ADR {American Depositary Receipt)
See "American Depositary Receipt (ADR)"

ADS (American Depositary Shares)
See "American Depositary Shares (ADS)"

Aftermarket
Sometimes called "secondary market." This term refers to the trading in a security after its initial public offering (IPO).

American Depositary Receipt (ADR)
Negotiable receipt representing foreign shares of stock in a foreign corporation. The certificates are issued by a U.S. Depositary Bank, representing foreign shares held by the bank. This is a popular form of owning shares of foreign companies. ADRs are subject to the securities laws of the United States and the rules of the member exchanges.

ADR's are subject to the same currency, political and economic risks as the underlying foreign share.

American Depositary Shares (ADS)
This is a popular form of owning shares of foreign companies. This form of certification is similar to ADR's {American Depositary Receipt).

Arbitrage
Arbitrageurs look for opportunities to make small profits while minimizing risk. They cover their investment by buying in one market and selling in another. They might buy stock and sell options to cover their purchase. Another example; A person who buys a soybean contract on one market and sells a soybean contract on another exchange is practicing arbitrage --- and profit is locked in.

Arbitration
When a customer has a dispute against his/her stockbroker, they can choose to settle it out of court by ageeing to Arbitration. The two parties must bind themselves to the decision of a third-party referee.

Ask
This is the quoted ask for the security. It is the lowest price an investor will accept to sell a stock. This is the quoted offer at which an investor can buy shares of the stock.

Authorized Stock
Maximum number of shares that a corporation may issue through its charter. The amount can only be changed (increase or decrease) if approved by a majority of shareholders. If approved, the corporation would amend its charter or articles of incorporation reflecting the new level of Authorized Stock.

Basic Stock Terminology
These are common terms you encounter when buying and selling common stocks.

Basis
The cost of investing in a security. It includes the price paid for the security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

Bear
An investor who believes a stock or the overall market will decline. A bear market is an extended period of falling stock prices --- usually by 20% or more.

Bear Market
Popular term that describes market conditions that are marked by a prolonged period of declining securities prices. The anticipation of declining economic activity usually brings on a Bear Market.

Beneficial Owner
Person or party that actually owns a security or "benefits" from the ownership. Securities are often held in "street name" in the person's brokerage or bank account. That has given rise to the term Beneficial Owner. It indicates the real, or beneficial, owners of these securities.

Bid
This is the quoted bid, or the highest price any investor is willing to pay for a security. This is the market price at which an investor can sell shares of stock.

Blue Chip
Financially strong, well-established company. The DJIA is packed with Blue Chip Companies.

Board of Directors
Persons elected by a company's shareholders to make guiding decisions, such as electing officers of the company. Directors are control persons and, as such, can only buy/sell company securities following proper reporting.

Book Entry Ownership
Book Entry is a form of registered ownership. It allows you to own shares without having physical stock certificates in your possession. DRP Programs use Book Entry, you simply get a periodic statement of your account ownership. You can request a stock certificate for your shares if you choose. There may be a charge for this service.

Stock Brokers prefer Book Entry. If you are buying an initial share(s) to qualify for a DRP Program, direct the broker to register the stock in your name and deliver the stock certificate to you. You DO NOT want the stock bought and registered in Book Entry form if you are using it to qualify for a DRP Program.

Book Entry Ownership eliminates the problems associated with paper certificates, such as storage and safety of your stock. Book Entry also eliminates the need for physical movement of stock certificates when you sell or transfer ownership of your stock.

Book Value
Book Value, or Shareholder Equity, is the company's real net worth. Book Value is equal to Assets minus Liabilities. Book Value is the ultimate value of a company in liquidation, however it typically does not reflect the liquidated value. Book Value may vary significantly from other objectively determined values, most notably Market Value. It is a fundamental guide in selecting underpriced stocks.

