Wall Street Terms for Investors INTRO: Daily we are exposed to information about investing, much of it centered on stock market activity. Wall Street seems to have a language of its own. We’ve compiled a short list of investment terms and certified financial planner Bruce Hagan is here to give us some explanations. Q1: I recently heard an analyst mention systematic risk. What does that mean? A1: Systematic risk is risk that exists even with diversification. It consists of risks that affect the overall market (or system) such as interest rate movements, political events, tax law changes, currency fluctuations, etc. This contrasts with unsystematic risk which are more company-specific risks, such as a company’s management or products. With a properly diversified stock portfolio, unsystematic risk can be almost eliminated, but systematic risks cannot. Q2: The word beta. What does that refer to? A2: Beta is a statistical measure of relative risk of a stock; the beta of the overall stock market is considered to be 1.0. A less volatile stock would generally have a beta lower than 1.0. Q3: Defensive stock? A3: A defensive stock is one in an industry whose performance tends to be relatively insensitive to economic activity; for instance, if the economy declines, people will still buy bread, but they may not buy a new car; so a bakery stock would be considered a defensive stock. Q4: P/E Ratio? A4: P/E means price/earnings ratio and is the market value of a stock times its earnings. For example, a company earning $2 per share annually and trading at a price of $24 would have a P/E of 12. This would be used as a valuation measure to compare with other companies within the same business sector. Q5: Prospectus? A5: A document prepared and filed with the SEC by an issuer of securities before those securities can be initially offered for sale to the public. It discloses a great deal of information about the issuing company, including any apparent risks. The SEC can prevent issuance if they find obvious discrepancies, but allowing it to go public does not imply their approval as an investment. Q6: Short sale? A6: An investor sells stock borrowed from a brokerage firm with the expectation of buying back shares at a lower price. Not for everyone. Q7: The phrase, "Dead Cat Bounce"? A7: One of Wall Street’s morbid rationales for a short-lived rally in a declining market. Someone once said sarcastically that even a dead cat will bounce if you drop it hard enough form high enough! The discussion offered above and in the movie should not be considered an endorsement by Florida State University. They are offered in the educational sense of providing thought-provoking information for our Web audience. Copyright shared with Florida News Channel (FNC), all rights reserved. Broadcast 1/5/99