It's a foreign language, that we should all learn,
otherwise your just another standardised off the shelf, rent a product
for all the people who do understand this stuff.
Accrued Interest: Interest due from last
coupon date to present on an interest bearing security. Buyer of security pays
the quoted price plus accrued interest.
ADR:
American Depositary Receipt. A tool for allowing American investors to buy
shares of foreign-based corporations in the U.S. rather than in overseas
markets. ADRs are receipts for the shares of a foreign-based corporation held in
the vault of a U.S. bank which entitles the shareholders to all dividends and
capital gains. ADS (American Depository Share - a term often used
interchangeably with ADR) is the share representing the underlying ordinary
share which trades in the issuer's home market. Technically, ADS is the
instrument which actually trades, while ADR is the certificate that represents a
number of ADSs.
Advance-Decline (A/D) Line:
is a measurement of market breadth. It is calculated by subtracting the number
of stocks that decline in price over a given period (weekly or daily) from the
number that advance, and accumulating the differences. When advancing issues
outnumber declining issues, the A/D line moves upward. Conversely, if the
majority of issues fall in price the line trends downward. The basic calculation
should be adjusted slightly to facilitate historical comparability. Each week
(assuming a weekly A/D line) divide the difference of advances minus declines by
the total number of issues changing in price. For example, if there were 6000
advancers and 4000 decliners the ratio would be (6000-4000)/10,000, or 0.20.
Then accumulate the weekly ratio readings. Without this adjustment the A/D line
exhibits a bullish bias given the long-term increase in the number of issues
traded. When this adjusted A/D line is in an uptrend, the odds are that stocks
are in a bull market. If the adjusted A/D line is falling, the likelihood of a
major downtrend increases. The A/D line is in an established uptrend when the
current weekly figure is above the average A/D line reading of the last
52-weeks. A downtrend is established when the current A/D line reading is below
the average A/D line reading of the last 52-wks.
Annual Report:
A firm's annual statement of operating and financial results. It contains an
income statement, a balance sheet, a statement of changes in financial position,
an auditor's report and a summary of operations.
Arbitrage:
The simultaneous purchase and sale of substantially identical assets in order to
profit from a price difference between the two assets.
Averaging Down:
Buying shares of the same security at successively lower prices in order to
reduce the average purchasing price.
Balance Sheet: The summary of a company's
assets, liabilities, and shareholders' equity. Since balance sheets do not list
items at their current monetary value, they may overstate or understate the real
value of certain corporate assets and liabilities. Also called the statement of
financial condition.
Basis Point:
One one-hundredth of one percent (1/100 of 1%).
Bear Market:
An extended period of general price declines in an individual security or other
asset.
Big Board:
The New York Stock Exchange.
Block Trade:
A trade of 10,000 shares or more.
Blue Chip Stocks:
Nationally known companies which usually have large-capitalizations and long
records of profitable growth and dividend payments. Examples include General
Motors, 3M, Coca Cola, and IBM. Blue chip stocks are generally considered less
risky than small-cap companies but have less potential for large short-term
gains.
Blue Sky Laws:
State regulations covering the offering and sale of securities within state
boundaries.
Bond Equivalent Yield:
Annual yield on a short term, non-interest bearing security calculated so as to
be comparable to yields of interest-bearing securities.
Book-to-Bill Ratio:
A measure of sales trends particularly watched in the semiconductor industry. A
number over 1.0 indicates an expanding market, while a number below 1.0
indicates a contracting market. A ratio of 1.10 means that for every $100 of
products shipped, $110 of new orders was received. However, as with every ratio,
it is important to look at the underlying numbers for trends which a ratio might
conceal.
Book Value:
Book Value is often used as an indicator for selecting undervalued stocks. It is
also used to determine the ultimate value of securities in a liquidation. Book
value is calculated by the following: Total assets minus intangible assets
(goodwill, patents etc) minus any long-term liabilities EQUALS total net assets.
This figure, divided by the number of shares of preferred and/or common stock ,
gives the Net Asset Value - or Book Value - per share of preferred or common
stock.
bp: Short
for basis point, or 1/100 of a percentage point.
bps: Bits
Per Second. The measurement of the speed of data transfer in a communications
system.
