A lot of people are familiar with investment terminology from movies such as Wolf of Wall Street or reality TV shows like Dragons Den or Shark’s Tank, but from my experience, many people who aren’t directly involved in investments are either intimidated to use these terms because they mistake them as complex, or use the terms completely wrong and mistake one investment term for another. So, I decided to compile a list of investment terms that a lot of people may be familiar with but not know the true meaning of. These terms are essential to understand if you want to be involved in investing yourself or if you find yourself in situations where investments come up as a topic of conversation. So here are 7 commonly used investment terms you might not know.
A bull market simply means that the market is rising. During a bull market, the economic environment is growing and flourishing. This often means that all asset types such as stocks, bonds, and real estate go up in price as investors become confident in the market and seek to maximize profits. People who are confident in the market are described as “Bullish”.
A bear market is the opposite of a bull market and is what happens when the market is in a decline. Often in a bear market, investors are looking to sell rather than buy stocks. As a result of this market imbalance, the prices of stocks will generally decline. Investors who are pessimistic about the market are considered to be “Bearish.” While a bear market might seem negative, that’s not necessarily the case as investors can still benefit from a bear market by buying stocks while the prices are lower in hopes that prices will increase as the market transitions back into a bull market. A great example of this is buying real estate when the market is low, then holding on to the property until prices start to climb again, and then flipping the property for a profit.
Long position refers to the strategy of purchasing an asset with the intention of holding on to it with the hope that it will increase in value. A long position is seen as a “bullish” view and looks to take advantage of a bull market as investors are confident that the market will grow, and prices will go up.
Similar to a bear/bull market, a short position is seen as the opposite of a long position. A short position is when an investor sells a stock with the intention of re-acquiring it later at a lower price. It is common to see an investor short an investment when they believe the investment is going to decline in price or the market is about to transition to a bear market, as it is seen as a “bearish” view. It is common for investors to borrow shares from a stock loan department in exchange for a borrowing fee that spans the duration that the stock is shorted.
Blue Chip Stock/Company
A blue-chip company/stock is a well-established and reliable company. It is normally seen as a leading company in its sector. Blue Chip companies are seen as very stable investments and are better positioned to survive severe economic downturns. The term “Blue Chip” comes from poker, as in poker, a blue-chip symbolizes the highest value chip on the table.
The S&P 500 is a stock market index that tracks the stock performance of 500 large United States companies and reports the risks and returns of some of the biggest American companies. The S&P 500 is seen as a benchmark of the overall market and is used to compare against most other investments.
Dow Jones Industrial Average
The Dow Jones Industrial Average is another stock market index that keeps track of 30 large, publicly- owned blue-chip companies. Normally, on the news, when reporters make comments about the “market”, they are referring to the Dow Jones Industrial Average as it is the most widely used index.
Written by Justin Meyers