LEVEL 2 GLOSSARY
-
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.
-
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.
-
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.
-
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!
-
Security
Basically, any contract representing ownership, such as stocks, bonds, options, swaps, notes, and futures. It says, "I OWN THIS"
-
Shares Outstanding
The total number of shares currently held by investors.
-
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.
-
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.
-
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
The Fair-Price Rating
What we'll learn:
1) What does the Fair-Price Rating tool do?
2) Why stocks can be rational or irrational
3) How to use the Fair-Price Rating
If you look on a WeSeed company page, you'll notice a little widget we call the Fair-Price Rating. It may look simple (and kind of like a horizontal traffic signal), but there's a lot going on behind the scenes.
In previous modules, we've talked about the number crunching that goes into all the reports and forecasts that Wall Street pros do on a day-to-day basis.
For the most part, we believe your time is better spent finding great ideas and trends in the real world. Besides, numbers are so boring, aren't they?
But we decided that, instead of just ignoring all these numbers, we would turn them into a nifty little tool that appears on each company page.
Here's what's cool about it: Our Fair-Price Rating tool is a good way to learn if a company's share price is roughly accurate. First, let's clarify one thing: If a company's rating is green, that DOES NOT mean you should "Go" buy the stock.
It just tells you whether the stock's price is reasonable or not.
OK, before we confuse you too much, let's use an example. Pretend you're at the grocery store, walking down the aisles.
The stock market is kind of like the grocery store — there are lots of things to choose from with lots of different prices. Imagine seeing a box of cereal marked at $350. That wouldn't seem right, would it?
Stocks are the same way. What the Fair-Price Rating tool does is take several numbers from a company's past — things like profits and how it reinvestments them — and crunches them.
It tries to use that data to see what a company will make in the foreseeable future, and it figures out a price range.
You'll notice the tool has different colors, one for each price range. If it's green, the tool thinks the stock is priced within the realm of reasonability. So if that box of cereal were priced anywhere from $2–$5, it would seem reasonable.
If it's yellow, that means the price is just outside the realm of reasonability. So if that cereal were $1 or $6, you might wonder if there is a sale going on or maybe something's just a little funky.
And then we have red. When something comes up red it means this price, according to the tool, is outside the realm of reasonability. That $350 price for a box of cereal? Yeah, that would get a red signal.
Again, remember this crucial fact: Nobody can forecast the market. Nobody. And our tool isn't telling you to go buy (or sell) a stock. It's just giving you an idea of what the numbers think is happening with the stock.
As for whether you want to own it or get rid of it — well, that's your call.
Three Facts to Wow Your Friends at a Party
1) There are thousands of "experts" telling you which stock to buy, but always remember this: There is no one standard formula for actually determining the ranking of a stock.
2) At the beginning of 2007, a share of Warren Buffett's Berkshire Hathaway (BRK.A) cost $107,200. Seem outrageous? You'd think differently if you'd bought it and watched it go up to $148,220 in December of that year.
3) According to the numbers Enron provided, that company would have received a green Fair-Price Rating. If they'd been honest, however, it would have received the reddest of of reds.
- Bookmark this page:
-
-
-
-
-
-
-
