What is a Stock?
Buying a stock means taking an ownership position in a publicly traded company. Once you purchase a stock, you become a shareholder. A company has two ways of acquiring capital needed for growth: borrowing it (often in the form of issuing bonds), or selling shares of their company's equity, which is known as stock. In other words, when you buy shares of a company’s stock, you are buying a claim to the company's profit margin, because you are technically a part-owner in the company. Those who hold shares of Common Stock, the most typical form of stock, have voting rights in the election of the company’s board members. Continue reading...
How can I invest in hedge funds?
Fund managers are allowed to accept up to 35 non-accredited investors, but for the most part you will either need to satisfy the “accredited investor” requirement of the SEC to invest directly in a hedge fund. Otherwise, there are now hedge fund indexes and ETFs that track and mimic hedge fund strategies that are accessible to everyone. You should know now that the minimum initial investment requirement to participate in a hedge fund can be quite large, such as upwards of $1 million. Continue reading...
What is Probate?
Probate is the legal process that takes place after a person’s death, during which legal documents (such as wills and trusts) are reviewed and enforced. A person’s will generally must be validated by the court, after which the person’s assets are distributed to the heirs accordingly. If there is no will, then the probate court will decide how to distribute the assets, which may not be consistent with the deceased’s actual wishes. Continue reading...
What is a Mortgagee?
When a mortgage loan is made to a consumer, the bank or loan institution is the mortgagee, while the consumer is the mortgagor. Mortgages are long term loans secured by the real property of the individual borrowing the money, and they are generally used for homes, called home mortgages. The lending institution, which might be a bank or a mortgage company, is the mortgagee, lending money to the homebuyer, who is the mortgagor. Continue reading...
What is a support line?
A support line represents an estimation of where a price is likely to stop moving downwards, based on recent data and analysis methods. It is arrived at with different formulas for different indicator methods, but it is generally a line derived from moving averages and standard deviation which represents a lower level at which traders would expect a price to rebound back upwards. Several methods of technical and fundamental analysis plot a support line or two as part of a graphical representation of trends. Theoretically, a price will only deviate so far from its moving average before bouncing back toward the middle. Continue reading...
What is Burn Rate?
Burn rate is a term for negative cash flow, or the rate at which a company burns through capital, especially a startup company. Burn rate is used frequently in the world of startups and venture capital. Using a burn rate, investors can see how much longer operations can be sustained with the capital at hand, and this length of time is called a runway. Startups will normally need at least a few months before they start generating enough revenue to have a positive cash flow. Burn rate is normally expressed as the monthly negative cash flow. Continue reading...
What are Solvency Ratios?
Solvency ratios come in several flavors, but they all seek to shed light on a company’s ability to pay its long-term debt obligations. There are several types of what is known as solvency ratios. Some examples of solvency ratios include debt-to-equity, debt-to-assets, interest-coverage ratio, the quick ratio, the current ratio, and so forth. These are meant to be metrics for a company’s ability to meet its debt obligations through various market conditions. The quick ratio, for instance, can reveal whether the current-year liabilities (payables) of a company are covered by the current year cash and receivables, or whether the company will depend on other sources such as inventory liquidation to meet this need. Continue reading...
What is Securitization?
Securitization is to turn an asset which would otherwise not be a liquid, tradable security, into one. Simply put, securitization turns assets into securities. The most common example when discussing securitization is mortgage-backed securities, in which the cash flow of interest and principal payments on mortgage loans has been pooled, cut up, and distributed for sale in the form of marketable securities which can be held by an everyday investor. The bank or institution who sold the mortgage-backed securities receives cash which they can loan out to more home-buyers. Continue reading...
What was the “Dot Com” Bubble?
The late 1990’s saw a huge uptick in the number of tech startups, as the age of the Internet took hold and new companies scrambled for a share of the action. As more and more people began to access the world (wide web) of information, new technology companies became more and more abundant in an effort to tap the commercial potential of having a global customer base. This led to excessive valuations of companies that didn't even yet have earnings, as investors poured money in hoping for the "next big thing." Continue reading...
What is a credit rating?
A credit rating is given to a company or debt issue after a disinterested third party evaluates the strength of the business or cash flow and rates its ability to pay all of its liabilities. Third-party institutions such as Standard & Poor’s (S&P), Moody’s, and Fitch will conduct research in order to give investors an idea of how likely a business, bond issue, or insurance company can pay all of its obligations. Continue reading...