Finance Glossary

  A stock split (or forward stock split) occurs when a company decides to divide existing shares into multiple shares. The split can occur in many different ratios, but the most common are 2-for-1 and 3-for-1. During a forward split, the number of shares increases by a specified multiple, while the total price of the […]

The SEC currently defines a penny stock as any stock with shares trading below $5.00. However, since major companies sometimes offer stock for low amounts due to market capitalization, a common working definition of a penny stock is a stock with shares trading below $3.00 outside of a major exchange. They are often traded over-the-counter […]

  In the current stock market, FANG is an acronym referring to four high-performing tech companies consisting of Facebook, Amazon, Netflix, and Google (which is now officially Alphabet, Inc.). The acronym was devised by CNBC Mad Money host Jim Kramer. All four of these stock are known for high returns for investors. They are traded on […]

      A correction is a reversal in a stock, bond, commodity or index of 10% or more. This reversal usually takes the form of a negative movement preceded by an upward trend. The correction occurs because stocks are overvalued, and eventually investors cash in and sell stock until the price returns to a realistic […]

In investments, fading refers to a strategy than runs counter to the current prevailing trend or wisdom. As such, it comes with a high amount of risk, and is only appropriate for investors with high risk tolerance. When the majority is selling, the fade investor will be buying; and when everyone else is buying, the fade investor […]

Earnings per share (EPS) refers to amount of a company’s profit associated tied to each outstanding share in the stock market. It is calculated by taking a company’s net income, subtracting preferred dividends, and dividing the difference by the number of shares, or: EPS =  (Net Income  –  Preferred Dividends) / Average number of shares […]

  Market efficiency is the degree to which the market reflects all available, relevant information. The concept of market efficiency was popularized in the 1970s by economist Eugene Fama. According to Fama’s efficient market hypothesis (EMH), stock prices and prices of other securities have a close relationship to all available information relevant to the market […]

  A bid-ask spread for a stock is the difference between the ask price offered by the seller and the bid price offered by the buyer. It is also called simply the “bid-ask” or the “sell spread.” To give an example, a seller might ask $5 for a stock, while the buyer bids only $4. The […]

Yield curves are used to plot the interest rates of different bonds at a particular point in time. In order for bonds to be compared using a yield curve, the must have equal credit quality (or bond ratings), but different maturity dates. The X-axis corresponds to the maturity dates, while the Y-axis corresponds to the […]

  In a previous blog, we discussed strategies of asset allocation. One important way to maintain a proper allocation of assets is through the tool of rebalancing.   Rebalancing is the practice of buying or selling assets in order to maintain a particular proportion of asset allocation in a portfolio. For instance, let’s say I want […]