Stock Talk for Novices

[IslandGuy]

I'm doing some interesting reading on getting into the stock market and just thought we could help each other out with some of the phrases used on the stock market, especially for novices like me.

One I found kind of funny was Dead Cat Bounce. Here's what it means:

Dead Cat Bounce is kind of like a rally of a stock on a fast decline, which I gather typically occurs. Some investors see the rally and think the worst of the drop is over, so they buy stock, only to see it eventually hit bottom.

Kind of gruesome, but it comes from what would happen if you dropped a dead cat -- it would bounce up some, but inevitably hit the ground again.

(Hope I got this right ... still a newbie to this stuff)

 

[Mirage]

That's funny. Probably the main phrases used to describe an up or a down market are Bull or Bear.

If it's a Bull market, it's expected to go up.

If it's a Bear market, it's expected to go down.

The reasoning behind these names is because of a type of bull fight that was common in Mexico at one time. A bull would be put in the ring as well as a bear, and they would fight eachother to the death. If the bull won, it was because it thrust it's horns upwards into the bear. If the bear won, it was because it came down on top of the bull.

So if somebody says a stock is bullish, they think it is going to go up, and vise versa.

 

[softwarewiz]

Hey, I found one that's funny too

Teenager - means a stock that used to trade at a nice price but has now fallen back into the teens, price-wise.

Not a happy time for stock owners I gather to have their stock become a teenager ... kind of like the stage parents have to put up with too

Nice story about how the terms "bear" and "bull" market came into being. Those are 2 terms I already did know, but not the reason behind them. Thanks ... will make for good conversation while "networking" at meetings on the job!

 

[softwarewiz]

Could someone explain what a "reverse stock split" is to me?

It seems that one of the search engines called LookSmart is about to do this because NASDAQ has claimed that their stock is worth less than $1 per share (they're appealing that ruling) and so is going to delist them.

Just was wondering because I try to keep up on internet news and didn't understand what exactly was going on. Here's a link to the press release if that helps http://www.shareholder.com/looksmart/releaseDetail.cfm?ReleaseID=176564

 

[MenInTights]

Something that you want to avoid like the plague.

First, lets go over market cap. You've got a stock with 1 million shares and the price of the stock is $10. Their market cap is $10M. $ mltiplied by shares outstanding. Hold that thought.

Next, lets go over splits. You own 10 shares of GOOG at $300. $3000 investment right? GOOG decides that they want to split their stock 2 for 1. they will do this to increase # of shares and also to lessen the phycological barrier of a $300 stock. So, one day you wake up and you have 20 shares of GOOG at $150. Notice your investment stays the same. Similarly, GOOG's market cap is still arond $85B. There are twice as many shares at half the price.

In a reverse split, well, the reverse happens. Lets stick with GOOG. They do a 1 for 2 reverse split. You wake up one day and you have 5 shares at $600. This happens all the time with small caps. They will dilute, dilute, dilute and then reverse split to stay above $1. Reverse splits are never good as the stock almost always falls like a brick after the split.
So, you have 20000 shares at .10, they do a reverse split and you have 200 shares at $1. A week later, you have 200 shares at .50. I have never seen a R/S go well.

 

[MenInTights]

well, I wanted to append my message, but I'm too late. I've said it somewhere before on the site and I'll say it again, www.investopedia.com. Good place to learn what this stuff means. They can probably explain it better than I can.

 

[softwarewiz]

Thanks Spence for taking the time to explain that to me. It didn't sound good to me since I may not know a lot of stock talk just yet, but if they're trying to get their stock above a dollar and this "reverse split" will do this, it sounds like somehow your investment is going to be devalued in some way, even if on paper it may appear to be the same "value".

Yeah, I know I could go to the site you mentioned and probably should, but I'd like to hear from someone who has actually done that kind of a deal or knows people who have to see what the reality of the definition is. Well, one thing I know for sure now is, thanks to you, I won't be suggesting to any of my friends who actually have enough money to invest in stocks right now to look into the LookSmart deal ... doesn't "look smart" at all yeah, I know, horrible joke.

 

[MenInTights]

I hear ya. Investopedia will probably not include the phrase "avoid it like the plague". I guess it could be a positive for a company, but it is percieved as such a negative that the stock always goes down afterward. Just as a stock split should be a non-issue, but it is precieved as such as positive that the stock normally rises after the split. There is an investment style of buying nothing but stock that has gone through a split and holding the shares for 4-6 months. I've seen guys do it and been successful at it.

 

[softwarewiz]

Just FYI, there's now been some somewhat negative articles about the LookSmart problem, pointing out how devastating this could be for the company, although no one really is explaining it in financial detail on the internet news side of the deal. Strange how you really need to know your product (search engines in this case) well, in addition to financial ins and outs, in order to make an intelligent decision.

For example, I'm totally up on everything that's happening with search engines (well, as much as anyone looking in from the outside can be), but am still learning financial moves/terms and their implications. In fact, it's becoming too much a part of my life ... I think I better tone it down a bit and get a life instead of work and study hehehehe. Still, I guess I should concentrate on learning some more "stock talk" and by then maybe I'll have a few bucks to experiment with, concentrating on internet company stocks.

How do stockbrokers in general handle this problem of how to know everything about every kind of business or is this a sign that you should pick your broker very, very carefully and get someone who knows a lot about the businesses you're going to invest in, even if you don't? Just kind of a rhetorical question ...

 

[Noah]

Stockbrokers rarely know everything about every kind of business. In most cases, they specialize in a certain business type or investment strategy. Many new investors feel the same way you're feeling now - information overload. I'd suggest making a decision on what kind of investor you want to be and then start studying that area. That will help you focus.

Noah