Breadth of the Market:
The percentage of stocks participating in a particular market move. If two
thirds of the stocks listed on an exchange rise during a given trading day, it
is generally considered good breadth. Analysts look to this as an indicator that
the trend is probably more significant and longer-lasting than one with limited
breadth.
Breakout:
The advance of a stock price above a resistance level, or the fall of a stock
price below a support level. If a stock experiences a breakout on heavy volume,
it indicates to market technicians that the stock is about to engage in a major
price move in the direction of the breakout.
Bull Market:
An extended period of generally rising prices in an individual item (a stock),
group of items (an industry group), or the market as a whole.
CAGR: Compound Annual Growth Rate.
Call Option:
An option that permits the owner (option holder) to purchase a specific asset at
a predetermined price until a certain date.
Callable Bond:
A bond which the issuer may redeem prior to maturity by paying a stated call
price.
Cash Flow:
Cash flow is an important aspect of a company's performance. It is an analysis
of all the changes affecting cash in the categories of operations, investments,
and financing. A positive cash flow means that more cash is taken in than is
paid out, and the opposite is a negative cash flow. A company might be forced
into bankruptcy, even with assets well in excess of liabilities, if it does not
have enough cash to meet current obligations.
Cash Market:
In the Treasury market, this term refers to trading in Treasuries for immediate
delivery, as opposed to the futures market, where securities are traded for
future delivery.
CBOE:
Chicago Board Options Exchange.
Certificate of Deposit (CD):
A time deposit with a specific maturity.
Commercial Paper:
An unsecured promissory note with a fixed maturity of 270 days or less.
Common Stock:
Often called Capital Stock, it is units of ownership in a public corporation
which typically entitles the holder to vote on the selection of directors and
receive dividends. In the event of a liquidation, claims of secured and
unsecured creditors, and bond and preferred stock holders take precedence over
common stock holders.
Competitive Bid:
Bid submitted at a Treasury auction for a specific amount of securities at a
specific price.
Cost of Goods Sold:
The expenses directly associated with the production of goods or services the
company sells (such as material, labor, and overhead) excluding depreciation,
depletion, and amortization.
Coupon:
The annual rate of interest on a bond's face value that the issuer must pay to
the holder of the bond.
CPI:
Consumer Price Index.
CPI-Indexed Treasury Notes (or TIPS):
Treasury issues which protect the investor from inflation as determined by the
CPI.
Current Yield:
A measure of an investor's return on a bond calculated by dividing the annual
interest on the bond by the market price. It is the actual income rate or the
yield to maturity as opposed to the coupon rate (the two would be the same if a
bond was purchased at par). For example, a 10% (coupon rate) bond with a face
value (par) of $1000 is bought at a market price of $800. The annual income on
the bond is $100, but since $800 was paid for the bond , the current yield is
$100 divided by $800 or 12 1/2%.
Dealer: A dealer acts as a principal in all
transaction, both buying and selling for its own account.
Debt to Asset Ratio:
A coverage ratio that measures the amount of debt a company has in relation to
its assets. It is calculated by dividing Total Debt by Total Assets. The amount
of Debt to Asset may vary from industry to industry and should be compared as
such.
Debt to Equity Ratio:
A measurement of financial leverage - the use of borrowed money to enhance the
return on owner's equity. It is calculated by Long-Term Debt divided by Common
Stockholders Equity. The higher the ratio, the greater the leverage.
Depreciation:
An accounting method to amortize fixed assets, such as plant and equipment, so
as to allocate the cost over their depreciable life. Depreciation reduces
taxable income but does not reduce cash. The most common methods are accelerated
depreciation and straight-line depreciation.
Derivative:
A financial instrument whose value is based on the performance of an underlying
financial asset, index, or other investment. For example, as Option is a
derivative because its value changes in relation to the performance of an
underlying stock.
Devaluation:
The lowering of the value of a country's currency relative to gold and/or the
currencies of other nations. When a currency is devalued, imported goods become
more expensive, while its exports become less expensive.
Discount Basis:
Yield basis on which short term securities are quoted. Treasury bills are
typically quoted on a discount basis, which understates their return relative to
notes and bond.
Discount Rate:
The interest rate that the Federal Reserve charges member banks for loans, using
government securities as collateral. This provides a floor for interest rates
since banks set their loan rates a notch above the discount rate. The discount
rate is also used in determining the Present Value of future Cash Flows.
