Some financial terms of endearment

Here are some financial terms you should know — or learn.

“Bear market: When the overall market loses value over an extended period of time. There’s no official definition of a bear market, but many feel a drop of at least 10 percent is needed. A drop of something less than 10 percent is often called a “correction” (even though that term is never used when the market moves up 10 percent).

“Book value: A company’s assets, minus any liabilities and intangible assets. Book value is literally the value of a company that can be found in the accounting ledger and is often represented as a per-share value by taking the company’s shareholder equity and dividing by the current number of shares outstanding.

“Capital appreciation: One of the two components of total return, capital appreciation reflects how much the underlying value of a security has increased. If you bought a stock at $10 per share and it has risen to $13, you have enjoyed a 30 percent return or appreciation on your invested capital. Dividend yield is the other component of total return.

“Capital gain/loss: The difference between the price at which an asset is sold and its original purchase price (or “basis”).

“Liquidity: A measure of how quickly a security can be sold at a fair price and converted to cash. Illiquid stocks are those that don’t trade in high volume. Thus, having too many shares of an illiquid stock would make for a position that cannot necessarily be sold.

“Market timing: An investment strategy based on predicting short-term price changes in securities, which is virtually impossible to do.

“Standard & Poor’s 500 index: An index of 500 of the biggest publicly traded companies in the United States. The S&P 500 is generally thought of as the best measurement of the overall U.S. stock market, and indeed, it represents about 80 percent of the market.

“Treasury bill (T-bill): A short-term, discounted security issued by the U.S. government, with a maturity of one year or less.

Learn more at www.investorwords.com and www.fool.com/school/Glossary/ glossary.htm.

Ask the Fool

Q: What’s a high-yield stock? — T.N., Mobile, Ala.

A: It’s one that pays out a relatively hefty dividend, which is expressed as the dividend yield.

Dividend yield is simply the current annual dividend amount divided by the stock’s current price. If Gas Prices Inc. (ticker: ARMLEG) pays $2 per year and trades for $50 per share, its yield is 4 percent (2 divided by 50 is 0.04).

Some companies, such as IBM, sport low dividend yields (around 1 percent), so they’re not high-yielding. Other companies, such as Google, pay no dividend at all. That’s not necessarily bad — it just suggests that they have better things to do with their money, such as reinvesting it in growing the business.

Q: Where can I find professional help to get out of debt? — P.D., Syracuse, N.Y.

A: Consider using a nonprofit credit counseling organization. Be careful, though, as there are many credit counselors that can harm more than they help. You can get the name and number of a counseling outfit near you from the National Foundation for Consumer Credit (NFCC), which has many member agencies. Call the NFCC at 1-800-388-2227 or visit www.nfcc.org. First, though, get some vital info at www.ftc.gov/bcp/conline/pubs/credit/ fiscal.htm. Our own Credit Center at www.fool.com/ccc offers valuable guidance on getting out of debt and more.

My dumbest investment

In 1967, my best friend, the administrative assistant to a powerful congressman, told me he had a great stock tip. I invested without doing my own research. All I can say is that I lost $65,000 on that great tip. Tips had been very valuable up until the time of that investment, so I had become more and more casual about doing research. Then came the rude awakening. The dumbest thing anyone can ever do is to rely on the tip of a friend, acquaintance, etc. Even when The Motley Fool makes a recommendation, you should do your own research before leaping into the investment. — M.S., Dallas

The Fool Responds: Right you are. In most cases you don’t know the full track record of the recommender. You also don’t know how much research the recommender has done. (Typically, it’s none, since he or she got the tip from someone else.) In our stock newsletters ( www.fool.com/shop), we report on the performance of every pick and discuss the research behind our opinions, but investors would still do well to do their own research before making decisions.