Assets Assets include existing machinery, land, buildings, inventory, cash in the bank, etc. held by the company. Problem is, many of the values on the books do not reflect actual value. For example, a piece of manufacturing equipment is put on the books at its cost when purchased. Its value is then reduced each year as depreciation is charged to income. Thus, its book value is its cost minus accumulated depreciation.

The purpose of depreciation is allow a company to recover its cost, not replace the asset or reflect its liquidated value. With depreciation, older buildings may be carried on the books for $0. If that building is in a downtown metropolitan area, its value is grossly underestimated. Computer equipment is typically depreciated over 7 years. With the pace of technology, a 3-year old computer system may be worthless on the market. On the books, the computer system looks like it has value, On the open market, it is worthless. You get the idea, Asset values can be very misleading.

Liabilities: Liabilites include debt items, so you should get an accurate picture of this side of the equation.

If you need an accurate picture of the Book Value of a company, hire a good investment banker. This is often done on take-over bids. You can get the book value reported by the company from their Annual Report. It will be on the balance sheet. Companies are required to submit quarterly and annual reports to the Securities Exchange Commission (SEC). You can get these reports through our research pages.

Bull
An investor who expects the market to rise.

Bull Market
Popular term that describes market conditions that are marked by a prolonged period of rising securities prices. Bull markets usually last at least a few months.

Cancel
In Securities Trading: void an order to buy or sell.

Capital Gain
When a stock is sold for a profit, it's the difference between the securities purchase price and selling price. If a stock is sold below the purchase price, the difference is a Capital Loss.

Capital Loss
When a stock is sold for a loss, it's the difference between the securities selling price and purchase price. If a stock is sold above the purchase price, the difference is a Capital Gain.

Capital Stock
All shares, common and preferred, authorized and issued by a company. Capital Stock is informally used as a synonym for Common Stock, but formally, it also includes Preferred Stock.

Cartel
Group of businesses or nations that agree to influence prices by regulating production and marketing of a product. The Organization of Petroleum Exporting Countries (OPEC) is a notable Cartel. The United States prohibits Cartels by law.

Cash Dividend
Cash payment to a corporation's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend. Cash Dividends are distinguished from Stock Dividends, which are payments in the form of stock. With DRP Programs, you can opt to have Cash Dividends paid out as stock.

Circuit Breakers
If the NYSE market advances or declines substantially, trading can be halted. The term Circuit Breaker defines the specific conditions under which this occurs.

The New York Stock Exchange instituted several circuit breakers to reduce market volatility and promote investor confidence in response to the big market breaks in October 1987 and October 1989.

Revisions to Rule 80A were implemented on February 16, 1999, following approval by the Securities and Exchange Commission. Rule 80A restricts index arbitrage trading. The trigger level follows the Dow Jones Industrial Average. It is calculated quarterly as 2% of the average closing value of the DJIA for the last month of the previous quarter, rounded down to the nearest 10 points.

Rule 80B sets thresholds at which trading would be halted market wide. These thresholds are set at 10%, 20%, and 30% and are based on the DJIA. They became effective April 1, 1999. Point levels are set quarterly by using the DJIA average closing values of the previous month, rounded to the nearest 50 points.

Actions defined by Rule 80B are:

1. 1,000-point drop - trading will be halted for one hour if the drop occurs before 2 pm; for 30 minutes if the drop occurs between 2 pm and 2:30 pm.

2. 1,950-point drop - trading will be halted for two hours if the drop occurs before 1 pm; for one hour if the drop occurs between 1 pm and 2 pm; and for the remainder of the day if the drop occurs at 2 pm or later.

3. 2,950-point drop - trading will be halted for the remainder of the day regardless of when the decline occurs.

  Want more details? NYSE Circuit Breakers

Closely Held
Corporation where most of the voting stock is held by a few shareholders.

Closing Price
Price of the last transaction completed during a day's trading session on an organized securities exchange.

