Jargon that stock market investors need to know

Posted at 05/11/14 1:22 PM

MANILA, Philippines – Many stock market newbies tend to be intimidated by financial jargon like “beta,” “PEG,” and “NAV” when reading or listening to the experts.

On ANC’s “On The Money,” a stock analyst explained some of these terms.

"Beta" is a term that “describes the risk of a share measured by comparing its price movement to the rest of the market.”

“A high beta stock is a volatile stock. Generally, it’s a euphemism for a speculative stock,” said stock analyst Russel Ong.

To determine if a stock value is expensive or cheap, investors should look at the PEG or the price to earnings growth.

The growth ratio is computed by dividing price of stock by earnings per share.

If a price to earnings ratio is 1 or less, it is a cheap stock, while anything higher is considered pricey.

“The P/E (price-earnings) in itself, you can compare with the market average. Another way of looking at it is to see how much the company is growing, so you can look at the P/E as a price tag,” said Ong.

The “NAV” or net asset value is the price of a fund if the investor is looking at mutual funds, UITFs or ETFs.

NAV is the per share value of a fund calculated once a day based on the closing market prices of the securities in the portfolio.

“Fixed income,” meanwhile, refers to bonds or securities that investors can buy from banks.

These tend to be low-risk, low-yield instruments like bonds and securities that generate a specified amount of income over a certain period of time.

A “commodity” is basic goods traded through futures contracts on the stock exchange.

“It compasses a lot of fixed goods that are traded on an exchange,” said Luis Limlingan, business development head at Regina Capital Development.

Oil, gold and copper are some examples of commodities.

“Clearing house” is a third party that settles payments when you sell stocks.

“If a person buys or sells stocks, you need a clearing house that will verify that the payment has gone through,” said Limlingan.

According to “On The Money” host Melissa Gecolea, newbie investors shouldn’t be turned off with financial jargon.

“Once you understand it, it makes investing easier so you can make your money work for you,” she said.