Investor Glossary
The key terms of investing, explained in plain language. Terms that deserve more link into the academy.
Balance sheet
The balance sheet is a snapshot of a company's finances on a specific day: on one side assets (what the company owns), on the other liabilities and equity (how it is financed). The two sides always balance. It reveals to an investor the company's indebtedness, cash reserves, and financial resilience. Unlike the income statement, it does not describe a period but the state at a single moment.
More in the academyBear market
A bear market is an extended period of falling prices, usually defined as a decline of at least 20% from the peak. It is accompanied by pessimism and often by a worsening economy. It is a historical part of stock investing - broad markets have gone through it repeatedly and have so far recovered from every one, though sometimes only after years. The costliest mistake retail investors make is panic selling near the bottom.
Benchmark
A benchmark is the yardstick against which the performance of an investment or portfolio is compared - typically a stock index such as the S&P 500. Without a benchmark, a return says little: the same gain is excellent in a year when the market fell and weak in a year when it rose sharply. Comparisons should be made against a comparable market and over longer periods, not month by month.
Beta
Beta measures how sensitively a stock moves relative to the overall market. A beta of 1 means moving roughly with the market, a value above 1 means bigger swings in both directions, and a value below 1 means calmer behavior. It is calculated from historical data, so it describes the past, not the future. Investors use it as a rough measure of a stock's market risk and when constructing a portfolio.
More in the academyBlue chip
Blue chip is a label for the stocks of large, established, financially stable companies with a long history - typically the leaders of their industries. Investors see them as the more conservative part of the stock market: they tend to be less volatile and often pay dividends. But even a blue chip is no guarantee - an established company can lose its position and its stock can decline for years.
Bond
A bond is a loan that an investor provides to a government or a company. The issuer commits to paying an agreed interest rate (the coupon) and to repaying the borrowed amount at maturity. A bondholder is a creditor, not a co-owner - the return is fixed in advance, but they do not share in the company's profits. The main risks are the issuer failing to pay and movements in interest rates, which change the bond's market price.
More in the academyBroker
A broker is a licensed intermediary through whom you buy and sell securities - a retail investor cannot reach the exchange directly. The broker maintains your investment account, forwards your orders to the exchange, and keeps records of the shares you buy, which remain your property. Brokers differ in fees, market offerings, and regulation; in the EU they are supervised and must hold client assets separately from their own.
More in the academyBull market
A bull market is an extended period of rising stock prices, usually accompanied by economic optimism. Its start is commonly defined as a 20% rise from the bottom. Historically, bull markets have lasted longer than bear markets and their gains have generally exceeded the preceding declines. The risk for investors is paradoxical: a long rally tempts them into believing prices will rise forever.
Buyback (share repurchase)
A buyback is a company repurchasing its own shares on the market. The repurchased shares are usually retired from circulation, so the profit is split among fewer shares and each shareholder's stake grows. It is an alternative to dividends as a way of returning money to shareholders. It makes sense mainly when the company buys its own shares cheaply - buybacks at inflated prices destroy value instead.
More in the academyCash flow statement
The cash flow statement captures the actual movements of money over a period, divided into operating, investing, and financing activities. It complements the income statement: profit is an accounting construct, while cash flow shows how much money really flowed through the company. A company can report a profit and still run out of cash - which is why experienced investors watch both statements.
More in the academyCompound interest
Compound interest means that returns are added to the principal and go on to earn returns themselves - so earlier gains earn money too, not just the original deposit. The effect is subtle at first, but growth accelerates over time, which is why the length of investing matters so much. With stocks, the same principle works through reinvesting dividends and the growth in the value of companies.
More in the academyCorrection
A correction is a decline of roughly 10 to 20% in a market or a stock from a recent peak. It is milder and usually shorter than a bear market and appears fairly often on stock markets, even in the middle of a long-term rise. For a long-term investor it is a normal part of investing, not an exceptional event - the portfolio should be built to withstand it.
DCA (dollar-cost averaging)
DCA (dollar-cost averaging) means investing a fixed amount at regular intervals regardless of the current price. When the market is down you buy more shares, when it is up, fewer - your purchase price averages out. The main advantage is discipline: it removes the decision of when the right moment to buy is, and with it the risk of waiting forever for the perfect opportunity.
