LEVEL 2 GLOSSARY
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Balance Sheet
This financial statement tells you if the company is in the black (good) or red (bad). The statement details the good, the bad, and the ugly of the company's liabilities, assets and shareholders??? equity. One rule to remember here is a company's assets = liabilities + shareholders' equity.
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Book value
Theoretically, it’s what a shareholder would receive if the company were liquidated or sold for cash today. As we all know, the books don't always reflect the reality.
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Income Statement
One of the three common financial statements that is basically the company's quarterly budget. This is how much the company made and how much it spent, the bottom line (literally) being the profits left over.
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Market maker
A brokerage firm that is willing to sell you a stock (at the bid price) or buy one back from you (the ask price). They play both sides and make money off of each. Brilliant!
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Security
Basically, any contract representing ownership, such as stocks, bonds, options, swaps, notes, and futures. It says, "I OWN THIS"
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Shares Outstanding
The total number of shares currently held by investors.
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Statement of Cash Flows
Do you balance your check book? So do companies, and this is what it looks like. This is one of the three common financial statements compiled by a company. It shows how the company generated cash and where it spent it.
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Value Investing
An investment strategy that relies on picking stocks that are undervalued by the market and hoping that the market catches up at some point.
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Annual report
This report airs the company's dirty laundry with the freshest spin possible. They tell you what happened last year and what the financials look like all in one place, they can usually be found filed with the SEC or on the company website. Companies are required by law to put these out, but don't get fooled by the pretty pictures???the bad stuff is in there too.
See full glossary
In Level 2, we'll take you a little deeper into the trading world. Like in Level 1, there are a series of concepts that you should master before taking the Level 2 quiz. Remember to click the "Mastered this concept?" link at the bottom of the page to keep track of your progress in your Report Card.
- Invest in what you know
- Working at the stock market
- Price of stock
- What affects share price?
- Judging a stock
- The Fair-Price Rating
- Shares outstanding
- Where to learn about a company
- Growth investing
- Value investing
- Invest like Buffett
- The government's role
- LEVEL 2 QUIZ
Cup of Joe
So you're on your way to work, and you're feeling kind of bleary. What do you want? A hot cup of coffee. What's the first company that comes to mind? We're guessing Starbucks (SBUX).
Seems too obvious to invest in? Well, it might be now, since the company's fallen on some hard times recently. But for a while it would have been the classic case of investing in what you know.
Starbucks essentially created its own category, although it was consciously modeled after the European café. But it went beyond this to provide excellent coffee at thousands of small shops scattered in the path of commuters in big cities and along shopping streets all over the country.
Eventually, Starbucks opened larger stores with comfortable furniture and an atmosphere that encouraged customers to linger. It wasn't unusual to see businesspeople holding meetings, students studying, or mothers hanging out with their children and friends in a smoke-free environment.
It's a great example of putting your money into something you see, know, and probably love. Even if you're tired of paying $3.50 for all those darned lattes, you keep doing it... and that should tell you something!
Someone who had enough foresight to buy one share of SBUX when it was first made public in 1992 would now own 32 shares. Why? Because the stock's success led to five "two for one" splits. This savvy investor would have seen his initial outlay grow more than 50 times its original amount.
But you have to look beyond what's popular and check out some other factors. Like, what made Starbucks different? There have been many restaurant flameouts, like Victoria Station and Boston Market.
Some businesses in "trendy" industries like restaurants, clothing, and entertainment can be pretty flighty.
Just ask Wall Street — they've lost tons of money chasing after them.
But not Starbucks. Successful companies like the coffee giant follow a pattern. It looks something like this:
Lead the way: Starbucks appeared right when when millions were abandoning the traditional workplace for freelance or telecommute-friendly jobs — or just bailing on the office for informal productive time.
Be disruptive: Some industries just plain need to change. Before Starbucks, you had to drink alcohol or buy a full meal to hang out somewhere. Just like the home-improvement industry 20 years ago: Before Home Depot (HD), you had to go to a lumberyard between 8a.m.–5p.m. on Monday through Friday, or Saturday morning, to buy your wood. When you got there, you'd pay full price and likely not find what you wanted anyway.
Create a strong brand: Great new companies sometimes put strong brands on things that had weak brands or none at all. Can you think of any coffee shop with a recognizable brand name before Starbucks? Probably not. Think of McDonald's (MCD), Tiffany (TIF), iPod, Google (GOOG), or Red Bull. You can see these brands coming a mile away.
But you could see what was happening with this company because you drank the coffee every morning. You saw how packed it was. You knew people were hooked on Starbucks. So if you'd followed your eyes, you would have done pretty well.
And that's the idea behind WeSeed — to use the things you know about and experience every day to wade into this thing called the stock market.
Don't worry, we'll be with you every step of the way.
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