Dividends:
A distribution of a company's earnings to shareholders, prorated by class of
security and usually paid in the form of cash or stock. The amount is decided by
the Board of Directors and is usually paid quarterly.
Duration:
A measure of current maturity of a fixed income security as the weighted average
of the time to receipt of the instrument's payments - the weights are the
present values of the future payments.
Dutch Auction: Auction in which the lowest
price necessary to sell the entire offering is the price
Earnings: A term generalized term referring
to corporate profits. Profits can be calculated in different ways depending upon
the industry and accounting practices. Earnings is one of the frequently used
measures of a company's financial condition. It is commonly used to determine
the risk/reward profile of a given security - the ratio of stock price to
earnings (see P/E Ratio).
Earnings per Share:
The dollars of profit generated for each share of common stock. A company that
earned $1 million last year and has 1 million shares outstanding would report
earnings per share of $1.00. The figure is calculated after paying taxes,
preferred shareholders and bond holders.
EBITA:
Earnings before interest, taxes, and amortization
EBITDA:
Earnings before interest, taxes, depreciation, and amortization
Euro: The
common currency of the European Monetary Union.
Eurodollars:
Dollar-denominated deposits in banks outside the United States.
Excess Reserves:
Balances held by banks at the Federal Reserve in excess of required balances.
Federal Funds Rate: The interest rate banks
charge on overnight loans to other banks in need of funds in order to meet
reserve requirements. The rate is set by the Federal Reserve.
Fixed Exchange Rate:
A set rate of exchange between currencies determined by agreement.
Float: The
difference between the credits given by the Fed to banks' accounts on checks
being cleared through the Fed and debits made to the banks' accounts on the same
checks. Increased float (which can occur due to bad weather and transportation
problems) adds liquidity to the banking system.
FOMC:
Federal Open Market Committee. Comprised of the seven members of the Board of
Governors, the President of the NY Fed, and four other Fed district bank
presidents on a rotating basis. Meets eight times each year to set monetary
policy.
Foreign Exchange Rate:
The price at which one currency trades for another.
Foreign Exchange Risk:
The risk that a long or short position in a foreign security may be adversely
affected by a change in the value of the foreign currency.
Forward Rate:
The rate at which forward transactions (a transaction at a future date for a
fixed price) are being made.
Futures Contract:
An agreement to buy or sell a specific amount of a commodity or financial
instrument at a particular price on a stipulated date. The price is established
between the buyer and seller on the floor of an exchange. A contract obligates
the buyer to purchase an underlying commodity and the seller to sell it, unless
the contract is sold to another before the settlement date. This contrasts with
options trading, in which the option buyer may choose whether or not to exercise
the option by the exercise date.
GAAP: Generally Accepting Accounting
Procedures.
Goodwill:
In accounting, goodwill is any advantage, such as brand names, that enables a
business to earn higher profits than its competitors.
Gross Domestic Product (GDP):
GDP is the total value of goods and services produced by a nation.
Gross Margin:
A measure calculated by dividing gross profit (net sales minus cost of goods
sold) by net sales.
Gross National Product:
GNP is the dollar value of all goods and services produced in a nation's
economy, including goods and services produced abroad.
Growth Stock:
Stock of a corporation that has exhibited faster-than-average gains in earnings
over the last few years and is expected to continue to show high levels of
profit growth. Over the long run, growth stocks tend to outperform
slower-growing stocks but they also tend to have higher price/earnings ratios
and are consequently, riskier investments.
Hedge Fund: Investment vehicles, much like
mutual funds, which are generally structured as partnerships wherein the number
of investors is limited and whose general partner has made a substantial
personal investment in the fund. The offering memorandum of most Hedge Funds
allows them to use a combination of sophisticated investment strategies such as
taking both long and short positions, using leverage and derivatives, and
investing in many markets. The funds usually require investors to make a large
fixed investment ( i.e. $100,000 ) and only allows withdrawals at certain times
of the year. Because Hedge Funds move billions of dollars in and out of markets
quickly, they can have a significant impact on the day-to-day trading
developments in the stock, bond, and futures markets.
