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
Imitate the Oracle of Omaha
So that's the thing about Warren Buffett: The guy makes serious money. He started out as a newspaper delivery boy, and he's now worth roughly a kajillion dollars.
How did he do this? He has a few rules, and one of them is that he has to understand a business before he invests in it. Simple enough, right?
It's kind of like WeSeed and investing in what you know, but we don't want to toot our own horn too much.
Anyway, if there was one thing Warren knew back in the day, it was Coca-Cola (KO). He drank the stuff like it was water. Turns out he wasn't just hooked on the drink — he was also hooked on the stock.
You see, Buffett realized the economics behind Coke were really good. Here was this company that basically mixed cheap syrup with water. They took this concoction and sold it at a huge profit to thirsty people who were as hooked as he was.
Warren also trusted the CEO and the people running the company, and let's not forget about price: Buffett won't compromise on that. If a price is too high, he stays away.
But according to his math, this was a good buy. So he took action.
Buffett started buying stock in Coca-Cola in 1988, when its stock was around $5. Today it's up over $40, and he eventually bought seven percent of the company's outstanding shares. Well, let's just say Coca-Cola did pretty well for Mr. Buffett.
In other words, investing like him is not a bad idea — especially if you're starting out. And if you're feeling lazy and don't feel like doing all this work, then you can just buy stock in his company, Berkshire Hathaway (BRK.A, BRK.B).
But what's the fun in that?
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