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Friday, October 31st 2014
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fountain of knowledge .glossary. resources . calculator

The UVM Investment Club Glossary

A quick but complete reference guide.

Amex
The abbreviation for the American Stock Exchange, the second largest stock exchange in the United States.

Analyst
A trained person who investigates the facts concerning a given security or industry and reaches a dependable conclusion about its advantages and disadvantages that may help an investor to decide what action he or she should take.

Annuity
An arrangement under which periodic payments are made to a person in return for the investment of a lump sum, usually for the purpose of providing retirement income. Each periodic payment received by the annuitant is a portion of the original lump sum, plus interest.

Arbitrage
Taking advantage of countervailing prices in different markets, e.g. by purchasing an asset for a low price in one market and then selling the asset for a higher price in another market.

Asset
Any valuable resources owned by a company in the form of cash or investments.

Back Office
A term that refers to the operational activities of a company, as opposed to the main business, or 'front office' operations. The back office of an investment bank comprises the accounting, reporting and support operations while the front comprises the analysts, dealers and traders.

Bear
Someone who believes the market will decline. Opposite of a bull.

Bear Market
A market in which prices decline sharply against a background of widespread pessimism. The opposite of Bull Market. Bear markets are generally shorter in duration than bull markets.

Beta
A measure of market sensitivity; i.e. the extent to which a share or a portfolio fluctuates with the market. Beta is a statistical estimate, based on historical data, of the average percentage change in a fund's or a security's rate of return corresponding to a one percent change in the market. Note that the market has a beta of 1. Therefore a security (or portfolio) with a beta of 1.2 might be expected to perform some 20% better than the market when it rises, and 20% worse when it falls. Similarly, a beta of 0.5% implies a movement equal to only half the market's rise or fall. A share with a beta of 1 is exactly as volatile as the market.

Bid
The price offered to purchase a commodity, currency or investment instrument.

Bid-Asked
The bid is the highest price anyone has offered to pay for a security at a given time, and the ask is the lowest price anyone will accept at the same time. Also known as Bid-Offer. Often referred to as a quotation or quote.

Bid Price
The highest quoted price that any prospective buyer will pay for a security at a particular point in time. The bid price is the actual market price for a share, regardless of the price of the last sale.

Big Board
General name for the New York Stock Exchange.

Blue Chip
A term referring to the shares of a leading company which is known for excellent management and a strong financial structure. The term has become a generic one for quality securities.

Board of Directors
A group of individuals elected to steer and supervise a company. The Board of Directors sets strategic directions and oversees the executive management of the company, and is ultimately responsible to shareholder for the company's performance.

Bond
A debt security issued by such entities as corporations, governments or their agencies, e.g. statutory authorities, in return for cash from lenders and investors. A bondholder is a creditor of the issuer and not a shareholder. The issuer of a bond is effectively a borrower, and is required to pay interest to creditors throughout the life of the bond.

Bond Ratings
A system for measuring the relative credit worthiness of bond issues using rating symbols, which range from the highest investment quality (least investment risk) to the lowest investment quality (greatest risk).

Book Value
The net dollar value at which an asset or security is carried on a balance sheet. In portfolio accounting, book value generally refers to the price paid for the security, as opposed to its current worth or market value.

Breadth-of-Market Theory
A technical analysis technique that predicts the strength of the market based on the number of issues that are advancing or declining.

Broker
An agent who handles investors' orders to buy and sell securities, commodities, insurance policies or other property. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.

Buffett, Warren
Chairman of Berkshire Hathaway, and arguably the greatest investor of all time. If you had invested $10,000 in Berkshire Hathaway when he took over in 1965, you would have more than $20 million today. He's strong evidence that it's possible to consistently outperform the market.

Bull Market
A prolonged period of rising prices, usually by 20% or more. Opposite of a bear market.

Buy and Hold
An investment strategy in which stocks are bought and then held for a long period, regardless of the market's fluctuations.

Buying on Margin
A risky technique involving the purchase of securities with borrowed money, using the shares themselves as collateral. Usually done using a margin account at a brokerage, and subject to fairly strict SEC regulations.

