Intro to Basic Financial Vocabulary

Upon sharing the Mercator Letter recently with friends and family, some responded by saying, "I have no clue what you're talking about, it's all over my head." I understand this feeling, but the truth is, we all have to start somewhere. I bought my first stock when I was 18 years old. At the time, I had no clue what I was doing. Even so, I do my best to keep the concepts and vocabulary in the report as simple as possible, but it definitely helps to have a basic understanding of finance to obtain the most out of the report.


Before I share some of the basic vocabulary I use in the Mercator Letter, it's worth reminding readers that your finances are nobody else's responsibility aside from your own. This means educating yourself constantly, formulating a plan, and sticking to it. For some people, it means hiring a financial advisor, but for other's, it's just a matter of investing time and money into the process.


Now, let's review some basic terms used in the Mercator Letter.


Bullish: The notion that the market or a stock is set to rally, appreciate, or go up.


Bearish: The notion that the market or a stock is set to fall, depreciate, or go down.


Equities: Another word for stocks. Equities provide shares of ownership in a company.


Bonds: A debt-instrument, or IOU, from which a company borrows money with the intent of repaying it with interest. Another word for interest is yield. As interest rates go down, bond prices go up. As interest rates go up, bond prices go down.


Buy point: This is usually found towards the end of an analysis section in the report. If you don't care about anything else and just want to trade stocks, this is the area on which to focus. Our method uses closing prices, or end-of-day prices, to determine entry-points.


Stop loss: A stop loss is the point that we exit a stock after it's bought and goes down or against us. Buying a stock without an exit plan is a fool's game. We cut all of our losses at no greater than 8%.


Support: A price level on a chart where a market's decline slows down or temporarily halts due to increasing amounts of buyers and decreasing amounts of sellers.


Resistance: A price level on a chart where a market's rise slows down or temporarily halts due to decreasing amounts of buyers and increasing amounts of sellers.


Bullish divergence: When a market's momentum indicator fails to hit new lows together with a new low in price. It's often an indicator that selling momentum is waning.


Bearish divergence: When a market's momentum indicator fails to hit new highs together with a new high in price. It's often an indicator that buying momentum is waning.


Revenue: A company's income.


Earnings: A company's final profit after all costs and expenses are deducted.


Earnings Per Share (EPS): A company's earnings divided by its number of outstanding shares. This tells you how profitable an individual share of stock is.


Granted, there are more terms I could explain, but let's keep it simple for now. There are plenty of free resources available online to learn more. I encourage you to make proper use of the Library of Alexandria available at your fingertips, instead of just using it to watch sports highlights, cat videos, or endlessly scroll through social media.


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