Business English Vocabulary: The Stock MarketOn September 26, 2019 by Raul Dinwiddie
Hi again. I’m Adam. Welcome back to www.engvid.com.
Today we’re going to look at some business English, with an introduction to investing.
Now, what is investing? Investing is putting your money someplace with the hope that more
money will come back to you later. Okay? So it’s making money over time. Many ways to
do it, but today we’re going to look more specifically at the stock market. Now, before
we begin to look at the stock market, we need to know all the different words that you
will find in the stock market discussion. Of course, we have to look at “stocks”. So:
“stocks” and “shares”. Now, many people get confused: what is a stock? What is a share?
Realistically, these are basically the same thing, but subtle differences between the
two. So, when a company decides that it wants to make money, so it can expand its business,
it wants to raise capital. “Capital”, it’s a big word, there’s lots of meanings to it.
We’re going to look at that a different time. But for our case, “capital” means money. They
want to make money, they want to raise capital so they can grow their business. So what they
do is they sell stock. Stock is a partial ownership of the company. So when you buy
stock, you get a piece of paper, you get a certificate that says that you own part of
this company. And because you own part of the company, you have certain rights. You
can make… You can vote for changes, you can vote for things that
the company should do. Now, what is a share? A share is an equal piece
of the stock. So, for example, a company sells $100 worth of stock. That’s the full
amount of the ownership that the company makes available to the public. Now, this stock, this
total amount, they divide into 100 shares. Okay? So you buy as many shares as you want of
this stock. So because you have 100 shares, the full stock is $100. Each share is, of
course, $1. You buy 10 shares, that mean… That means you’re buying 10% of the available
stock. You’re buying $10 worth of shares. Now, you own stock, you own shares in the
company. In that case, it’s the same thing. Now, when you talk about stocks,
you can say: “I own stocks.” So let’s go to this word quickly: “portfolio”. Your
portfolio is the collection of your investments. You may have stocks, you may have mutual funds,
you may have bonds, you may have commodities, you may have real estate. You may have all
kinds of different investments. If part of your portfolio is stocks, you say: “I have some
stocks.” It means I can have five company’s stocks. But when you say: “I have shares”,
then you have shares of a company. Okay? I have stocks in 10 different companies. I have
shares… I have 10% or I have 100 shares in this company, I have 50 shares in that
company, I have 2,000 shares in that company. But all together, you have stock.
Okay? So it’s a total amount of
the companies that you own. Now, if you want to buy stocks or trade stocks,
if you want to buy and sell your shares, you can contact a “stockbroker”. Okay? A broker is
somebody who deals with trades; buys, sells stocks on the stock market. These days, you
can just go online and find a “brokerage” which is a website or a company that lets you
buy and sell your own stocks and shares. Okay. Next: we have “IPO”, this is “Initial Public
Offering”. Sorry I’m a little bit off line, here. When a company decides: “Okay, we need
to make more money. We need to raise capital. We need to sell some stock of our company.”
So the first time that they sell this stock, there’s a big event, you know, like it’s a
big promotion, they have to market it, they have to tell the public: “Look, we’re going to
sell stock. Get ready.” This is the initial public offering. The first time that they
sell stock. We actually don’t say: “Sell”. They don’t sell stock; they issue stock. And
then the stock brokerage or the stockbrokers, they buy and sell the stock. Next: “ROI”. This is a very important thing
to consider. “Return On Investment”. Before you buy anything, before you
invest your money in anything, you always have to
consider your ROI. How much money do you hope to get back? How
much money do you think you will get back? Because at the end of the day, a stock market
is a gamble. There’s high-risk and there’s low-risk companies. Your return on investment,
obviously, you’re hoping to make money. You hope to get a positive yield. A “yield” is basically the percentage gain
that you will make on your investment. So, how much did you get back? What was your yield?