More in the academyDiversification
Diversification means spreading investments across multiple stocks, sectors, regions, and asset classes so that the failure of one position does not endanger the whole portfolio. It reduces the risk tied to a specific company without necessarily lowering long-term returns. It does not, however, protect against a decline of the entire market. The simplest route to broad diversification is usually index funds and ETFs.
More in the academyDividend
A dividend is the portion of profit a company pays out to shareholders, usually quarterly or annually. You receive the same amount for every share you hold. Paying one is not mandatory - the company decides the amount and can reduce or cancel it at any time. Young, growing companies often pay no dividend at all, preferring to reinvest profits into further growth.
More in the academyDividend reinvestment (DRIP)
Dividend reinvestment means that instead of spending the dividends you receive, you use them to buy more shares. This engages compound interest: the new shares generate further dividends and the effect strengthens over time. Some brokers and funds offer automatic reinvestment through DRIP (dividend reinvestment plan) programs. Dividends are generally still subject to tax even when you reinvest them right away.
More in the academyDividend trap
A dividend trap is a stock that lures investors with an exceptionally high dividend yield that is not sustainable over the long term. The high percentage often resulted from a share price collapse caused by the company's troubles, not from generosity. When the company then cuts or cancels the dividend, the investor loses both the payout and the value of the stock. The defense is checking the payout ratio, indebtedness, and earnings stability.
More in the academyDividend yield
The dividend yield tells you what percentage of the current share price you receive annually in dividends. It is calculated as the annual dividend divided by the share price. It helps compare payouts of companies with differently priced shares. Read it with care: an unusually high yield often signals not generosity but a slump in the share price - the market doubts the company can sustain the payout.
More in the academyEPS (earnings per share)
EPS (earnings per share) is a company's net profit divided by the number of shares - how much profit falls on a single share. It is the basis of the P/E ratio and one of the most watched items in earnings reports: the market reacts mainly to whether EPS beat expectations. EPS growth can come from higher profits, but also from buybacks, which reduce the number of shares outstanding.
More in the academyETF
An ETF (Exchange Traded Fund) is a fund traded on an exchange like an ordinary stock. With a single purchase you get a stake in a whole basket of assets - typically the stocks of an entire index. Most ETFs passively track an index and charge low ongoing fees. The price moves throughout trading hours, so you can buy or sell an ETF at any time the exchange is open.
More in the academyEV/EBITDA
EV/EBITDA compares the value of the whole company including debt (enterprise value) with operating profit before depreciation, interest, and taxes. Unlike P/E, it accounts for indebtedness, so it compares companies with different capital structures better; it is often used in valuing acquisitions. The lower the value, the more cheaply the market prices the company relative to its operating performance.
More in the academyEx-dividend date
The ex-dividend date is the first day a stock trades without the right to the upcoming dividend. To receive the dividend, you must own the stock before that day; buying on the ex-dividend date is no longer enough. The share price typically drops by roughly the amount of the dividend on that day - so buying just before it earns you nothing by itself.
More in the academyFree cash flow
Free cash flow is the money from operations left over after the necessary investments in assets. It is what the company can use to pay dividends, buy back shares, or repay debt without borrowing. It is considered a more honest measure of performance than accounting profit because it is harder to dress up. Persistently negative free cash flow means the company is consuming more money than it earns.
More in the academyFundamental analysis
Fundamental analysis evaluates a stock based on the company's business: revenue, profits, indebtedness, competitive position, and industry outlook. The goal is to estimate the company's true value and compare it with the market price. It rests on financial statements and valuation ratios such as P/E or EV/EBITDA. Its counterpart is technical analysis, which studies only the movement of prices and trading volumes.
More in the academyIncome statement
The income statement (profit and loss statement) shows a company's performance over a period: revenue, costs, and the resulting profit or loss. It is read from top to bottom - from revenue through gross and operating profit down to net profit. It tells an investor whether the company makes money and how its margins are developing. But profit is an accounting figure; the actual movement of cash is captured only by the cash flow statement.
More in the academyIndex fund
An index fund does not pick individual stocks; instead it replicates the composition of a chosen index, such as the S&P 500. The goal is not to beat the market but to capture its return at the lowest possible cost. Thanks to passive management, its fees tend to be significantly lower than those of actively managed funds. It exists both as a classic mutual fund and as an exchange-traded ETF.
