The stock market has its own language. These are the definitions kids tap inside Wall Street Warrior: one plain sentence, one lemonade-stand explanation, and one example for each word.
For learning how investing works. Nothing here is advice to buy or sell anything.
Start here: what a share is, where it is traded, and why time matters.
Share (of stock)
A share is one unit of ownership in a company.
A share is like one slice of a pizza. The company is the whole pizza, and each share is a small piece. The more shares you own, the bigger your piece of the company.
Example: If a company has 1,000 shares and you own 10 of them, you own 1% of the company.
Stock exchange
A stock exchange is a marketplace where shares of companies are bought and sold.
It is like a big farmers market, but instead of fruits and vegetables, people buy and sell pieces of companies. The NYSE and the NASDAQ are two famous stock exchanges.
Example: The New York Stock Exchange (NYSE) is on Wall Street in New York City.
Portfolio
A portfolio is all of your investments together.
Your portfolio is your whole collection of investments, like all the trading cards in your binder. A good portfolio has different types of investments in it.
Example: Sarah’s portfolio holds shares of three companies, a bond fund, and a fund that owns 500 big companies at once.
Compound interest
Compound interest is earning interest on your interest.
Your money earns money, and then that money earns money too. It is like a snowball rolling downhill, getting bigger and bigger the longer it rolls.
Example: Put in $100 at 10% interest and you have $110 after year one. In year two you earn 10% on $110, not just on $100, so you have $121.
Bull market
A bull market is a stretch of time when stock prices are rising and investors are optimistic.
A bull attacks by thrusting its horns up. A bull market is when prices keep going up and most people feel good about investing.
Example: From 2009 to early 2020, the US stock market was in one of the longest bull markets in its history.
Bear market
A bear market is when stock prices fall 20% or more and investors are worried.
A bear attacks by swiping down. A bear market is when prices fall a lot and people are scared to invest. Patient investors remember that bear markets have always ended.
Example: During the financial crisis of 2008, US stocks fell more than 50% from their high.
Volatility
Volatility is how much and how quickly prices change.
Think of a roller coaster that goes way up and way down quickly. High volatility means big price swings. Low volatility means a smoother, calmer ride.
Example: A stock that moves 1% on most days is calm. One that jumps 10% one day and drops 15% the next is volatile.
The words on a company’s report card.
Revenue
Revenue is the total money a company brings in from sales.
Revenue is all the money that comes in before paying any bills. If your lemonade stand takes in $100 from customers, that is your revenue, even if your supplies cost $60.
Example: A store that sells 1,000 toys at $20 each has $20,000 in revenue.
Earnings
Earnings are the profit a company makes after paying all of its expenses.
Earnings are what is left over after a company pays for everything: supplies, workers, buildings, and taxes. It is what your lemonade stand keeps after you have paid for the lemons, the sugar, and the cups.
Example: A stand with $100 in revenue and $60 in costs has $40 in earnings.
Dividend
A dividend is a cash payment a company gives its shareholders out of its profits.
Some companies share their profits with the people who own them. It is like owning part of a lemonade stand and getting a check for your share of the profits every few months.
Example: A company pays $0.25 per share every three months. If you own 100 shares, you get $25 each time.
Intrinsic value
Intrinsic value is what a company is really worth, based on the business itself rather than today’s price.
It is what something is actually worth, not just what people are paying for it today. A toy can be worth $50 even on a day when someone is selling it for $20 or for $80.
Example: An investor works out that a company is worth $200 a share. If it is selling for $175, the price is below what they think it is worth.
Competitive advantage (moat)
A moat is whatever makes a company hard for competitors to beat.
A moat is the ditch of water around a castle. A company with a moat has something special that keeps rivals out, like a secret recipe, a famous brand, or the lowest prices.
Example: Coca-Cola’s moat is its brand. Nearly everyone knows the name and the taste, which makes it hard for a new drink to compete.
Ratios sound hard. Each one is just one number divided by another.
Market capitalization (market cap)
Market capitalization is the total value of all of a company’s shares.
If a company has 1 million shares and each one costs $100, the whole company is worth $100 million. It is like adding up the price of every slice to get the price of the whole pie.
Example: A company with 1 billion shares at $50 each has a market cap of $50 billion.
EPS (earnings per share)
Earnings per share is a company’s profit divided by its number of shares.
If a company makes $100 in profit and has 10 shares, each share “earns” $10. It is like a pizza cut into 10 slices where every slice gets an equal part.
Example: A company that earns $500 million and has 100 million shares has an EPS of $5.
P/E ratio
The price-to-earnings ratio is how much you pay for each dollar of a company’s profit.
Imagine a lemonade stand makes $10 a year. If someone offers to buy it for $150, the P/E ratio is 15, because 150 divided by 10 is 15. A lower P/E means you are paying less for each dollar of profit.
Example: Company A earns $5 per share and its stock costs $100, so its P/E is 20. Company B also earns $5 per share but costs $75, so its P/E is 15.
PEG ratio
The PEG ratio is the P/E ratio divided by how fast a company’s earnings are growing.
A fast-growing company usually costs more. The PEG ratio checks whether the price matches the growth. A P/E of 20 with earnings growing 20% a year gives a PEG of 1.
Example: A company with a P/E of 30 that is growing 40% a year has a PEG of 0.75.
Price-to-book ratio
The price-to-book ratio compares a stock’s price with the company’s book value: what it owns minus what it owes.
If a company owns $100 worth of stuff after paying its debts, but its stock price says it is worth $150, the P/B ratio is 1.5. Below 1 means the stock costs less than the stuff the company owns on paper.
