LEVEL 1 GLOSSARY
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Bonds
When you buy bonds, you're basically lending money to municipalities, states, and other government entities, which they use for construction projects and other fun stuff. They then pay you back with interest. These aren’t the biggest money makers, but bonds are fairly stable for those of you who think “risk” is a dirty word.
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NASDAQ
It's known as The National Association of Securities Dealers Automated Quotation System, but suffice to say this stock exchange is one of the biggies.
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Return
Gain (or loss) from an investment. Unless you're fiscally masochistic, you're going to cross your fingers for a gain.
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Revenue
The money generated from sales. If you own a lemonade stand and charge 25 cents per cup, add up all the sales for the day and—voila!—that's the revenue (just to keep you on your toes, sometimes people just refer to this as sales).
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Stock
This is your piece of the corporate pie, and it entitles the holder to a share of assets and earnings.
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Bull Market
Like a bull charging forward, a “bull market” is typically a market on the upswing. Olé!
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Debt
It's a bad word in personal finance, but it's pretty common in the corporate world. This is the money that a company owes to a lender.
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Dow Jones Industrial Average
The grandaddy of them all when it comes to indices only because it’s the oldest and most popular—not the largest or most representative. The Dow only represents the prices of 30 largest and most widely held companies in the U.S.
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IPO
Short for Initial Public Offering, this is a private company's way of saying, "Do you want a piece of this?" This is when a company offers shares to the public to get more dough to grow the business. Also known as "going public."
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NYSE
The New York Stock Exchange, a.k.a. Wall Street, is where stocks are bought and sold.
See full glossary
In Level 1 we'll introduce you to some of the basic concepts of investing. Each concept features a brief description and a case study, so you can see how each concept works in what financial analysts call "the real world." When you've mastered a concept, click the link at the bottom of the page to add it to your Report Card and move to the next one. Master all the concepts in each level, and then take the quiz to see just how smart you are.
- What is money?
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The uses of money
- Function of a bank
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What is a company?
- Is that company any good?
- How companies make money
- Brands
- Stocks vs. bonds
- What is a stock?
- Compounding interest
- What is the market?
- LEVEL 1 QUIZ
Brands
What we'll learn:
1) What is a brand?
2) Why does one brand cost more than another?
3) What does a panda have to do with stocks?
You're getting ready for work and you look in your closet. Hmmm, you think. Pretty humdrum. Uninspired. "My wardrobe definitely needs some help here," you say to yourself.
So after work, you head to a department store to buy a shirt. You're then faced with a question: Which brand do you look for?
You're probably going to look for something you recognize. Branding helps people distinguish one product from another, in all sorts of ways: the color, the quality, the name, the catchy slogan, or the sense of pride that connects to a product.
Think of detergents: Do you always buy Tide because you think it cleans better than the rest? Or Downey because you think it makes your clothes softer?
Perhaps you grab the generic, store-named one because it costs less than the others. This is all a part of branding — whatever makes you pick one product over another.
So when your hand reaches toward the shelf for that one brand, you are investing in that product and its company. In a way, you're trusting that company has your needs in mind.
And because you can count on getting exactly what you want, you might pay more for it. A shirt with a name brand is going to cost you more than an unknown label. Why would you pay more?
Because you trust the company made the shirt well, and that the brand acts as a guarantee that you're going to get exactly what you've come to expect from that brand.
In terms of buying a shirt, people are willing to pay $75 for a brand-name shirt, rather than a similar, generic shirt for $55. Why? The quality of how the shirt was made is probably better, and people get enjoyment from wearing a recognized brand.
Now it probably didn't cost the brand-name company more to make the shirt than it did for the non-branded company. Let's say it costs $35 to put that shirt together, all told.
At the end of the day, the brand-name company goes home with $40 in profit while the generic company only takes home $20.
But there's another factor at play here, too: It's also about who you are and how you see yourself. Advertisements characterize the product's qualities and they also paint a picture of who is likely to buy this kind of product.
Companies build brands that resonate with people's identities or their core beliefs. When people wear the "Save the Panda" T-shirt, they're identifying themselves with eco-issues.
They want to display that fact to the world. That makes them feel good or makes them feel greener.
People who see that shirt will think certain things about that shirt-wearer, and that will make the buyer feel good. When buyers feel good about the products they've selected, they are going to tell their friends or go back and buy the same item again.
That brings us back to companies and how word of mouth helps them — and their stocks.
So we recommend that you think about companies the same way you think about brands. Like buying a shirt based on quality and return on your money, you would also buy shares based on the quality of a company and likelihood of returned value.
And remember this: Solid brands make for solid companies.
So that's a brand — and by the way, we really do think we should save the pandas. They're so darn cute, aren't they?
Three Facts to Wow Your Friends at a Party
1) The value of the Coca-Cola (KO) brand — the iconic red-and-white can, the history, and the famous advertisements — is said to be worth more than the actual formula used to make Coke.
2) In 1988, Philip Morris purchased Kraft (KFT) for six times what the company was worth on paper because they felt what they were really purchasing was Kraft’s brand name.
3) There is an actual mathematical formula to calculate the value of a brand’s name.
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