An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk free security plus a risk 

A company’s first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stocks. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large 

Companies may repurchase their own stock at the open market, usually common shares, for many reasons. In theory, the buyback should not be a short term fix to the stock price but a rational use of cash, implying that a company’s best investment alternative is to buy back its stock. If earnings stay constant, the reduced number of shares will result in higher earnings per share, which all else being equal, should result in a higher stock price. Normally these purchases are done with free cash 

Dollar Cost Averaging is a well known investing technique that involves investing a constant amount of money each month, quarter or year. The advantage of the technique is that the investor buys more shares when stocks are cheap and fewer shares when prices are high. While the technique can be used with any investment, it is most commonly used when investing in mutual funds. The disadvantage to using dollar cost averaging when investing in stocks is that transaction costs, as a percentage of 

A leverageable account in which stocks can be purchased for a combination of cash and a loan. This allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. The demand for additional funds by the 

Futures contract is an agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive 

Value investors are the stock market’s bargain hunters. They often lean toward beaten-down companies whose shares appear cheap when compared to current earnings or corporate assets. Value investors typically buy stocks with high dividend yields, or ones that trade at a low price-to-earnings ratio or low 

Support is a price where traders and investors have shown a willingness to buy. Sometimes, lines are drawn from one support level to another to identify a line of support. This is sometimes called a trend line. Moving average lines are also used to identify lines for support. As long as the stock price trades above the trend line, the current trend remains intact. If price falls below the support line, then it is an indication that the trend may be 

Shares splits can be classified into Ordinary and Reverse Splits.
Ordinary splits occur when a publicly held company distributes more stock to holders of existing stock. A split, say 2-for-1, is when a company simply issues one additional share for every one outstanding. After the split, there will be two shares for every one pre-split share. If the stock was at $5 per share, after the split, each share is worth $2.5, because the company’s net assets did not increase, only the number of 

A company’s P/E ratio is computed by dividing the current market price of one share of a company’s stock by that company’s per-share earnings.
A company’s per-share earnings are simply the company’s after-tax profit divided by number of outstanding shares. For example, a company that earned $5m last year, with 10 million shares outstanding, had earnings per share of $0.5. If that company’s stock currently sells for $5/share, it has a P/E of 10.
Like other indicators, P/E is best