More in the academyInflation
Inflation is the rise in the price level that causes money to lose purchasing power over time - the same amount buys you less. For an investor it is the fundamental benchmark: the real return is what remains after subtracting inflation. Cash and low-interest deposits are eroded by inflation over the long run, which is one of the main reasons to invest at all.
More in the academyIntrinsic value
Intrinsic value is an estimate of a company's true worth based on its business performance - typically on future earnings or cash flows - independent of the current price on the exchange. The market price fluctuates around it: sometimes above, sometimes below. Comparing price with intrinsic value is the core of value investing. But it is always an estimate built on assumptions, not an exact number.
More in the academyInvestment horizon
The investment horizon is the length of time you plan to keep your money invested before you need it. It is one of the most important parameters in investing: the longer the horizon, the bigger the swings you can afford to ride out and the more sense stocks make. Money you will need within a few years does not belong in stocks - a short horizon gives the market no time to recover from a downturn.
More in the academyIPO
An IPO (initial public offering) is the first public offering of shares, through which a company enters the stock exchange. The company sells shares to investors and raises capital; from that moment its shares trade freely. For investors, an IPO tends to be tempting but risky: there is little public history of the company yet, and the price after the listing can swing sharply in both directions.
Limit order
A limit order is an instruction to buy or sell only at a specified price or better. When buying, you set the maximum you are willing to pay; when selling, the minimum you want to receive. This gives you control over the price, but execution is not guaranteed - if the market never reaches your limit, the order remains unfilled or expires.
More in the academyLiquidity
Liquidity expresses how quickly an asset can be bought or sold without affecting its price. Shares of large companies trade in enormous volumes - you can sell them in an instant at a price close to the last quote. With illiquid names, a sale can take longer and push the price down, and the spread tends to be wider. Liquidity is therefore one of the risks worth considering before you buy.
Margin
Margin shows what percentage of revenue remains with the company as profit. It is tracked at several levels - gross, operating, and net margin - depending on which costs have already been deducted. High and stable margins suggest a strong market position and pricing power. Comparisons make sense mainly within the same industry; a retail chain and a software company operate in different orders of magnitude.
More in the academyMarket capitalization
Market capitalization is the total value of a company on the exchange: the share price times the number of shares outstanding. It shows how big the market considers a company to be - it is what divides companies into large caps, mid caps, and small caps. The share price alone says nothing about a company's size; a $10 stock can belong to a bigger company than a $1,000 stock.
Market order
A market order is an instruction to buy or sell immediately at the best price available on the market. It executes almost instantly, but you do not know the exact price in advance - for illiquid stocks or during sharp moves, it can differ noticeably from the last quoted price. It is suitable for liquid stocks where the gap between bid and ask is small.
More in the academyMarket timing
Market timing is the attempt to buy before a rise and sell before a fall. It looks tempting, but over the long term not even professionals manage it reliably - it requires being right twice, both when selling and when returning to the market. Those who wait for the bottom on the sidelines often miss the strongest days of growth, which arrive unexpectedly. The alternative is regular investing regardless of the current mood.
More in the academyMutual fund
A mutual fund pools money from many investors, and the manager uses it to buy stocks, bonds, or other assets. Investors hold fund units whose value tracks the fund's assets. Unlike an ETF, it is not traded on an exchange - purchases and redemptions go through the management company, usually once a day. It tends to be actively managed and its management fees are usually higher than those of an index ETF.
More in the academyP/B (Price-to-Book)
P/B compares the market price of a share with the book value of equity per share. A value below 1 means the market values the company below its accounting value - it may be an opportunity, but also a signal of trouble. The ratio works best for banks and capital-intensive industries; for companies whose value rests on brand and know-how, it says little.
More in the academyP/E (Price-to-Earnings)
P/E compares the share price with annual earnings per share - it tells you how many times the annual profit you are paying for the company. A low P/E may mean a cheap stock, but also justified market concerns; a high P/E, in turn, reflects expectations of rapid growth. It is most informative when compared with competitors and with the company's own history. For loss-making companies, P/E cannot be calculated.
