Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

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

6 Critical Money Making Rules