Hedging:
Hedging is an investment strategy most often used to offset potential risk,
although it can be used as a speculative investment in and of itself. Widely
used hedging techniques include buying or selling Put or Call Options, Selling
Short, and buying or selling the Futures market. (See Options)
IMF:
International Monetary Fund.
Indexes - Domestic:
An Index is a statistical composite that is used to indicate the performance of
a market or a market sector over various time periods. The following is a
variety of indices that are used to gauge the performance of stocks and other
securities in the U.S.
Initial Public Offering: Corporations first
offering of stock to the public. The share prices of IPOs can fluctuate wildly,
with what seems to be little regard for the current value of the underlying
company.
Insider Trading:
Refers to both the legal trading by corporate officers based on public
information and illegal trading by anyone of securities from information not
available to the public.
Institutional Investors:
Holdings by organization that trade large volumes of securities such as banks,
mutual funds, insurance companies, pension funds, college endowment funds, etc.
Interest Sensitive Stock: Stock of a company
whose earnings change when interest rates move, such as a bank or utility. These
stocks tend to go up or down on news of interest rate changes.
Junk Bonds: High risk bonds with low credit
ratings.
Leverage Buyout:
The purchase of a company by a small group of investors largely financed by
debt. Most often, the target company's assets serve as security for the loans
taken out by the acquiring firm, which repays the loan out of cash flow of the
acquired company. When a company that has gone private in a leveraged buyout
offers shares to the public again, it is called a Reverse Leveraged Buyout.
LIBOR:
London Interbank Offered Rate - rate that the most creditworthy international
banks dealing in Eurodollars charge each other for large loans. It is usually a
basis for other large Eurodollar loans to less creditworthy corporate and
government borrowers. For example, a Third World country may have to pay a point
over LIBOR when it borrows money.
Margin Account: A brokerage account allowing
customers to buy securities with money borrowed from the brokerage firm. Margin
accounts are governed by Regulation T, the NASD, the NYSE, and the firm's house
rules. Margin requirements can be met with cash or eligible securities. Under
Federal Reserve Board regulation, the initial margin required since 1945 has
ranged from 50 to 100 percent of the security's purchase price.
Market Value:
For purposes of the securities industry, market value is the current market
price of a security - as indicated by the latest trade recorded.
Momentum Investing:
An investment style that is currently popular among investors. It involves
targeting companies with rapidly growing earnings - i.e. a history of positive
quarterly earning surprises. The strategy inevitably involves buying stocks with
extremely high P/E ratios and carries a great deal of risk. Momentum investing
is favored by aggressive managers of aggressive growth and capital appreciation
mutual funds.
Money Market:
Market in which short term debt instruments are traded.
Money Supply:
Mortgage Backed Securities: Debt issues
backed by a pool of mortgages. Investors receive payments from the interest and
principal payment to the underlying mortgages.
Moving Average:
A tool used in technical analysis and charts. It is the average prices of
securities or commodities constructed over a given period and showing trends for
the latest interval. For example, a thirty-day moving average includes
yesterday's figures; tomorrow the same average will include today's figures and
will no longer show those for the earliest date included in the average. Thus,
every day the average includes figures for the latest day and drops figures for
the earliest day.
Municipals:
Securities issued by state and local governments or their agencies.
Mutual Fund:
A fund operated by an investment company that pools money from shareholders and
invests in various instruments such as stocks, bonds, options, futures,
currencies, or money market securities. Mutual funds vary in their focus - some
invest solely in foreign securities, some target capital appreciation, while
others invest to generate income. Investors in mutual funds can more easily
diversify their holdings and take advantage of a professional management team .
Investors can expect to pay management fees for the service.
NASDAQ: National Association of Securities
Dealers Automated Quotations. The Nasdaq National Market is comprised of over
3,000 companies whose shares trade via a computerized system that provides
brokers and dealers with price quotes. While companies have to meet certain
requirements to be listed on the Nasdaq, Nasdaq stocks are usually small-cap
companies without long histories of earnings and tend to be more volatile.
NAV: Net
Asset Value.
New York Stock Exchange:
Founded in 1792, the NYSE is the oldest and largest stock exchange in the U.S.
The Big Board, as it is known, lists more that 1,600 companies who meet
stringent listing requirements. There are 1.366 seats on the NYSE, many of which
are owned by partners or officers of securities firms, and which handle trades
for the public.
