Sales
Money a company receives from the goods and services it sells. In some cases, the amount includes receipts from rents and royalties. Also called revenue.
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Sales charge
Also referred to as a load. This is the fee investors must pay to buy shares in a mutual fund. There are front-end loads that are charged upon the initial investment and back-end loads (deferred sales charges) that are assessed upon withdrawal. See "Cost Control."
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Sales growth percentage
The annualized growth rate of sales or revenue expressed as a percentage. Sales growth can be useful for measuring the growth rate of young companies with no earnings. It is also harder for accountants to manipulate sales figures than earnings.
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Savings bond
Similar to zero-coupon bonds, savings bonds are sold at a discount to their face value, which is fully paid at maturity. They are exempt from state and local taxes and you can defer paying federal taxes until maturity. They can be purchased for as little as $50 or up to $10,000. The cost and the maturity depend on the series (E, EE and HH) and the interest rate being paid. They can be bought or redeemed (after six months) at your local bank, the Federal Reserve or the Bureau of Public Debt. Call 800-872-6637 or go to United States Savings Bonds to get more information and current rates.
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Secondary market
The market where previously issued securities are traded. Most trading is done in the secondary market. The New York Stock Exchange, Amex, Nasdaq, the bond markets, etc., are secondary markets.
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Secondary offering
The sale of already issued stock. It is usually a large block of stock that is owned by an institution. As with a primary offering (or IPO), secondary distributions are usually handled by an investment banker who purchases the shares from the seller at an agreed upon price, then resells them at a higher public offering price, making a profit off the spread.
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Second-to-die insurance
A type of life insurance that covers two individuals in one policy and pays a death benefit only at the second death. Most commonly purchased by affluent older couples to pay estate taxes at death.
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Sector fund
Mutual fund that invests in a single-industry sector, such as biotechnology, gold or regional banks. Sector funds tend to generate erratic performance, and they often dominate both the top and bottom of the annual mutual fund performance charts. See "Sector Funds."
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Secular
Long term as opposed to seasonal or cyclical.
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Securities and Exchange Commission (SEC)
The federal agency that enforces securities laws and sets standards for disclosure about publicly traded securities, including mutual funds. It was created in 1934 and consists of five commissioners appointed by the U.S. President and confirmed by the Senate to staggered five-year terms. To ensure its independence, no more than three members of the commission may be of the same political party.
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Securities Investor Protection Corp. (SIPC)
The nonprofit corporation that insures the securities and cash in the customer accounts of brokerage firms up to $500,000 in the event a firm fails. All brokers and dealers registered with the Securities and Exchange Commission are required to be members.
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Security
Generally, a stock or a bond. Specifically, a piece of paper that indicates the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond).
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Sell-off
A period of intensified selling in a market that pushes stock or bond prices sharply lower.
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Senior security
A security with claims on income and assets that rank higher than certain other securities. Debt, including notes, bonds and debentures, is senior to stock. In the event of bankruptcy, senior securities have first claim on corporate assets.
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Service
Function or task that has value.
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Share
A unit of ownership in an equity or mutual fund. This ownership is represented by a certificate, which names the shareowner and the company or fund. The number of shares a company is authorized to issue is detailed in its corporate charter. Most mutual funds can issue unlimited shares. See "What Is A Stock Anyway?"
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Shareholders' equity
The amount by which total assets exceed total liabilities. Also known as net worth or book value, shareholders' equity is what would be left over for shareholders if the company were sold and its debt retired. It takes into account all money invested in the company since its founding, as well as retained earnings. Examining the price-to-book ratio (P/B) of an industrial company with a lot of hard assets is a good way of telling if it's undervalued or overvalued. See "Price/Book value."
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Shell merger
A method for a company to go public when it is unable to do so by an initial public offering. The company wishing to go public merges with a shell company — a publicly traded company that has no significant operations. The merger is done under state merger and acquisition laws, requiring fewer, less extensive filings with the Securities and Exchange Commission than a conventional initial public offering. Also called a back-door merger.
