Learn
Understand the business behind the stock.
Build your research skills with a guided course, practical investing guides, and 65 plain-English market definitions.
The investor's field guide · Member course
Fundamental research,
from the ground up.
Read the filings. Follow the cash. Test the price. Detailed chapters and interactive explainers take you from a business idea to your first research memo.
Explore the course →Inside the course
A few of the skills you'll build · Members only
SEC FILINGS
Read the evidence.
Find your way around annual reports and the disclosures that matter.
View lesson →FINANCIAL STATEMENTSFollow the cash.
Connect the earnings on paper with the money a business generates.
View lesson →VALUATIONQuestion the price.
Understand the difference between a good company and a good investment.
View lesson →See the business behind the numbers.
Read an annotated chart, trace the economics, and work through the explanation. Start with this example from the first chapter.
Visual field notes · Worked example
A better business can still be a worse investment
Index: year 0 = 100. Hypothetical teaching data, not a forecast or market history.
Earnings per shareShare price
READ THE PICTURE · 1
Separate the two engines
Start with a business earning $1 per share and a stock trading at $30. Earnings grow 10% each year, reaching $1.331 in year three. The blue line tracks that operating progress. It answers a business question: is each share earning more? It does not yet tell you what an investor receives.
READ THE PICTURE · 2
Watch the price investors pay
The earnings multiple falls from 30× to 27×, then 24× and 21×. Multiplying earnings by those prices gives $30, $29.70, $29.04 and $27.951. Both lines start at an index of 100 so you can compare their percentage changes. The company improves while the shareholder loses money before dividends.
READ THE PICTURE · 3
Translate the picture into a thesis
A forecast needs both earnings and a purchase price. Paying a high multiple can mean that substantial future progress is already expected. The right question is not simply whether the business will grow. Ask how much growth your entry price requires and what evidence would justify a different future multiple.
View the chart data
| Period / category | Earnings per share | Share price |
|---|---|---|
| Year 0 | 100 | 100 |
| Year 1 | 110 | 99 |
| Year 2 | 121 | 96.8 |
| Year 3 | 133.1 | 93.17 |
Practical investing guides
Free investing guide
How AI capital spending moves through the economy
A source-led map of AI infrastructure spending, power constraints, financing risk, and the indicators investors should monitor.
Free investing guide
How to research stock picks
A filing-first checklist for testing a stock thesis, the risks, and the price you are paying.
Investing glossary
Economics
Business CycleThe business cycle is the recurring pattern of expansion and contraction in economic activity, moving through phases of growth, peak, slowdown, and recovery.Fiscal PolicyFiscal policy is the use of government spending and taxation to influence the economy, distinct from the monetary policy set by central banks.Gross Domestic Product (GDP)Gross domestic product (GDP) is the total value of all goods and services produced within a country over a given period, the broadest measure of economic output.Hard LandingA hard landing is when efforts to slow inflation push the economy into a sharp downturn or recession rather than a gentle slowdown.RecessionA recession is a significant, broad decline in economic activity lasting more than a few months and visible across output, employment, income, and spending.Soft LandingA soft landing is when a central bank slows the economy enough to bring down inflation without tipping it into a recession.StagflationStagflation is the uncomfortable combination of stagnant economic growth, high unemployment, and persistent inflation occurring at the same time.
Equities
Bear MarketA bear market is a prolonged decline in asset prices, commonly defined as a drop of 20% or more from a recent high, marked by pessimism and falling demand.BetaBeta measures how much a stock's price tends to move relative to the overall market, indicating its volatility and sensitivity to market swings.Bull MarketA bull market is a prolonged period of rising asset prices, often defined as a gain of 20% or more from a recent low, accompanied by optimism and strong demand.Cyclical StocksCyclical stocks are shares of companies whose fortunes rise and fall with the broader economy, booming in expansions and struggling in downturns.Defensive StocksDefensive stocks are shares of companies whose products stay in demand regardless of the economy, giving their earnings and prices relative stability during downturns.Dividend YieldDividend yield divides annual dividends per share by share price. The result depends on the dividend period and does not measure total return.ETFAn exchange-traded fund (ETF) is a basket of securities that trades on an exchange like a stock, offering diversified exposure in a single, liquid investment.Index FundAn index fund is a fund designed to track the performance of a specific market index, such as the S&P 500, by holding the same securities in the same proportions.Market CapitalizationMarket capitalization is the total value of a company's outstanding shares, calculated by multiplying the share price by the number of shares.Price-to-Earnings RatioThe price-to-earnings (P/E) ratio compares a company's share price to its earnings per share, showing how much investors are paying for each dollar of profit.Sector RotationSector rotation is the movement of investment capital from one industry sector to another as investors position for the next phase of the economic cycle.VolatilityVolatility measures how much and how quickly an asset's price fluctuates, serving as a common proxy for risk in financial markets.
Fixed Income
Credit SpreadsA credit spread is the extra yield investors demand to hold a corporate or riskier bond over a comparable-maturity government bond, compensating for default risk.DurationDuration measures a bond's sensitivity to interest-rate changes, estimating how much its price will move for a given shift in yields.Fixed IncomeFixed income refers to investments that pay a set schedule of interest and return principal at maturity, most commonly bonds issued by governments and corporations.Real YieldsA real yield accounts for inflation. Expected real yields, realized purchasing-power returns, and quoted TIPS yields measure different things.Treasury YieldsTreasury yields are the interest rates paid by U.S. government debt securities, serving as a benchmark for borrowing costs across the entire economy.