More in the academyP/S (Price-to-Sales)
P/S compares a company's market capitalization with its annual revenue. It is useful where P/E fails - for companies that are not yet profitable but are growing. Revenue is also harder to dress up in the accounts than profit. It says nothing about profitability, though: a company with a low P/S and a persistently loss-making business is not necessarily cheap.
More in the academyPayout ratio
The payout ratio shows what portion of its profit a company pays out in dividends. A ratio around 40% means the company distributes 40% of its profit and keeps the rest for investments and reserves. The higher the ratio, the less room for dividend growth and the greater the risk of a cut when profits fall. Values above 100% mean the company is paying out more than it earns - which cannot be sustained in the long run.
More in the academyPortfolio
A portfolio is the sum of all the investments you own - stocks, ETFs, bonds, cash, and other assets. The important thing is to view it as a whole: the outcome is determined by the composition of the entire portfolio, not the fate of a single stock. The balance between riskier and more conservative components should match your investment horizon and risk tolerance.
ROE (return on equity)
ROE (return on equity) measures how much net profit a company generates from each unit of shareholders' equity. A high ROE suggests the company can put capital to work efficiently. Watch out for debt, though: leverage optically shrinks equity, so ROE can be high even at a riskily financed company. That is why it is read together with the level of indebtedness.
More in the academyROIC (return on invested capital)
ROIC (return on invested capital) measures how much after-tax operating profit a company generates from all invested capital - both equity and debt. Unlike ROE, it cannot be improved by taking on more debt, which is why it is considered a more honest measure of business quality. A company creates value when its ROIC exceeds its cost of capital over the long term.
More in the academySpread
The spread is the difference between the lowest price someone is willing to sell at (the ask) and the highest price someone is willing to pay (the bid). It is a hidden cost of trading: whoever buys and immediately sells loses the spread. For large liquid stocks it tends to be minimal; for small, thinly traded names it can be a noticeable expense.
More in the academyStock
A stock is an ownership stake in a company. Whoever buys it becomes a shareholder - a co-owner with a share of the profits, voting rights, and a claim on the company's assets. The share price is set on the exchange by the interplay of supply and demand, which is why it fluctuates constantly. Unlike a bond, it carries no promised return - a shareholder is an owner, not a creditor.
More in the academyStock exchange
A stock exchange is an organized marketplace where the orders of buyers and sellers of stocks and other securities are matched. It buys nothing itself - it provides the rules, the execution of trades, and price formation. The best known include the New York-based NYSE and Nasdaq. Trading takes place only during fixed trading hours, and a retail investor reaches the exchange through a broker, who forwards their orders there.
More in the academyStock index
A stock index measures the performance of a selected group of stocks with a single number - for example, the S&P 500 tracks roughly 500 large US companies. It serves as a thermometer of the market and a yardstick against which investors compare their own results. An index cannot be bought directly, it is just a calculation; you can invest in it through index funds and ETFs that replicate its composition.
Stock split
A stock split divides each share into multiple pieces - at a 4:1 ratio you get four shares for each one, each at a quarter of the price. The value of your investment and of the company does not change; only the number and price of the pieces do. Companies split their stock mainly to keep the per-share price accessible to retail investors. The opposite move is a reverse split, which reduces the number of shares.
TER (Total Expense Ratio)
TER is the total annual cost of a fund or ETF expressed as a percentage of assets. It is deducted continuously from the fund's value; you never receive an invoice - the fee quietly reduces performance. Over a long horizon even tenths of a percent matter: the fee recurs every year and eats into compounding. For passive ETFs, a low TER is one of the main selection criteria.
More in the academyTicker
A ticker is a short code of a few letters that uniquely identifies a stock on an exchange - for example, AAPL for Apple. You use the ticker to find the stock at your broker, in the news, and in screeners. The same company may have different tickers on different exchanges, and the same code may belong to a different company elsewhere - which is why the exchange is listed alongside the ticker.
More in the academyVolatility
Volatility measures how strongly an asset's price fluctuates over time. A highly volatile stock can jump several percent in either direction in a single day, while stable names move less. Volatility is not the same as loss - it is a normal feature of a functioning market and the price paid for the higher expected return of stocks. It becomes a problem mainly when it forces panic selling or when the investment horizon is short.
More in the academy