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Short covering
Trades that reverse, or close out, short-sale positions. For instance, when a stock rises sharply in price, investors who shorted the stock, expecting it to fall, are often forced to purchase the shares they borrowed from their brokers. That can push the price of the stock up even higher. See "Short interest."
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Short interest
Total number of shares of a given stock that have been sold short and not yet repurchased. Usually, investors sell short to profit from price declines. As a result, the short interest is often an indicator of the amount of pessimism in the market about a particular security. On the flip side, short interest represents dormant demand for a stock that may come to life if short sellers must cover their positions due to a marked rise in the stock's price. So a large short interest can ultimately push the stock higher. There are also other reasons to short that are not related to pessimism. For example, hedging strategies for mergers and acquisition as well as derivative positions may involve short sales. See "Short Interest."
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Short interest ratio
The ratio of shares of a security that investors have sold short divided by average daily volume of the security, measured over 30 days or 90 days. The short-interest ratio tells you how many days — given the stock's average trading volume — it would take short sellers to cover their positions (i.e., buy stock) if good news sent the price higher and ruined their negative bets. See "Short Interest."
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Short selling
A trading strategy that anticipates a drop in a share's price. Stock or another financial instrument is borrowed from a broker and then sold, creating a short position. That position is reversed, or covered, when the stock is repurchased to repay the loan. If the stock price falls, the short seller will profit by replacing the borrowed shares at a lower cost. See "Short interest."
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Short squeeze
Occurs when the price of a security rises sharply, causing many short sellers to buy the security to cover their positions and limit losses. That buying leads to even higher prices, increasing the losses of short sellers who haven't covered their positions. See "Short Interest."
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Short-term bonds
Treasury bills that mature in 90 days to one year. Or, corporate bonds that mature in one to five years. Because of their short maturities, these bonds are particularly safe from default and interest-rate risk, but they also pay lower yields. See "Types of Bonds."
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Short-term gain or loss
For tax purposes, the profit or loss from selling capital assets or securities held 12 months or less. Short-term gains are taxed at your regular income-tax rate, which can be as high as 39.6%. It pays not to trade. At the moment, the maximum federal tax rate on long-term capital gains is only 20%. See "The Dreaded Capital Gains Tax."
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Sidecar
A so-called circuit breaker that restricts some trading on the New York Stock Exchange and the Chicago Mercantile Exchange when the price of a Standard & Poor's 500-index futures contract falls by 12 points. Such a decline is equal to roughly 90 points on the Dow Jones Industrial Average.
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Simplified employee pension (SEP)
A retirement plan for the self-employed that is also referred to as a SEP-IRA. A SEP plan allows you to shelter a lot more money than a traditional IRA and is cheaper and less complicated to administer than other retirement plans. The contributions are tax-deductible to the company, and the IRAs grow tax-deferred until the proceeds are withdrawn. See "Retirement Accounts for the Self-Employed."
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Small-capitalization stocks
Shares of relatively small publicly traded corporations, typically with a total market capitalization of less than $1 billion. (Also called small-cap stocks or small caps.) Small-cap stocks tend to grow faster than larger capitalization companies, but they also tend to be more volatile. Because they have fewer shares outstanding, their price movement is necessarily more erratic. When good news hits the tape, investors clamoring to get in will drive the price up quickly. When bad news hits, the opposite is true. The Russell 2000 is the most widely known small-cap index. See "The Road Runners."
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Specialist
A stock exchange member who is designated to maintain a fair and orderly market in a specific stock. The specialist's job is to prevent imbalances in supply and demand for his assigned security. If a broker wants to buy a stock but there are no offers to sell it, the specialist fills the order himself by selling shares from his own account. And vice versa — if a broker wants to sell but no one wants to buy, the specialist buys the shares. A specialist is also known as a market maker.