Macro
Basis PointsA basis point is one-hundredth of a percentage point (0.01%), a unit used to describe small changes in interest rates, yields, and other financial percentages.Capital FlowsCapital flows are the movement of money for investment, trade, or business production across markets, asset classes, and borders.Carry TradeA carry trade is a strategy of borrowing in a low-interest-rate currency and investing the proceeds in a higher-yielding currency or asset to pocket the difference.CommoditiesCommodities are raw materials and primary goods such as oil, gold, wheat, and copper that are traded on global markets and often used to hedge inflation.CPIThe Consumer Price Index (CPI) is a monthly measure of the average change in prices paid by urban consumers for a representative basket of goods and services.Dollar Index (DXY)The U.S. Dollar Index (DXY) measures the value of the dollar against a basket of major foreign currencies, serving as a benchmark for the greenback's overall strength.Federal ReserveThe Federal Reserve is the central bank of the United States, responsible for setting monetary policy, managing the money supply, and promoting stable prices and maximum employment.FOMCThe FOMC (Federal Open Market Committee) is the body within the Federal Reserve that sets U.S. interest-rate policy and directs open-market operations that steer the money supply.InflationInflation is the rate at which the general level of prices for goods and services rises over time, eroding the purchasing power of money.LiquidityLiquidity refers to how easily assets can be bought or sold without moving their price, and more broadly to the amount of money and credit flowing through the financial system.Monetary PolicyMonetary policy is the set of actions a central bank takes to manage the money supply and interest rates in order to achieve stable prices and full employment.PCEThe Personal Consumption Expenditures (PCE) price index measures inflation across the goods and services consumed by households and is the Federal Reserve's preferred inflation gauge.Quantitative EasingQuantitative easing (QE) is a monetary policy in which a central bank creates new reserves to buy bonds and other assets, pushing money into the financial system to lower long-term interest rates.Quantitative TighteningQuantitative tightening (QT) is the reverse of quantitative easing: a central bank shrinks its balance sheet by letting bonds mature or selling them, draining liquidity from the financial system.Risk-On / Risk-OffRisk-on and risk-off describe the market's shifting appetite for risk, where risk-on favors stocks and high-yield assets and risk-off drives money toward safer havens.Safe-Haven AssetsSafe-haven assets are investments expected to hold or gain value during market stress, such as U.S. Treasuries, gold, the dollar, and the Japanese yen.Yield CurveThe yield curve is a graph plotting the interest rates of bonds of equal credit quality across different maturities, most often U.S. Treasuries from a few months to 30 years.Yield Curve InversionA yield curve inversion occurs when short-term bond yields rise above long-term yields, an unusual condition that has historically preceded U.S. recessions.
Options & Derivatives
Call OptionA call option is a contract giving the buyer the right, but not the obligation, to buy an asset at a set price before a specified expiration date.DerivativesDerivatives are financial contracts whose value is derived from an underlying asset such as a stock, bond, commodity, currency, or index.HedgingHedging is the practice of taking an offsetting position to reduce the risk of adverse price movements in an investment or portfolio.Implied VolatilityImplied volatility is the market's forecast of how much an asset's price will move, derived from the prices investors are paying for its options.Options PremiumAn options premium is the price a buyer pays to purchase an option contract, representing the cost of the rights the option conveys.Put OptionA put option is a contract giving the buyer the right, but not the obligation, to sell an asset at a set price before a specified expiration date.
Portfolio
Asset AllocationAsset allocation is how an investor divides a portfolio among different asset classes such as stocks, bonds, and cash to balance risk and return.CAGRThe compound annual growth rate (CAGR) is the smoothed annual rate at which an investment would have grown each year to reach its final value from its starting value.Compound InterestCompound interest is interest earned on both the original principal and previously accumulated interest. Investment returns can compound too, but are not fixed or guaranteed.CorrelationCorrelation measures how closely two assets move in relation to each other, on a scale from perfectly opposite to perfectly aligned.DiversificationDiversification is the practice of spreading investments across different assets, sectors, and regions to reduce the impact of any single holding on a portfolio.DrawdownA drawdown is the peak-to-trough decline in the value of an investment or portfolio, measuring how far it has fallen from its highest point.Position SizingPosition sizing is deciding how much capital to allocate to a single trade or holding, a key discipline for managing risk within a portfolio.RebalancingRebalancing is the process of periodically adjusting a portfolio back to its target asset mix by buying and selling holdings that have drifted from their intended weights.Risk ToleranceRisk tolerance is the degree of loss an investor is willing and able to withstand in pursuit of higher returns, shaping how a portfolio is built.Rule of 72The Rule of 72 is a quick mental shortcut for estimating how many years it takes an investment to double, found by dividing 72 by the annual rate of return.Total ReturnTotal return is the full gain or loss on an investment over a period, combining price change with income such as dividends or interest.
Trading
Bid-Ask SpreadThe bid-ask spread is the gap between the highest price a buyer will pay and the lowest price a seller will accept, representing a key cost of trading.Dollar-Cost AveragingDollar-cost averaging is the practice of investing a fixed amount at regular intervals regardless of price, smoothing out the effect of market volatility over time.LeverageLeverage is the use of borrowed money or financial instruments to increase the potential return of an investment, which also magnifies potential losses.Limit OrderA limit order is an instruction to buy or sell a security only at a specified price or better, giving the trader control over price at the cost of guaranteed execution.Market OrderA market order instructs a broker to buy or sell immediately at the best available price, prioritizing execution speed over price certainty.Short SellingShort selling is a strategy of borrowing shares to sell them at the current price, aiming to buy them back later at a lower price and profit from the decline.
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