Common Stock
A share of stock represents a fractional ownership of a corporation. The shares are publicly traded in a market such as the New York Stock Exchange (NYSE). Buyers and sellers determine the market value of the stock.

Common Stock Equivalent
Securities which may be convertible into common stock in the future, including warrants, stock options and convertible debentures. Since converting or exercising these options would dilute the Company's Earnings Per Share, they are counted as common stock when determining a corporation's value per share on a fully-diluted basis.

Confirmation Report
Written statement from the agent that executes the stock transaction to the investor. It follows every "trade" in the securities markets. Confirmation is issued immediately after a trade, it includes settlement date, terms, commission, etc.

Convertibles
Corporate securities (usually preferred shares or bonds) that are exchangeable for a set number of another form of security (usually common shares) at a prestated price.

Cornering The Market
To purchase enough of the available supply of a commodity or security in order to manipulate its price.

Corporation
A unique form of business organization. Corporations can own property, incur debt, sue, or be sued. Corporations raise money by selling shares of stock to the public.

This legal entity offers three chief distinguishing features:
1. Owners, or shareholders, have limited liability; they can lose only what they invest.
2. Easy transfer of ownership through the sale of shares of stock.
3. Continuity of existence.

Cover
To buy back contracts previously sold. If an investor sells stock or commodities short, at some point he must Cover his investment by buying back an equivalent contract.

Current Yield
See "Dividend Yield"

Custodial Account
Account created for minor to allow minors to own securities. For DRP Program, these accounts are usually administered by a Transfer Agent. They can be administered by a bank or brokerage firm.

Key Points:
1. Minors cannot make securities transactions without the appoval of the account Custodian.
2. Assets are taxed at the rate applicable to the minor, not the parents.
3. Securties cannot be bought on margin for this type account.

Custodian
Bank or other financial institution that maintains custody of stock certificates and other assets for a mutual fund, individual, or corporate client.

Person or institution authorized to direct the investment activities of another party's account. Often done in connection with accounts held for the benefit of minors or persons unable to manage their own investments.

Cyclical Stocks
Cyclical stocks are stocks that tend to rise quickly when the economy turns up and to fall quickly when the economy turns down. Housing, automobile, and paper companies tend to be cyclical.

Stocks of noncyclical industries include foods, insurance, and drugs. They are not as directly affected by economic changes.

Debt/Equity Ratio
Long-term debt divided by shareholders' equity is a fundamental measure of leverage. A highly leveraged company uses future profits to pay off debt -- rather than grow the company.

Declaration Date
The date on which a corporation announces the date and amount of the next dividend. It is done at a meeting of the Board of Directors.

Dilution
Effect on earnings per share and book value per share if all convertible securities were converted and all stock options and warrants were exercised.

Disclosure
Release by companies of all information, positive or negative, that might affect investment decisions. Disclosure is required by the Securities and Exchange Commission and the stock exchanges.

Dividend Yield
The dividend (expressed as %) paid on a stock. How to calculate the Dividend Yield? Divide the dividend by the current market value of the stock. If the market value of a stock is $100 and the Dividend is $6, the Dividend Yield is 6%.

Dividends
Earnings are distributed to shareholders as dividends. They are stated in dollar amount per share and paid quarterly. Dividend Reinvestment Programs (DRP) give you the option of reinvesting dividends to purchase additional stock shares. Dividends are taxable income in the year they are paid.

For more information on dividend eligibility, see "Ex-Dividend," "Ex-Dividend Date," and "Record Date"

Earnings Per Share (EPS)
Every publicly traded company calculates its profits at three-month intervals (quarterly) and at year-end. Earnings are stated as earnings per share. Even if the company sold additional stock during the year, you can easily compare growth in profits from year to year.

EPS (Earnings Per Share)
See "Earnings Per Share (EPS)"

Execution
Common term for completing an order to buy or sell securities. A broker who handles the transaction is responsible for providing a Confirmation Report to the buyer. Settlement, which involves payment and transfer of ownership, occurs in the U.S. in 3-5 days.

