While writing about resolutions last week I realized that there are a lot of terms used widely by financial professionals that may not be as intuitive as they sound. Perhaps you realized while reading that you want to pay attention to your investment portfolio, but really aren’t sure where/how to start. Which leads me to the next series of articles; investing basics.

If you google the term “investing basics” on the Internet you get a wide variety of results, mostly written by columnists, like me, trying to translate the Sistine Chapel into five colors and painting techniques; a Paint-By-Numbers of financial advice. As we know, most compare Warren Buffett’s fiscal genius to Michelangelo’s artwork, and settle for reciting the same five-twenty tenants that he continuously quotes. Be frugal, don’t follow the herd, buy methodically, study the balance sheet, don’t trade excessively, hold forever, believe in the product, etc. While it is nice to say things like “study the balance sheet”, what does that really mean? How does the layperson find out what a large company’s bottom line is all about?

We are going to start with how to find basic daily information. If you use the internet, the best place to start is either http://www.finance.yahoo.com or http://www.bloomberg.com. Both of these let you put in a ticker (the symbol for a company), and receive up-to-date information about where it is trading. There may be a twenty minute or so delay on this information, or it may be live. One of the first fields is price or last trade. This is the current (or delayed) cost per share of the company. The day’s range shows the highest and lowest price of the day. The 52 wk high and low show the annual range for the company. The volume is the number of shares that have traded that day. A company with high volume may show it in thousands. The last two terms for this week are the bid and the ask. These terms are very important and easily confused. The bid is the price someone is willing to pay for the stock, the ask is what someone would like to receive for it.

Imagine going to your favorite grocery store every day, knowing the bananas are approximately 50 cents/pound. Pretend this is the price per share. One day there were four ships bringing bananas into NYC, and the price dropped to 35 cents/pound. The store where you generally shop bought extra, but because they are bananas, the owner knows he can’t keep the price at 50 cents/pound and still sell the surplus before they go bad. So he asks the customers what they are willing to pay for them, and you, for whatever reason, bid 40 cents/pound. Someone else offers 37 cents/pound, while a third party bids 42cents/pound. We all know he will sell to the customer that bid 42cents/pound before you or the one that bid 37 cents/pound. Rather than him allowing you to all bid, he probably sets an “ask”, or a price of 43 cents/pound. The customers still think this is great, because it is far better than the 50 cents/pound they generally pay. Stocks are similar to bananas, market conditions can cause them to be more or less popular, there can be seasonality to certain industries, etc.

 If you want to learn as much as Warren Buffett about investing, the pace of this column probably won’t help. But if you want to understand some more of the fundamentals of the balance sheet, keep reading!