Call
An option contract that gives the holder the right to buy a certain quantity (usually 100 shares) of an underlying security from the writer of the option, at a specified price (the strike price) up to a specified date (the expiration date).

Callable Bond
A bond which the issuer has the right to redeem prior to its maturity date, under certain conditions.

Capital
A lump sum of money.

Chicago Board of Trade (CBOT)
An exchange where grain, gold, and Treasury Bond futures and options are traded.

Chief Executive Officer (CEO)
The executive who is responsible for a company's operations, usually the President or the Chairman of the Board.

Chief Financial Officer (CFO)
The executive who is responsible for financial planning and record keeping for a company.

Chief Operating Officer (COO)
The executive who is responsible for the day-to-day management of a company.

Cold Calling
The ethically questionable practice by full-service brokers of making unsolicited phone calls to people they don't know in order to attract new business.

Commodity
A physical substance, such as food, grains, and metals, which is interchangeable with other product of the same type, and which investors buy or sell, usually through futures contracts. Or more generally, a product which trades on a commodity exchange; this would also include foreign currencies and financial instruments and indexes.

Common stock
Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stock holders have rights to a company's assets only after bondholders, other debt holders, and preferred stock holders have been satisfied.

Compliance department
The department within a brokerage or stock exchange that oversees trading and other activities to ensure that SEC regulations are being adhered to.

Composite
An index or average which is a combination of multiple other indexes or averages. An example is the Dow Jones Composite, which combines the industrial, transportation, and utility averages.

Conference call
A phone call hosted by a company reporting quarterly earnings, in which the company discusses the latest quarter and the outlook for the future with analysts and institutional investors. Individual investors are often allowed to listen but not participate.

Consumer Price Index (CPI)
An inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly. Also called cost-of-living index.

Cooking the books
Knowingly providing incorrect information in a company's financial statements.

Cornering the market
The illegal practice of attempting to purchase a sufficient amount of a commodity or security to manipulate its price.

Currency
Any form of money that is in public circulation.

Day Trader
Active stock trader who holds positions for a very short time and makes several trades each day. Usually makes buy or sell decisions based on his/her own research; usually has an online brokerage account.

Dead Cat Bounce
A rebound in a stock's price from a recent low.

Dealer
An individual or entity, such as a securities firm, when it acts as a principal and stands ready to buy and sell for its own account. More generally, an individual or entity which buys and sells products and holds an inventory.

Decimalization
The process of switching over the reporting of security prices and related information from fractions to decimals.

Discounted
The factoring in of expected upcoming news into a security's value.

Dividend
The sum paid by the company to its shareholders as their direct financial reward from holding the company's shares. It is the income received from an investment in the company's shares.

Dividend per Share
Dividends are regarded as a crucial investment measure. It is the declared net dividend per share payable to registered shareholders for the financial period. This is the income a shareholder receives on each share invested in the company.

Domestic
Within the given country.

Dow Jones Average
Average of 30 high quality, blue chip stocks commonly used as an indicator of whether the stock market is moving up or down.

Downgrade
A negative change in ratings for a security; two common examples are an analyst's downgrading a stock (such as from "buy" to "sell") and a credit bureau's downgrading of a bond.

Downside risk
The likelihood that a security or other investment will decline in price.

Earnings Per Share (eps)
The relationship of the profit, after tax, attributable to each share in issue. The key component of company performance featured in the price earnings ratio (P/E ratio or PER). The main subject of broker research on future corporate performance and a key factor in arriving at share and corporate value.

Entrepreneur
Person who assumes financial risk for the initiation, operation, and management of a given business.

Equity
That part of the company's share capital represented by ordinary, or voting, shares. The risk-sharing aspect of the company's invested capital.

Execution
The order to buy or sell has been fulfilled.

Fannie Mae
An acronym for the Federal National Mortgage Association, a privately owned corporation that purchases loans from lenders with backing from the federal government.

Finance
The management of money.

FTSE
Financial Times Stock Exchange, the joint operation for compilation and maintenance of the indices used as the key performance benchmarks for the UK Stock Market.

FTSE Index
Three indices comprise the FTSE All Share index - FTSE100, FTSE Mid 250 & FTSE Small Cap. A fourth index, the FTSE Fledgling, covers newly listed and other listed companies not included in the other indices.