Example: A company with $50 per share in book value and a $75 stock price has a P/B of 1.5.
Profit margin
Profit margin is how much of each dollar in sales a company keeps as profit.
If your lemonade stand takes in $100 and your supplies cost $80, you keep $20 as profit. That is a 20% profit margin.
Example: A company with $1 million in sales and $200,000 in profit has a 20% profit margin.
ROE (return on equity)
Return on equity is how much profit a company makes with the money its shareholders have put in.
If you give your friend $100 to start a lemonade stand and they make $20 in profit, that is a 20% return on your money. A high ROE means a company is good at turning its owners’ money into profit.
Example: A company with $1 billion in shareholder equity that makes $200 million in profit has an ROE of 20%.
Return on capital
Return on capital is how well a company uses all the money invested in it, from both owners and lenders.
If a business has $100 in total to work with, from its owners and from loans, and makes $25 in profit, its return on capital is 25%. Higher means the business is putting its money to better use.
Example: A company with $500 million in capital that earns $100 million has a 20% return on capital.
Debt-to-equity ratio
The debt-to-equity ratio compares how much a company owes with how much its shareholders own.
If you borrowed $50 from your parents and have $100 of your own money, your debt-to-equity is 0.5. A lower number means less debt, and less debt means fewer ways for things to go wrong.
Example: A company with $500 million in debt and $1 billion in equity has a debt-to-equity ratio of 0.5.
Current ratio
The current ratio is what a company can turn into cash soon divided by the bills it has to pay soon.
If you have $200 in savings and owe $100 in bills that are coming up, your current ratio is 2. Higher is safer: it means you can easily pay what you owe.
Example: A company with $2 billion in current assets and $1 billion in current liabilities has a current ratio of 2.
Dividend yield
Dividend yield is a year of dividend payments as a percentage of the stock’s price.
If you pay $100 for a stock and it pays you $3 a year in dividends, that is a 3% dividend yield. It works a little like the interest on a savings account.
Example: A stock priced at $50 that pays $2 a year in dividends has a 4% dividend yield.
Different plans for the same goal: owning good things for a long time.
Value investing
Value investing is buying stocks that are priced below what you think they are really worth.
It is like finding a toy at a garage sale that is worth $50 but has a $20 price tag. You buy it because you know it is worth more than you paid.
Example: Warren Buffett is the best-known value investor. He looks for good businesses selling for less than he thinks they are worth.
Growth investing
Growth investing is buying stocks of companies that are growing quickly.
It is like investing in a small lemonade stand that you think will become a huge chain. You pay more now because you expect it to be worth a lot more later.
Example: Amazon was once a small online bookstore. Growth investors bought it because they thought it could become much bigger.
Margin of safety
A margin of safety is buying at a price low enough to protect you if you turn out to be wrong.
If you think a toy is worth $50, you might only pay $30 for it to be safe. That $20 gap protects you in case you were wrong about what it is worth.
Example: If you think a company is worth $60 a share and you buy at $40, you have left yourself a $20 margin of safety.
Diversification
Diversification is spreading your investments across many different things to lower your risk.
Do not put all your eggs in one basket. If you invest in many different companies, one bad one will not ruin everything.
Example: Instead of putting $1,000 into one stock, you put $100 into each of 10 companies in different industries.
Buy and hold
Buy and hold means buying investments and keeping them for a long time.
Instead of buying and selling quickly, like trading baseball cards at recess, you buy good companies and keep them for years, even decades. Good things take time to grow.
Example: Warren Buffett’s company first bought Coca-Cola stock in 1988 and still owns it.
Dollar-cost averaging
Dollar-cost averaging is investing the same amount on a regular schedule, whatever the price is that day.
Instead of trying to guess the best day to buy, you invest the same amount every week or month. Sometimes prices are high and sometimes they are low, and it averages out.
Example: You invest $50 every month. When prices are high your $50 buys fewer shares, and when prices are low it buys more.
What happens when you sell.
Cost basis
Cost basis is the original price you paid for an investment.
This is what you paid, including any fees. When you sell, you compare the sale price with your cost basis to see whether you made or lost money.
Example: You bought 10 shares at $50 each, so your cost basis is $500. If you sell them for $700, your profit is $200.
Capital gains
A capital gain is the profit from selling an investment for more than you paid.
If you buy a baseball card for $10 and later sell it for $25, your capital gain is $15.
Example: You bought stock for $1,000 and sold it for $1,500. Your capital gain is $500.
Unrealized gains
An unrealized gain is a profit on paper: the price went up, but you have not sold yet.
If your stock went up but you still own it, that profit is “unrealized.” It is like a baseball card that has gone up in value while it is still in your binder. You do not owe tax on it until you sell.
Example: You bought a share at $100 and it is now worth $150, but you have not sold. You have a $50 unrealized gain.
Capital gains tax
Capital gains tax is the tax you pay on an investment profit when you sell.
When you make money selling an investment, part of the profit goes to the government as tax. It is like a share of your lemonade stand’s profit going to pay for roads and schools.
Example: If you have a $1,000 capital gain and the tax rate is 15%, you owe $150. In Wall Street Warrior, kids pay a practice 15% tax when they sell at a profit.
In Wall Street Warrior, kids look up companies they already know, see these numbers on a real company, and practice investing with credits they earned by doing chores, schoolwork, and workouts. No real money is involved.
It is one of 40+ apps in Bravo Family HQ, the credit-based Family Operating System.