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
Movies by Mail
So you're in on the stock market now. Congratulations, high roller! But now you're looking at shares of your companies, and you're about to get whiplash because they're going up and down so much.
It's hard to do, but don't pay too much attention to the day-to-day price fluctuations — that's not what will move numbers over the long term.
Here's an example: You like movies, right? Not long after Netflix (NFLX) went public in 2002, you could've bought a share for a little over $3. But by April 2009, a share cost almost $50. How did it get there? The short answer: Over time, people realized it was an interesting company and it moved up.
And if you took the WeSeed approach, you would have noticed that people were spending more on home-theater equipment and renting flicks rather than going to movie theaters. You probably saw your neighbors and friends carrying around those red-and-white envelopes. Easy-peasy.
But as you know, there's more to the story. (Isn't there always?) Earnings played a role here, as did information about the company's earnings. For instance, in April 2008, the company released earnings that were below what people had expected. Alas, the stock went down: from $39 to $34.
So the April 2008 earnings weren't great, but many people thought the company still had good long-term prospects, so they decided to hold on to the stock. Netflix released earnings twice more over the next year, and the stock stayed fairly stable.
Then October 2008 came around, and well... not too many companies did well. Bad news about the economy was all over the headlines, which had people worried about companies' abilities to sell their products — Netflix included. And so a lot of other companies saw their stock go down — Netflix included.
The company released earnings again in January 2009, and lo — this time they were better than expected, and the stock went from $30 to $33.
So while individual announcements from a company, like earnings, can move a stock on a specific day, what's important to the long-term movement of the stock is how the company is doing overall. Are their products popular and selling well? Is it solid?
The bottom line: Netflix has had some ups and downs here and there, but in the end, it's a solid company with a good, well-executed idea — and its share price reflects that.
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