NEW (OLD) ECONOMY Relatively
new term to describe the types of companies in the marketplace. New Economy
stocks are usually high-tech and Internet related companies whose shares
trade mostly on the NASDAQ. Examples of New Economy stocks include Intel,
Microsoft and America Online. Old Economy stocks are mainly manufacturing
and utilities. Examples of Old Economy stocks include General Motors,
Procter & Gamble and Caterpillar. Old Economy stock generally trade
on the New York Stock Exchange.
OPTION In
terms of individual stock an option is the contractual right to buy 100
shares of a company's stock at a set price on a set date in the future.
Option contracts are traded in the market place and the price of the contract
is determined by a number of things with the most important being the
price of the underlying shares. The right to buy is called a call option
while purchasing the right to sell is a put option. Options are mainly
used as hedging tools.
OVERBOUGHT/SOLD A
technical method of identifying stocks that may be due to rise or fall.
If the stock has been going up rapidly than it may be considered to be
over bought and due for a decline and if it has been declining in price
rapidly it is said to be oversold. The theory is that if it can beestimated
when a stock is oversold than there are no more sellers left but only
buyers which would send the price back up.
PREFERRED STOCK A
class of stock issued by corporations that pays a specified dividend.
Dividends must be paid on preferred stock before any can be paid on the
common stock. Also, if a company has to liquidate its assets preferred
stock holders must get any proceeds before the common stock holders. Buyers
of preferred stocks look to earn the dividend payment rather than gains
on the share price.
PRICE TO EARNINGS
RATIO (P/E) The price of a stock divided by its
earnings per share. If a stock trades for $10.00 per share and had earnings
over the past year of $1.00 its P/E Ratio would be 10.The P/E Ratio is
one of the more important tools that Value Investors use.If the Average
P/Eratio of the overall market is 25 than an individual stock with a ratio
of 10 is considered cheap.
RESISTANCE Technical
term used to describe a price where a stock price can not go above. For
example if a stock has been trading at or near $20.00 but has not closed
above it for some time it is said to have resistance at $20.00. It is
bullish if a stock closes above it resistance price.
RISK FREE RETURN An
investment where returns such as interest are gained without risk to the
original investment. US Treasury securities are considered risk free investment.
You will always be paid interest and if the security is held to maturity
all invested money will be returned.