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Special needs trust
A trust used to provide supplemental funds for a disabled person without jeopardizing access to government programs.
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Spinoff
A form of corporate divestiture that results in a subsidiary or division becoming an independent company. In a traditional spinoff, shares of the new company are distributed to the parent corporation's shareholders. Spinoffs can also be accomplished through a leveraged buyout by the subsidiary's or division's management.
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Spot market
A market for buying or selling commodities or foreign exchange for immediate delivery and for cash payment. Trades that take place in futures contracts expiring in the current month are also called spot market trades.
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Spot price
The price of a commodity or currency available for immediate sale and delivery. See spot market.
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Spread
In stocks, the difference between the bid price and ask price. In bonds, the difference between the yields on securities of the same credit rating but different maturity or the difference between the yields on securities of the same maturity but of different rating. The term also represents the difference between the public offering price of a new issue and the proceeds the issuer receives.
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Stagflation
A combination of high inflation and slow economic growth. A term coined in the 1970s, stagflation described the previously unprecedented combination of high unemployment (stagnation) with rising prices (inflation). The principal factor was the fourfold increase in oil prices imposed by OPEC in 1973, which raised prices throughout the economy while slowing economic growth. Traditional fiscal and monetary policies aimed at reducing unemployment only exacerbated the inflationary effects.
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Standard deduction
When you figure your income tax, this is how much you can deduct from your taxable income if you decide not to itemize your deductions. About 70% of all individual income tax returns use the standard deduction. See Itemized deduction.
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Standard deviation
A measure of a fund's volatility derived by looking at its range of historical returns. The higher the standard deviation, the greater the potential for volatility. Say a fund has an average annual return of 12% and a standard deviation of 20. By adding and subtracting 20 from 12, you can figure what the fund's high and low returns have been in two-thirds of the time periods over the past three years. In this case, the high would have been +32% (12+20). By multiplying the standard deviation by two and doing the same calculations, you can figure the fund's high and low returns for 95% of its history. See "7 Steps to Picking A Good Fund."
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Standard & Poor's 500-stock index (S&P 500)
The Standard & Poor's 500 Index — or S&P 500 — is an index of 500 stocks chosen for their market size, liquidity and industry group representation. Experts use the S&P 500 as a benchmark for the overall market performance. It is a broader, more comprehensive index than the Dow Jones Industrial Average, representing the largest U.S. companies in 11 diversified sectors of the market. It is also a capitalization weighted benchmark, with each stock's weight in the index proportionate to its market value. So price fluctuations in big companies in the index count proportionately more than little ones. In contrast, the Dow is a price-weighted index, which weights price movements for all of its stocks equally, regardless of their size. See "The Large Caps."
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Stock
An investment that represents part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but have a set, guaranteed dividend payment. Preferred stock also enjoys prior claim to company assets over common stock in the case of a bankruptcy. Contrast with bond. Also, see "What Is A Stock Anyway?"
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Stock appreciation rights
An executive compensation plan, usually linked to stock options, that gives recipients the opportunity to benefit from a rise in the company's stock price without exercising the options. Stock-appreciation-rights payments can be in cash, an equivalent amount of stock or some combination of the two.
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Stock fund
A mutual fund that invests in stocks. Stock funds have different investment strategies &3151; growth, blend and value — and invest in companies of different market capitalizations — small-cap, midcap and large-cap. There are also index funds that track specific stock benchmarks such as the S&P 500 and sector funds that invest in specific industries such as technology and health care. One of the key advantages of owning a stock fund is diversification and active portfolio management. See "What Exactly Is a Mutual Fund?"
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Stock-index future
A contract to buy or sell the cash value of a stock index by a specified date. Investors can speculate on general market performance, short-selling an index with a futures contract, or they can buy a contract to hedge a long position against a decline in value. Among the most popular indexes traded are the New York Stock Exchange Composite Index on the New York Futures Exchange (NYFE) and the S&P 500 index on the Chicago Mercantile Exchange (CME).