Fund Manager
A professional manager of investments in a Pension Fund, Insurance Company, Unit Trust etc.

Growth Companies
Those companies that are expected to have continual growth, year on year, in their earnings per share.

Hammering the market
The selling of large amounts of a stock by speculators who believe that stock will soon fall.

Hang Seng Index
A market value weighted index of the stock prices of the 33 largest companies on the Hong Kong market.

Hedge
An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

Hedge fund
A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Since they are restricted by law to less than 100 investors, the minimum investment is typically $1 million. The general partner usually receives performance-based compensation.

Home Run
A significant return on an investment in a short period of time.

Index
A specific measure of the changes in a portfolio representing a group of stocks.

IPO
Initial Public Offering, the original sale of a company's securities to the public.

Institutional Investor
An organization whose primary purpose is to invest in its own assets, including pension funds.

IRA
An account or trust in which individuals may set aside earned income in a tax-deferred retirement plan.

January Effect
Tendency of the stock market to rise between December 31 and the end of the first week in January, following year-end selling for tax reasons.

Joint ownership
Situation in which two or more people share ownership of property, securities, or rights.

Junk bond
A high-risk, non-investment-grade bond with a low credit rating, usually BB or lower; as a consequence, it usually has a high yield.

Large Cap
Stock of a large company.

Liquidity
The portion of an investment portfolio that is not fully invested, but is represented by cash holdings. Also, the level of continual buy and sell activity making up the market demand for the shares and indicating the ease with which investors can undertake transactions.

Mkt cap / Market capitalization
Market capitalization is the number of shares in issue multiplied by the share price at the time the market capitalization was calculated.

Market Maker
A Stock Exchange member firm that is obliged to make a continuous two-way price in the shares it follows. This is a commitment to offer to buy and sell the securities it trades in.

Merger
The agreed joining together of two companies, usually in the same industry, to provide a new, combined, entity with control still reflected in the ownership shares of the original companies.

Mid Price
The median (mid point) of the buying and selling spread (bid / offer spread) quoted by the market makers. The price shown in the share price pages and market reports within the financial media, but not the price at which you could necessarily expect to conclude a deal to buy or sell. The price at which you buy will be higher and the price at which you sell will be lower than the mid price in almost all circumstances.

Mutual Fund
A company or trust that uses its capital to invest in securities of other companies.

Naked Position
A long or short position the holder of a stock has not hedged as prices fluctuate.

NASDAQ
Acronym for the National Association of Securities Dealers Automated Quotation System, a computerized system for storing and displaying current stock price quotations.

New York Stock Exchange (NYSE)
The trademarked name of the largest, oldest, and most active stock market in the world.

Offer Price
The price the Market Maker will require in order to sell to you the shares you seek to buy.

Option
An agreement which permits the owner to purchase or sell a specific security at a fixed price within a stated period of time.

Par Value
The face, or nominal, value attributed to each of the company's shares. Part of the security's title. This has no

Portfolio
The total investments held in different companies or investment trusts by an individual investor or organization.

Securities
The general name for stocks, shares and bonds issued by the company to investors.

Spread
The difference between the Market makers buying (offer) and selling (bid) prices.

S&P 500
Designed to measure performance of the broad domestic economy through changes in the market value of 500 major industry stocks.

Seat
A membership to an exchange.

Securities and Exchange Commission (SEC)
The federal agency that administers United States securities laws, created to help protect the rights of investors.

Small Cap
Stock of a relatively small company.

Stock
An ownership share or shares in a corporation.

Stock Split
A process by which the number of shares of outstanding stock in a company increases but the price of the stock decreases.

Underwriting
The procedure by which an underwriter brings a new security issue to the investing public in an offering.

Volatility
A term used to describe large price fluctuations in a specific security.

Wash Sale Rule
IRS rule prohibiting a taxpayer from claiming a loss on the sale of an investment if that same investment was purchased within 30 days before or after the sale date.

Yield
The annual dividend or interest income relative to the value of the underlying security on which it is received. This is expressed as the percentage the income per share bears to the share price. Featured either as a gross or net of tax value, dependent upon the tax status of the shareholder.



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