Open Market Operation: One of the three means
of conducting Monetary Policy used by the Federal Reserve. It involves the
purchase and sale of government securities by the Federal Reserve Bank of New
York (as directed by the Federal Open Market Committee) in an effort to regulate
the money supply. The actions of the New York Fed effectively alter bank
reserves which, in turn, effects the supply of credit . This effect is realized
throughout the economy.
Operating Income:
Essentially, it is the income derived from a company's regular business,
excluding all income or losses from other sources. Operating income is defined
as the revenues of a business minus related costs and expenses. It excludes
extraordinary items such as, all realized gains and losses on investments or
discontinued operations, taxes, prior year adjustments, write-offs of
intangibles, bonuses and other profit distributions to employees, sales of
divisions, etc.
Options:
The right to buy or sell stock at a certain price before a specified date. If
the buyer chooses not to exercise the option, the option expires and the option
buyer forfeits the money.
Over-the-Counter Stocks:
Stocks that are not listed and do not trade on an organized exchange, such as
the NYSE or the AMEX. They are usually small-cap companies that do not meet the
exchange requirements. Trading procedures are written and enforced by the
National Association of Securities Dealers (NASD), a self-regulatory group.
Transactions are conducted by phone and computer network which connects dealers
and provides quotes. Some large companies (i.e. Intel and Microsoft) have chosen
to remain as over-the-counter because they favor the system of multiple trading
by many dealers over the centralized exchange system of specialists.
Par: The nominal or face values of a
security. Bonds are issued at and mature at par which is usually $1000 per bond.
Prior to maturity, they trade at, above or below par, depending on their coupon
rate versus the current level of interest rates. Par value for Common Stocks is
set by the issuing company and has no relation to market value. Par value is
more important in the case of Preferred Stock, where dividends are often stated
as a percentage of the par value of the preferred stock issue.
PEG: A
valuation measure which which compares the P/E ratio of a company to its
earnings growth rate (Price/Earnings to Growth, hence PEG). The P/E and earnings
growth rates used can be either trailing numbers or forward estimates.
Pink Sheets:
The daily sheets that contain the wholesale price quotations for thousands of
over-the-counter stocks as listed by dealers who act as market-makers in the
individual securities. Pink sheets are published by the National Quotation
Bureau for brokers and dealers but not for the general public.
Preferred Shares:
A class of stock that normally pays dividends at a fixed rate and carries no
voting rights. Preferred shareholders do, however, carry a preference over
shareholders of Common Stock in the payment of dividends and liquidation of
assets.
Premium:
The amount by which the price at which an issue is trading or is auctioned
exceeds the par value of the issue.
Present Value:
The current value of a future payment given an appropriate interest rate
assumption.
Price/Earnings Ratio (P/E):
A widely used valuation measure of the relationship between a stock's price and
its earnings per share, it is also referred to as Multiple to Earnings or
simply, The Multiple. Its formula is: current stock price per share divided by
the most current earnings per share. It is an important tool for investors as it
indicates how much they are paying for a company's earning power. Stocks with
low P/E multiples (those below 20, although relative multiples do vary from
industry to industry) tend to be slow growth, steady and perhaps mature
companies. Those with higher P/E multiples are usually growth stocks and tend be
more risky. Trailing P/E multiples use last year's earnings and the current
price.
Price to Book Value:
Also called Multiple to Book Value, it is a measure of the relative risk/reward
profile of a stock. It is calculated by dividing the latest stock price per
share by the most recent per share value of stockholders equity (book value). A
company with a stock price of $12 per share and a book value of $6 per share is
trading at two times book value. Generally, the higher the multiple to book
value, the riskier the stock is , however, it is important to know that
multiples vary from industry to industry and should be considered as such.
Principal:
The face amount or par value of a security.
Pro Forma:
The term is Latin for "as a matter of form " and is used on balance sheets and
income statements to refer to data that is hypothetical. For example, if company
A buys company B mid-year, the year-end financials of Company A might show the
current earnings results and the year ago results as Pro Forma - as if the two
companies had been merged all along. This gives a more relevant earnings
comparison year over year.
