300+ Commonly Used Abbreviations Related To Stock Market

Over the long run, stocks have beaten the performance of any other major asset class by a wide margin. Since 1926, stocks have returned nearly 10% per year, on average. Note that this 89-year span includes numerous wars, recessions and the Great Depression. It also includes the severe decline in stock prices from late 2007 to early 2009, a period that overlaps what some call the Great Recession.

Stocks have proved their worth and deserve a prominent place in any long-term investment plan, such as a retirement account. But because stocks are volatile—which means that by their nature, their value rises and falls—invest in them with caution. Ideally, stocks should be held to meet medium- and long term goals.

In other words, money invested in stocks should not be money that you might need in three to five years. Stocks tend to deliver handsome returns over the long run, but volatile markets may not cooperate with your short-term cash needs.

Different Flavors of Stocks

Growth stocks are shares of companies with the potential to consistently generate above-average revenues and profit growth. These companies tend to reinvest most or all of their earnings in their businesses and pay out little or none of their profits to shareholders in the form of dividends. Growth companies expand faster than the overall economy, yet you can sometimes find these companies in mature industries. Note that even fast-growing companies are not necessarily good investments if their shares are overvalued.

Cyclical stocks are shares of companies whose sales and earnings are highly sensitive to the ups and downs of the economy. When the economy is performing well, cyclical companies tend to shine. A contracting economy typically hammers the sales and profits of these companies and hurts their stocks. Cyclical industries include manufacturers of steel, automobiles and chemicals, airlines and homebuilders.

Defensive stocks describe shares of companies whose sales of goods and services tend to hold up well even during economic downturns. Examples of industries that are substantially insulated from the business cycle are utilities, government contractors and producers of basic consumer products, such as food, beverages and pharmaceuticals.

Income stocks pay out a relatively high ratio of their earnings in the form of dividends. The companies that issue them tend to be mature and have limited opportunities for reinvesting their profits into moreattractive opportunities. Example: many utilities. Stocks that pay large dividends are usually less volatile because investors regularly receive cash dividends, regardless of market gyrations.

Value stocks describe stocks that are cheap in relation to fundamental measures such as profits, sales, cash flow or the value of a company’s assets.

Small-company stocks have generated better returns over time than stocks of large companies. Young, small companies tend to grow faster than their larger brethren. But there’s a trade-off: Small-company stocks are much more volatile than shares of big companies. There are a number of ways of defining what constitutes a small company. By one common definition, a small company is one with a stock-market capitalization of $1 billion or less (market capitalization is a company’s stock price multiplied by the number of shares outstanding).

Suggested Read: 50 Golden Rules of Investment and Trading

Foreign stocks add valuable diversification to a purely domestic stock portfolio. That’s because U.S. and foreign stock markets don’t always move in tandem. Foreign stocks provide exposure to overseas currencies, economies and business cycles. Overseas stocks are divided into two subsets: developed markets (such as Western Europe, Japan and Canada) and faster-growing emerging markets (China, India and Brazil, to name a few).

Below is the list of most commonly used abbreviations or terms related to Stock Market.

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