See "Confirmation Report"
See "Settlement Date"

Guru
Slang term for a person, analyst or financial journalist, who publishes opinions or recommendations about securities.

High Price
This is highest price that a security has changed hands between a buyer and seller during the day. It can also refer to the highest daily price that the security has traded at during the past 52-weeks, adjusted for any stock splits.

Holding Company
Corporation whose business strategy is to own enough stock in other company to influence its operation. One of the best known Holding Companies is Berkshire Hathaway. Its Chairman is Warren Buffet, who is highly respected in the investment world. Berkshire Hathaway has no significant operating business of its own, but does have major ownership in many well-known companies, such as Geico and Pepsi.

Hot Issue
Newly issued stock that has is in great demand by the public. Prices can be very volatile at their initial offering. With a large demand, it is normal to see the price spike up immediately. But once the hype is over, prices can drop just as fast!

Illiquid
Any security that cannot easily be sold in the open market. A security that is not traded actively cannot absorb a large sell or buy order without a substantial price change --- this security is considered illiquid.

Industry
A category assigned to each company describes its primary business activity. This usually is determined by the business segment that generates the largest portion of revenue.

Initial Public Offering (IPO)
A company's first sale of stock to the public. Securities offered in an IPO are usually small companies seeking outside equity capital to grow the company. Investing in IPO's is typically very risky, price swings are volatile.

Inside Information
Relevant information about a company that has not yet been made public. Under Security and Exchange Commission rules, an Insider is prohibited from trading on Inside Information.

See "Insider"

Insider
Person who has access to key information before it is announced to the public. Insider usually refers to directors, officers, and key employees. In legal terms, relatives and others in a position to capitalize on Inside Information are also considered Insiders.

See "Inside Information"

Instinet
Instinet is a trading system owned by Reuters. Institutions use the system to trade large blocks of shares. These trades do not go through the normal exchanges (NYSE, AMEX, NASDAQ). The institutions trade direct with each other.
Instinet home site

Institution
An organization that invests on behalf of other parties – such as a pension fund, mutual fund or investment trust. Most institutions hold shares for relatively long time periods and invest conservatively.

See "Institutional Investor"

Institutional Investor
Investors who invest through organizations such as a pension fund or mutual fund. The Institution typically trades large volumes of securities on behalf of Institutional Investors. Many analysts look at the percentage of a company's stock that is held by institutions as a measure of market confidence. Much of the trading (50-70%) done on the New York Stock Exchange is done by institutions on behalf of Institutional Investors.

See "Institution"

Intraday
Within a day. Often used with high and low prices of a stock, bond, or commodity. A stock could reach an all-time high suring the day, then fall back to close below the all-time high.

Investment
Use of capital to create more money. For example, you could use your capital to invest in stocks. Investments involve some risk, however the term suggests that protecting your principal is an important consideration. On the other end of the investment spectrum is speculation, which involves placing your capital at far greater risk.

See "Speculation"

Investor Relations
Persons in major listed companies that keep the public informed about shareholder matters. Some specific duties:

1. To assure that the company is understood.

2. To fully disclose critical information to the public, in a timely manner --- in compliance with the SEC, the Securities Exchanges, and other regulatory authorities.

3. To provide requested reports and information to shareholders, investors, brokers, and the financial media.

4. To maintain relations with special groups, including specialists in the firms stock, major broker-dealers, and institutional investors.

5. To arrange analysts' meetings and other presentations to generate the appropriate publicity.

IPO (Initial Public Offering)
See "Initial Public Offering (IPO)"

Issued Stock
Stock that has been sold to the public by a legal entity. These shares represent capital invested by shareholders. May be all or part of the total shares authorized. Usually listed for resale on one the major stock exchanges.