Oh, 5%. It means if you sold… If you bought $100 worth, and then you sold it for $105,
your yield was 5%. Your return on investment was $5. Okay? So that’s how we talk about the
money that you make from your investment. Now, you can also buy “bonds”. Bonds are different
from stocks. A bond is a debt. You are buying a debt. Basically, what you are doing is you are
lending money to a company or the government. You can buy government bonds or corporate
bonds. And what you’re doing, you’re lending them money, and they guarantee you-the company
or the government-guarantee you a certain percentage of interest and a certain amount
of time. So if you buy a five-year bond at 7%, at the end of the five years, you get
your money back plus your 7% interest that you earned. So it’s guaranteed. It’s a bit
safer. We’re not going to talk about safe and unsafe, because there’s a lot of junk bonds,
there’s a lot of bad bonds. But generally speaking, bonds are very safe, but they’re
also… Have a low yield. Because they are guaranteed, the return is a bit lower. You
could make some investments with a very high yield, but very high risk. Okay? “Risk” means
the danger of losing, as opposed to gaining. Now, you can also buy “mutual funds”. A mutual
fund is a… Basically, it’s a company that manages your money. So you put money into
this mutual fund, the mutual fund manager will then take your money, plus this guy’s
money, and that guy’s money, and that woman’s money, and that lady’s money – he will take
all this money and he will buy what he thinks are good investments; stocks, bonds, commodities,
equities, all kinds of things into one group and everybody gets their share. Okay? So,
when the entire group of investments goes up, each member of the mutual fund gets his
or her return on investment, their yield. “Portfolio” we already
talked about. Now, when we’re talking about the actual stock
market, these days, there’s a lot of “volatility” in the stock market. Volatility is the sense
of excitement or nervousness that enters the equation. So people, they hear a bit of bad
news from this part of the world, they get nervous because they think that will affect
their stock, and they start selling all their stock. So their stock price or their shares
go down in value. So then other people, they say: “Oh my god, everybody’s selling this. I
better sell mine, too.” So they start selling. And then the smart people, they see: “Oh,
everybody’s selling. I’ll wait until it gets really low, and then I’ll start buying everything
for really cheap because I know it will go back up.” So volatility is more like the mood
of the investors. And people get scared, they sell. People are stay calm, they buy. Okay?
So it creates a lot of “fluctuation”. A lot of fluctuation in the market.
Fluctuation is the up and down movement. So stocks go up, they go down, they go up,
they go down. Something that is steady, goes up steadily or goes down steadily.
If it’s up and down, it fluctuates. Okay? This is a very good word
for all kinds of situations. Now, there are two types of market activity.
There is a “bear market” and there is a “bull market”. The easiest way to think about these
is to look at the animals themselves. A bear has claws, so when a bear uses his claws, he’s
pulling everything down. So a bear market is a market that is tending downwards, that
is losing value. A bull has horns, so when a bull uses its horns, it’s pushing things
up. So a bull market means the value of the market is going up. Usually it means there’s
a bit of a force, like something is making it go down, that’s the bear; something is
making it go up, that’s the bull. Something is pushing it up. Now, if you want to know how the markets are
doing, you could look at any specific “index” or “indices”. This is the plural of “index”.
Now, I know many of you have heard of the DOW Jones, or the NASDAQ, or the S&P 500, or
the TSX here in Toronto. These are indices. Okay? An index means that the stock market
took a group, a collection of companies… It’s not necessarily random; they have a reason
to choose these companies. But they look at all these companies, as a whole: are these
companies going up in value or are they going down in value? So if the index is trending up,
that means that the whole market is generally doing pretty well. If the index is going down,
that means the market is going down as well. This is… This gives you an idea of how the
market is trending. So in a bear market, the index will probably start moving down; in a bull
market, the index will start moving up. Okay. Now, if you’re a conservative investor, it
means you don’t like to take big risks. You want to put your money in, you want to be
sure money comes back. It doesn’t have to be big money, but it has to be more than what
you put in. So then you would buy “blue chip stocks”. A blue chicks… A blue chip stock
is owning stock in a company that is big, that is trusted, that has a long history of
doing well, of growing. For example, if you buy Microsoft or Apple, these are considered
blue chip stocks. Why? Because they’re big, they’re stable. Over the… If you look at
their history, they’re generally going up for a long time. You can be sure that they
will pay you a good return or that they will pay dividends. “Dividends” are when they have
the profits, they share the profits among all the stockholders. So, blue chip
companies generally pay good dividends. Lastly, we have “equity”. Equity is basically
what you owe… Own. Sorry. Not what you owe. What you own minus what you owe. Okay? So,
for example, if you own a house, every part of that house that you own is your equity.
If you have a mortgage, if you’re paying the bank every month to pay for your house, then
you take the full house, minus the mortgage, and whatever’s left over – that is yours.
You own it. That is your equity. So, when you own stocks, that’s part of your equity.
So it’s basically all your “net assets”. All your assets, everything you own, minus all
your liabilities, everything that you owe somebody; all your debt. Okay? So now that we know all these words, we can
start thinking about investing. And I say “thinking” because you want to be very, very,
very careful before you put your money somewhere. A stock market is not that much different
from a casino. Okay? You can gain a lot of money; you can lose a lot of money. Find out
what you need to know, do a lot of research about the company you want to invest in, do a
lot of research about the mutual fund manager. Is he or she good at what they do?
Do they have a history of success? Then invest your money. If you want to test your knowledge of these
words, go to www.engvid.com. There’s a quiz there that you can try out. Ask questions in
the comments section. And, of course, don’t forget to subscribe to my YouTube
channel, and come see us again. Bye.