ShmoopTube

What is the difference between federal and state taxes? Federal taxes: the whole country. Taxes for national defense, interstate roadways, national...

What is the difference between stocks and bonds? Stocks are ownership. They control the election of the board of directors, who hires the CEO, who...

What rights does a public stockholder have? Common shareholders elect the board of directors. They vote. They have the right to quarterly financial...

What is a strike price? Strike prices are used in conjunction with options. Calls and puts give investors the right to buy or sell stocks at predet...

What is the Efficient Markets Theory? The Efficient Markets Theory says that stocks trade at their fair value all of the time, assuming all informa...

What is net worth? You own $100,000,000 worth of Coke stock. That's the good news. Unfortunately, you also have $90,000,000 in debt. Your net worth...

What is a corporation? Corporations are legal bodies. Bodies exist in various forms: LLC (Limited Liability Corporation), S-Corporation (now with p...

What is liquidity? Think: water. It's liquid. It can be squeezed into little, tiny spaces and infused into large spaces. A defining trait of liquid...

What is an underwriter? Hit play to find out.

What does it mean to "go public?" An IPO raises cash in the form of equity, usually, for investors. When public, a company exists under SEC dominio...

What is equity? It's ownership. A stock, not a bond. A common shareholder, not a debt obligator. When you own one share in a million-share outstand...

What is common stock? Ownership. Common shareholders own a pro rata slice of the pie. They elect the board of directors by vote. Some companies hav...

What is par value? The notional value of a stock or bond before an offering takes place. When a company is started, founders come up with a par val...

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

What do you need to retire? Retirement - think: 401k, pension fund, IRA, roth IRA, etc. All of these savings socked away while you worked hard are...

Who invests in stocks? 401k plans, pension funds, institutional investors, banks, traders, clients of Schwab, Fidelity, and Franklin. Joe Blow buys...

What is the "time value" of money? A dollar today is worth more than a dollar tomorrow. You can always invest your cash and earn a return.

What is the difference between Normal, Inverse/Inverted, and Flat Yield curves and what do they tell us? Normal yield curves represent long-term in...

What are the types of income tax? Federal income tax. State income tax. Real estate tax. Value Added Tax (VAT). Some tax is progressive, some tax is regressive. The commonality: they're all bad.

What is the difference between common and preferred shares? Common stock is at the bottom. It comes at the very end, when a company is sold, in the priority stack. It sits behind bank debt, the IRS, preferred stock, and pretty much everything else. The big advantage of common stock? It is the proletariat of investing: common stock shareholders elect the board of directors, who then are responsible for managing the company from 37,000 feet.

What is amortization? Amortization tracks the decline in value of a contract or service, usually paid for in advance. You received $10,000 in advance to water Ms. Maple's lawn for 10 months. She amortizes your watering to the tune of a decline in value of that contract of $1,000 as each month goes by.

How do you become incorporated? Go to Legal Zoom. Pay $150, file with the state of Delaware or whoever each year. Pay another $150. Most file as LLCs when they are small, so the costs are low.

What is debt? IOU. That's debt. You borrowed money. You owe a principal to be paid back n years later. Plus interest. Or the rental price per year of that money you borrowed, and promised to pay back. If you don't, usually those who loaned you the money then take possession or ownership of your company.

What are shares outstanding? The total size of the pie. All of the shares outstanding comprise the total votes and value of a given company. If XYZ.com has a million shares outstanding, and its stock trades for $12 a share, the marketplace is saying it is worth $12M.

Why do taxes exist? Without taxes, Uncle Sam wouldn't be able to boss us around via the IRS, which uses taxpayer money to run the government. Those taxes happen at a local level as well, in the form of real estate taxes, state income taxes, and taxes on local sales, cleverly called sales tax.

What is an income statement? Income statements are important financial documents that all companies keep to track profitability. It shows figures that relate to revenues and expenses to show the company’s, well... income... for a period of time (quarterly, annually).

What are government bonds? Uncle Sam needs dough. He sells bonds in the form of T-Bills, T-Notes, Treasury paper of all flavors. His credo? The credit of those bonds is backed by his ability to tax his hard-working citizens.

What is the price-to-earnings ratio? It's the price of the stock divided by its earnings. Stock price: $14; earnings: $1. The P-E ratio then is 14.

What are Commodities? Commodities are primarily defined as everyday resources consumed by most people in industrialized societies that are derived from mining, drilling or agriculture, such as silver, oil and coffee or coffee. However, the term `commodity’ has since been extended to include ubiquitous services, such as electricity and WiFi.

What are ETFs? They are Exchange Traded Funds, and unlike index funds, they don't really change, or rebalance, based on the industries represented by their exposure. They're set once, and... that's it. From there, the performance of the fund, just... does its thang.

What is the difference between mutual funds and index funds? Mutual funds are professionally managed. Those investors trade shares and realize taxable gains. They also charge something like five times as much the fee of an index fund. Index funds comprise just a pre-selected basket of stocks, unmanaged, which just sit around and grow in a basket for a (large) fee.

What is the S&P 500? It's Standard & Poor's 500 generally largest companies, with a U.S. domestic bias. The S&P 500 is usually what investors think of when they think "the market." This entity is used as an index indicator of stock performance in most calculations, and ticker SPY is the most famous index fund in this group.

What are emerging markets? New markets. New economies. Hyper growth. Elite natural resources. Powerful technology. These are all ingredients of second-world and third-world nations seeking to join the ranks of global superpowers, like China and the U.S. Emerging market nations usually carry huge GDP growth.

What are mutual funds? Mutual funds are an aggregation of stocks, professionally managed for a "small" fee. Investors wanting exposure to a given area can buy mutual funds focused on dividend or interest payments. They can focus on growth and tech. Or internationally. Stocks, bonds, commodities, and other vehicles all comprise mutual funds.

What is inflation and how does it work? Inflation is the gradual increase in prices over time. You might today pay 100x for the commodity coffee what you would have in 1905. Fortunately, you probably make 100x the salary you would have made then, too, so... it all works out. Now you can have your coffee and, uh... drink it, too.

How do you stay rich after you...get rich? The focus: index funds, mutual funds, way more stocks than bonds. Three words: don't be stupid.

What does it mean to be vested? Vested refers to having an interest in something. It’s typically used when talking about retirement plans and things like 401k and 403b plans. So, when someone is fully vested it means that the funds in the plan belong to you with no penalty.

How do you get a startup funded? Depends if we're talking about a tech startup, or a non-tech startup. If you've got a promising, budding tech company, you'll find it's much easier to raise capital. But if you're looking to get a restaurant off the ground... your chances of finding funding are about as good as literally getting a restaurant off the ground. So... good luck with that. You'll do an A round in your first funding, a B round next, and so on. Venture capitalists are the ones writing the checks. Investment bankers are the ones taking you public in your IPO.