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Stock-index option
A call or put option based on a stock market index. Index options allow investors to trade in a particular market or industry group without having to buy all the stocks individually. For instance, someone who thought technology stocks were going to fall could buy a put on a technology index instead of short selling a dozen tech companies.
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Stock option
An option in which the underlying security is the common stock of a corporation, giving the holder the right to buy or sell its stock at a specified price by a specific date. Also, it is a method of employee compensation that gives workers the right to buy the company's stock during a specified period of time at a stipulated exercise price. In recent years, offering top executives stock options as compensation has become increasingly popular.
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Stock split
A change in a company's number of shares outstanding that doesn't change a company's total market value, or each shareholder's percentage stake in the company. Additional shares are issued to existing shareholders, at a rate expressed as a ratio. A 2-for-1 stock split, for instance, doubles the number of shares outstanding. So an investor holding 100 shares of a $60 stock would have 200 shares of a $30 stock following a 2-for-1 split. But his percentage of equity in the company remains the same. Typically, management will split a stock to make the shares more affordable to a greater number of investors.
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Stop order
An order to buy or sell a security when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given. This type of trade provides more investment control than a market order, which will buy or sell the security at any price. A stop order to buy, always at a higher price than the current market price, is usually designed to protect a profit or limit a loss on a short-sale. A stop order to sell, always at a lower price than the current market price, is usually designed to protect a profit or limit a loss on a security already purchased at a higher price.
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Strike price
A specified price at which an investor can buy or sell an option's underlying security. For example, a call option may allow the buyer to purchase 100 shares of a company in the next three months at a strike price of $50 a share. If the stock is currently trading at $75 a share and that's as high as you think it will go, you can exercise the call option at $50 and earn $25 a share less commissions. Also called exercise price.
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Strip
A bond, usually issued by the U.S. Treasury, whose two components, interest and repayment of principal, are separated and sold individually as zero-coupon bonds. Strips generally have a slightly higher return than a regular Treasury bond, but they don't pay regular interest payments. Instead the buyer receives the return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date. Strip is an acronym for Separate Trading of Registered Interest and Principal of Securities. See "Types of Bonds."
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Stub stock
Publicly traded shares with drastically reduced stock-market values. Typically, this happens when the company takes on debt for leveraged buyouts or pays a large one-time dividend.
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Student Loan Marketing Corp. (Sallie Mae)
Nicknamed Sallie Mae, the Student Loan Marketing Corp. is a government sponsored enterprise that purchases student loans from original lenders and repackages them to sell as investment securities. Shares of Sallie Mae stock are traded on the New York Stock Exchange. Bonds issued by Sallie Mae are called agency bonds, which are almost as safe as Treasurys, but pay better yields. See "Smoothing Out the Ride."
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Subordinated debenture
A debt security that will be paid off after the issuer first pays off debt to senior creditors in the event of the dissolution of the company.
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Subsequent investment
The minimum amount that may be invested in a mutual fund following an initial investment. This information is useful for investors who are dollar cost averaging.
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Subsidiary
A company of which more than 50% of its voting shares are owned by another corporation, called the parent company. Compare with affilliate.
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Super 301
A trade-law provision under which the U.S. identifies trade practices it considers unfair and can apply sanctions.
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SuperDOT
An electronic system used to route buy and sell orders to the floor of the New York Stock Exchange. Among other things, it is used to execute computerized program trades. SuperDOT handles about 80% of all orders entered at the exchange. DOT is an acronym for Designated Order Turnaround.
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Surrender value
The amount of money a policyholder would receive upon dropping, or surrendering, a cash-value life insurance policy. This amount may be far less than the accumulated cash value because of surrender charges.
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Swap
An agreement that exchanges one security's return for another's return.
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