Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Five Misunderstood Stock Market Terms

InvestorEducation / Learning to Invest Sep 17, 2008 - 04:36 AM GMT

By: Money_and_Markets

InvestorEducation Nilus Mattive writes: There's a lot of confusion out there in the markets right now. But I want you to know that my stance hasn't changed one bit — I continue to think dividend superstar stocks are a great way for income investors to lock-in attractive yields right now, and potentially reap even bigger gains down the line.


I also continue to like inverse exchange-traded funds as a way to hedge your dividend positions. They can offset losses from market downdrafts and allow you to continue collecting your dividend checks along the way.

For example, I recommended the DXD double-inverse ETF to my Dividend Superstars subscribers in early August, and that position has been doing exactly what it was designed to do in times like this — rise in value as the market declines.

Now, with all the latest action, I'm sure you've been seeing all kinds of market commentary in your local newspapers and on mainstream TV programs.

So today I'd like to tell you about five stock market terms that are often cited, but rarely explained properly, even by investment experts and the financial press ...

Misunderstood Market Term #1: "Beta"

Beta is a measure of a stock's volatility relative to the broad market. Analysts assume the market (an index) has a beta of 1 and cash has a beta of 0. So, if a particular stock's beta is above 1, the shares are likely to experience swings that are greater than those of the market. Conversely, a stock with a beta under 1 should swing less than its comparable index.

Let me give you an example ...

If XYZ stock has a beta of 0.5, it should move half as much as the S&P 500. In other words, if the S&P 500 loses 10%, XYZ should fall 5%.

Ditto for up moves — if the market rises 10%, the stock will gain 5%.

Meanwhile, under the same market conditions, a stock with a beta of 4 would be expected to go up or down 40%!

For this reason, many investors equate beta with "risk."

The danger of doing so is that beta is simply a reflection of a stock's past moves. It doesn't factor in any recent changes in the company's business model ... shifts in market conditions ... or how long a stock has even been around. As you so often hear, "past performance is no guarantee of future results."

Still, betas are a useful "at a glance" number, particularly for stocks with long histories.

Misunderstood Term #2: "Market Breadth"

Market breadth is a measure of how many companies in a particular index or market have gone up vs. how many have gone down. The majority rule, and breadth is then said to be either positive or negative.

For example, the S&P 500 contains 500 constituents. If 300 of those stocks closed in negative territory on a given day, that market had bad breadth. Conversely, if 400 of the stocks went up, market breadth would be considered very positive.

This measure is viewed as a window into investor sentiment. That's because it's a quick way of knowing just how widespread buying or selling was. It's especially useful when you're looking at a market-weighted index.

Reason: By design, they attribute higher importance to larger stocks. Thus, losses in larger shares can weigh the entire "market" down, even if the majority of stocks rose!

Misunderstood Term #3: "Limit Order"

There are many different ways to place a stock order, and the suggested approach depends on the particular security you're going to purchase along with what the market is doing.

Placing a market order is the same thing as telling your broker "Buy me these shares no matter what the cost, and do it as soon as possible." Market orders have the distinct advantage of getting your order filled quickly. They also tend to be the cheapest type of order you can place since your broker is not being asked to do very much on your behalf.

The downside of market orders is that you have no way of knowing exactly what price you're going to pay. This is generally not a problem when a stock trades millions of shares a day and when its price is expected to remain relatively stable. However, it can be a dangerous method when a stock is thinly traded or moving very rapidly.

Limit orders , on the other hand, give your broker very clear instructions — to buy the specified number of shares at a predetermined price ... or better. The "better" means that the broker can buy the stock at a price that is lower than your specified price or sell it at a price that is higher. Limit orders can be a great way to keep everyone involved in the process honest.

When it comes to larger dividend-paying stocks, you should generally be fine using market orders. However, I often tell my Dividend Superstars subscribers to use limit orders to make sure they get the very best entry prices, especially on more volatile shares.

One other thing I'd like to note on placing limit orders with your broker. You will usually have the option to specify a "day order" or a "good till cancelled" (GTC) order. As the name implies, a day order will expire at the end of that trading day if it is not filled. A GTC order will remain open until either A. it is filled or B. you inform your broker that you no longer wish to place that trade.

Misunderstood Term #4: "Same-Store Sales"

We often hear retailers citing same-store sales. And the entire stock market can move when a bellwether like Wal-Mart releases this monthly number.

Here's the important thing to understand about same-store sales: They measure results from stores that have been open for a year or more.

The idea here is that you want to know how much more product a company is selling from its existing locations, not from new stores that it might have recently added.

Reason: Sales growth from new stores is good, but it also requires a lot of money to be spent — for construction, labor, rent, etc.

Rising sales at the same location show rising demand for a company's goods or services. (And they're generally much better for the bottom line.)

Misunderstood Term #5: Fiscal Year

If only every company would just use a regular old calendar, comparing numbers would be so much easier!

Unfortunately, many companies opt to use their own business calendars — or fiscal years — to report their results. In fact, roughly one quarter of U.S. companies choose to end their years on a month other than December.

Some have good reason to do so. For example, retailers often end their calendars in January. That allows them to record all their holiday sales into their current fiscal year. While it technically doesn't matter what year they record the sales, I suppose they like to go out with a bang.

A lot of technology companies also have wacky fiscal years. In many cases, this is simply related to the date of their initial public offering or because their competitors also use the same fiscal year.

The only reason I suggest paying attention to a company's fiscal year is so you'll know when to expect quarterly earnings releases as well as dividend payment announcements. The two tend to go hand-in-hand!

Best wishes,

Nilus

P.S. Want to share your thoughts on the economy — or any other investment topic — with our entire Money and Markets audience? Then check out the Editor-For-A-Day contest that we're running right now!

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in