| New investor, welcome to the language of Wall | | | | average are relative to corporate earnings. The |
| Street and the stock market. "The bulls on Wall | | | | DIVIDEND YIELD for the 30 Dow stocks tells you |
| Street charge and the bears take cover as the Dow | | | | what rate of dividend income investors might expect |
| rallies to all-time highs... sending its P-E ratio through | | | | at the current level of stock prices. |
| the ceiling and its dividend yield south, as analysts | | | | A CORRECTION is simply a drop in stock prices. |
| anticipate a correction." If you think this headline is | | | | When the stock market advances too far too fast, |
| about four-legged animals loose in the city, you need | | | | it's ripe for a fall. In our scenario, P-E ratios for stocks |
| to read this real basic investor guide to stock market | | | | are high and dividend yields are low by historical |
| language. | | | | standards. That's why some analysts think that stock |
| Translation: Stock prices are up to the highest levels | | | | prices are expensive and will fall. Pretty simple, isn't it? |
| ever. Some experts expect prices to fall soon | | | | In reality, stock prices relative to corporate earnings |
| because stocks are expensive and dividends are low. | | | | and dividends might not be expensive. If stocks |
| Now let's look at the terms to get a handle on things. | | | | continue to go up and this is not accompanied by |
| Wall Street in New York is the home of the New | | | | higher corporate earnings and dividends, there could |
| York Stock Exchange and the hub of the financial | | | | be a big correction (fall) in stock prices. On the other |
| world, even today. When the big financial firms | | | | hand, if earnings reports beat expectations and |
| headquartered there speak, investors listen. When | | | | companies raise their dividends the market could |
| they act they can move markets, including the stock | | | | continue to make new highs. |
| market. | | | | So, it's never really simple in the stock market game. |
| BULLS are investors who bet that stock prices will go | | | | For example, here's another possible twist to the |
| up. They do this by buying stocks. BEARS bet that | | | | story. Remember bears and selling short? There's a |
| prices will fall. They do this by selling stocks. | | | | thing called a BEAR TRAP, and it can fuel a market |
| Sometimes bears sell stocks they don't even own, | | | | rally. When a bunch of bears make a bad call and the |
| and this is called selling short. They borrow shares | | | | market moves up against them they can find |
| through their broker, sell them, and hope to later buy | | | | themselves scrambling to cover their positions. In the |
| them back at a lower price and make a profit. When | | | | process they buy stocks, bid prices up, and lose |
| selling short you must someday COVER your position | | | | money. |
| by buying equivalent shares in the market to return | | | | Welcome to Wall Street, new investor. Once you |
| to your broker. | | | | learn the language, the game has just begun. I've |
| The DOW is the Dow Jones Industrial Average, the | | | | played for 35 years, and I'm still learning. There's one |
| oldest and still most popular measure of stock | | | | more thing. If the concept of selling short confuses |
| market performance. When it RALLIES it goes up, | | | | you, don't worry because it confuses most people. |
| meaning that stocks in general went up. The P-E ratio | | | | But now you know that in the stock market you can |
| for the Dow tells investors how expensive or cheap | | | | bet that a stock will fall in price. |
| the price of the stocks (30 of them) included in that | | | | |