Issuer
Corporation or other legal entity that offers its securities for sale. Issuers of stock must report corporate developments to shareholders on a regular basis. They must also pay any declared dividends. Issuers of bonds must make timely payments of interest and principal to bondholders.

Joint Tenants With Right of Survivorship
Where two or more people own securities jointly. Upon the death of one account holder, ownership passes to the remaining account holders. Estate taxes may be due, depending on the amount of assets transferred.

Market Value
Market Value of a company is equal to the stock price times the number of shares outstanding. The number of shares outstanding for the company is part of the quarterly and annual reports submitted to the Securities Exchange Commission (SEC). You can get the quarterly and annual reports reports through our research pages.

You can tell how big a company is by comparing Market Value.

NonCyclical Stocks
NonCyclical Stocks are less subject to price fluctuations based on economic ups and downs. Stocks of NonCyclical industries include foods, insurance, and drugs.

Cyclical stocks are stocks that tend to rise quickly when the economy turns up and to fall quickly when the economy turns down. Housing, automobile, and paper companies tend to be cyclical.

P/E (Price to Earnings Ratio)
See "Price to Earnings Ratio (P/E)"

Price to Earnings Ratio (P/E)
The P/E ratio is an important indicator of value. Divide the current market price of one share by the expected per-share earnings (next year) and you have the P/E ratio. A P/E ratio that exceeds past levels suggests an overvalued stock.

Registered Stock Ownership
A beneficial owner of stock becomes a Registered Owner by having the stock "registered" (or recorded) on the corporation records in his/her name. The registered shareowner is considered the "shareowner of record."

Registered owners receive all corporate communications, dividends, annual reports and proxy material directly from the company Ownership comes in two forms, physical certificates or book entry shares.

If you buy an initial share from a broker with the intent of joining a DRP Program, you must have the broker register the share in your name. Stock Brokers typically assume that you want the ownership recorded by "book entry." That won't qualify you to join a DRP Program. Specifically direct the stock broker to deliver the stock certificate to you. This assures that you are the registered owner.

Return on Investment (ROI)
The amount, expressed in percentage, earned on a stock investment over time. You calculate ROI by dividing the increase or decrease in value of the stock by the initial cost of the stock. The increase or decrease in value includes stock price appreciation or depreciation and dividends earned. ROI is normally expressed as an annual compounded rate.

ROI (Return on Investment)
See "Return on Investment (ROI)"

Settlement Date
Date by which an executed order must be settled; the buyer must pay for the securities, the seller must deliver the securites and receive payment.

Shareholder
A shareholder is part owner of the company. Divide the number of shares owned by the number of outstanding shares and you know what portion of the company you own.

Shareholder Equity
See "Book Value"

Speculation
Use of capital to create more money. Speculation involves high levels of risk, which means you accept a high risk of losing part or all of your initial principal. Speculation implies that a business or investment risk can be measured --- Speculation carries a higher risk than Investment.

See "Investment"

Stock Certificate
Your stock certificate is evidence that you own the stock. It is not required for ownership, but is required if it is the initial share(s) for joining a DRP Program. It is a valuable document and should be protected. Keep it in a safe place, such as a safe deposit box. Most DRP Programs offer safekeeping, so you can send it to the transfer agent once you join the DRP Program. It can be costly and inconvenient to replace.

Do not sign your certificate until you sell or transfer your shares. If you send the certificate by mail, send it by registered or certified mail. Insure it for 2% of the market value, that should cover the cost to replace the certificate if it is lost.

When you receive a stock certificate, review it carefully for accuracy. It will include shareowner's name and account number, a unique certificate number, the number of shares, date issued and the name of the Transfer Agent.

Stock Split
Directors may elect to split stock to make ownership more affordable. A stock split increases the number of outstanding shares without any change in the shareholder's equity. If a stock splits 2-for-1 and you own 100 shares, you get an additional 100 shares. The market value, or price per share, drops by half. The dividend per share also drops by half.