefully research and evaluate any potential investment before making a decision.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

View other posts by Steve Biko Wafula

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20 Key Terms That Any Investor Must Know If They Are To Have A Successful Investment Journey

KEY POINTS

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