Ratings: An evaluation of a security's
credit-worthiness by Moody's, Standard & Poor's, or other credit rating
agencies.
Real Interest Rates:
Nominal interest rates less the expected rate of inflation.
REIT: Real
Estate Investment Trust. Publicly traded companies that manage portfolios of
real estate to generate profits. The underlying assets are investments in
shopping centers, medical facilities, office buildings apartment complexes,
hotels, and various other real estate holdings. One type of REIT take equity
positions in real estate and distribute the income from rents and capital gains
(when properties are sold) to shareholders. Other REITs act as lenders to
property developers and pass interest income on to shareholders. A third type of
REIT combines equity and mortgage investments. To avoid taxation, REITs must
distribute 95% of their taxable income to shareholders annually.
Repo or Repurchase Agreement:
A holder of securities sells securities to another party with an agreement to
repurchase the securities on a set date for a set price. The security seller is
essentially borrowing money from the buyer. When the Fed conducts repos or RPs,
it is buying securities with an agreement to resell them at a later date. The
Fed is thus adding reserves to the banking system temporarily.
Return on Equity (ROE):
A measure of return for each dollar of shareholder investment - in essence, it
is how effectively the shareholder's investment is being employed. The
percentages can be compared year over year and considered relative to industry
composites both to reveal trends and a company's position versus its
competitors. ROE is calculated by dividing the annual earnings from operations
(see Operating Income) by common shareholders equity (total assets minus total
liabilities).
Selling Short: Selling a security or a
futures contract which the seller does not own. It is a strategy used to take
advantage of an anticipated decline in price or to protect a long position. In
the case of stocks, the seller borrows the stock for delivery, betting that the
market price will drop and that the stock can be bought later at a lower price.
If a stock is sold short at $20 per share and the price of that stock drops to
$15, then the seller can buy the shares at $15, making a profit of $5 per share.
Short sellers can face a substantial loss if the stock price rises. They may be
forced to buy back the stock at much higher prices then where it was originally
sold.
Shareholders Equity:
Also called Stockholder's Equity and Net Worth, it is Total Assets minus Total
Liabilities of a corporation.
Stock Split:
Authorized by a company's Board of Directors, splits have the effect of
increasing the number of shares outstanding without changing the total market
value of the company or diluting a shareholder's percentage stake in the
company. The theory behind splits is to lower the stock price so as to make
investment in the company available to a broad base on investors. A 2-for-1
split, for example, would give a stockholder of 100 shares trading at $50 per
share ownership of 200 shares trading at $25 per share.
Strike Price:
Exercise price at which the owner of a call option can purchase the underlying
stock or the owner of a put option can sell the underlying stock. The strike
price is set by the exchange.
Ticker Symbol: The abbreviation used to
identify a company's securities for trading purposes, such as T for AT&T , and
HWP for Hewlett Packard.
Total Return:
Stocks: The annual increase or decrease in the investment including
appreciation, dividends, and interest. the value of a security. Bonds: Held to
maturity, it is the Yield to Maturity (see Yield to Maturity). Mutual Funds: The
net asset value plus any capital gains and income distribution.
Treasury Bills, Notes, Bonds:
Negotiable debt obligations of the U.S. government. T BILLS are
short-term instruments with maturities of one year or less, issued at a discount
from face value. T NOTES are intermediate securities with maturities of 1
to 10 years. T BONDS are long-term debt instruments with maturities of
longer than 10 years.
Undervalued Security: A stock selling below
its liquidation value or below the market value that analysts believe it
deserves. Undervalued stocks are sought after for investment before the stock
price rises and they become fully valued. Undervalued companies are often the
target of take over attempts.
Yield Curve: A graph plotting the yields of
all bonds of the same quality with maturities ranging from the shortest to the
longest available. The resulting curve shows if short-term interest rates are
higher or lower than long-term rates. It is used as a tool by analysts to help
determine the direction of interest rates. A flat Yield Curve results when there
is little difference between short-term and long-term rates. When short-term
rates are lower than long-term rates, it is called a positive Yield Curve.
Conversely, it is called a negative Yield Curve if short-term rates are higher
than long-term rates.
Yield to Maturity (YTM) :
The rate of return yielded by a debt security that is held to maturity when both
interest payments and the investor's capital gain or loss on the security are
taken into account.