Cash, property and investments along with anything else which are controlled by
the entity and can be of value for an individual or business.
A financial professional who analyzes securities to determine their
investment merits, including possibly a "fair" or "intrinsic" value for
them. The term is generally applied to almost any professional investor
who does research of some kind. There are "sell-side" and "buy-side"
analysts. "Sell-side" analysts typically work for investment banks and
brokerages and sell or publish their analysis. "Buy-side" analysts
typically work for the mutual fund companies or institutions that use the
analysis to make investment decisions for the funds they manage.
Dividing investment dollars among various asset classes, typically
among cash investments, bonds, and stocks. Wall Street firms frequently
change their "model asset allocation" portfolios -- ostensibly to show
that they have recalculated the best method for balancing the risks
involved in holding various investments. This also, however, results in
additional commissions from clients who follow the "model portfolios" and
sell various assets to rebalance their portfolios.
When the overall market loses value over an extended period of time.
There is no "official" definition of what makes a bear market, though many
feel a drop of at least 10% is needed. A drop of something less than 10%
is often called a "correction" (even though the term "correction" is never
used when the market moves up 10%).
A measure of the relative volatility of a stock or other security as
compared to the volatility of the entire market (usually measured by the
S&P 500 index). A beta above 1.0 shows greater volatility than the overall
market, and a beta below 1.0 is less volatile.
Really good, large companies -- often Dow components -- that have been
around long enough to have a solid history of rewarding shareholders.
Think Coca-Cola, IBM, General Electric, General Motors, and Johnson &
Are debt issued
by governments, public or private companies, which bear the obligation of
the emitter to repay the principal and interest over a fixed period. Bonds
are traded like other securities.
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
One who sells financial products. Whether in insurance, real estate,
or stocks, most brokers work under compensation structures that are at
direct odds with the best interests of their clients. When using a broker,
you should always find out how he or she is compensated.
A market that has been gaining value over a prolonged period.
"Fixed capital" refers to goods such as buildings, plant, machinery (or
investment in those), whereas “circulating capital” means stockpiles of
material, semi-finished goods and components that are usually used up
rapidly in production.
Certified Financial Planner (CFP)
An investment professional who has passed the CFP Board of Standards
series of exams on subjects such as taxes, securities, insurance, and
A CD (Certificate
of Deposit) is a debt instrument, issued by a bank, which pays interest
periodically (every month, every three months etc), or at the established
maturity date (in this case, in addition to the principal amount).
Interest which is calculated not only on the initial principal but
also the accumulated interest of prior periods. Check the
ITI Compound Interest calculator to see
why this is the most important effect in investing.
Consumer Price Index (CPI)
An inflation tracker, much followed by the mainstream media. It is the
measure of the price change in consumer goods and services.
Assets that are easily convertible to cash. Cash, short-term
investments, and accounts receivable are asset categories that should
result in cash within the next year.
Debt or other obligations that are payable within a year.
The current ratio provides a speedy indication of a company's ability
to meet short-term debt obligations. The higher the ratio, the more liquid
the company is, and the better able it is to take care of any short-term
debt. To determine the ratio, take current assets and divide by current
As applied to bonds, the annual interest rate divided by the current
Stock of a company whose performance is generally related (or thought
to be related) to the performance of the economy as a whole. Paper, steel,
and the automotive stocks are thought to be cyclical because their
earnings tend to be hurt when the economy slows and are strong when the
economy turns up. Food and drug stocks, on the other hand, are not
considered "cyclicals," as consumers pretty much need to eat and care for
their health regardless of the performance of the economy.
Calculated by dividing long-term debt by shareholders' equity. A
measure of a company's leverage, this ratio shows the relationship between
long-term funds provided by creditors and funds provided by shareholders.
A high ratio may indicate high risk, and a low ratio may indicate low
Investing in separate asset classes (stocks, bonds, cash) and/or
stocks of different companies in an attempt to lower overall investment
A share of a company's earnings paid to each stockholder. Typically,
dividends are paid on a quarterly basis and are determined by the
company's board of directors.
Profits that a company or mutual fund distributes to shareholders.
Dollar cost averaging
Investing equal amounts of money at regular intervals. The money
deducted from your paycheck if you participate in your company's 401(k)
program is an example of dollar cost averaging. Theoretically, you will
buy more shares when the price of your investment has declined, and fewer
shares when the price has risen. This may lead to an overall cost basis
that is lower than the average price per share.
Efficient market theory
A theory stating that stock prices perfectly reflect all market
information that is known by all investors. The theory also states that no
investor can beat the market's returns through skill because it is
impossible to determine future stock prices, and that luck explains why
some investors beat the market. The theory is much debated.
Instrument, such as a deed, money, or property, that constitutes evidence
of obligations between two or more parties and is held by a third party.
The percentage of a mutual fund that is taken out of the pockets of
shareholders to pay expenses -- most of which go to the salesmen and
managers of the mutual fund. If you are investing in mutual funds, look
for funds with an expense ratio of less than one percent. See Mutual
Funds: Expense Ratios.
Free cash flow
The cash that's left over after everything -- bills from suppliers,
salaries, expenses for the annual holiday bash, new equipment to expand
the business -- is said and done. Theoretically, free cash flow is the
amount of cash a business could issue to shareholders in the form of a
dividend check. See Cash Flow-Based Valuations.
Development of extensive worldwide patterns of economic relationships
Domestic Product (GDP)
Total market value of the goods and services produced by a nation's
economy during a specific period of time.
A percentage of how much of each dollar of sales is left over after
the costs to make the product are subtracted. It is calculated by dividing
gross profits (sales minus cost of goods sold) for a period by the
revenues for the same period.
Benchmark: Dow Jones (30 of the biggest companies) or S&P 500 (500
companies of all sizes and industries).
The cost of borrowing or lending money, usually a percentage of the amount
borrowed or loaned.
Microeconomics studies how individuals and businesses make decisions and
how these decisions affect the prices and output of goods and services. In
contrast, macroeconomics is the study of aggregates of individuals, prices
and output for whole markets.
A brokerage account that permits the owner to borrow money to buy
securities. Margin accounts should not be used by inexperienced investors,
or those who are putting money at risk that they can't afford to lose. See
The real, real risks of margin.
means by which the exchange of goods and services takes place as a result
of buyers and sellers being in contact with one another, either directly
or through mediating agents or institutions.
date when the principal amount of a security becomes due and payable. An
issue can have multiples maturities.
The observation made in 1965 by Gordon Moore,
co-founder of Intel,
that the number of
per square inch on
integrated circuits had doubled every year since the integrated
circuit was invented. Moore predicted that this trend would continue for
the foreseeable future. In subsequent years, the pace slowed down a bit,
but data density has doubled approximately every 18 months, and this is
the current definition of Moore's Law, which Moore himself has blessed.
Anglo-American law, any of a number of related devices in which a debtor (mortgagor)
conveys an interest in property to a creditor (mortgage
as security for the payment of a money debt.
Net asset value (NAV)
The price of each share of a mutual fund. It is calculated by
subtracting the fund's liabilities from its total assets, and dividing
that figure by the number of shares outstanding. The NAV is the amount of
money that an investor would receive for each share if the mutual fund
sold all of its assets, paid off all of its outstanding debts, and
distributed the proceeds to shareholders.
Over the counter
A geographically decentralized market in which stock and other
securities transactions are not conducted in person -- as on the
much-televised floor of the New York Stock Exchange -- but through a
telephone and computer network. The over-the-counter market is regulated
by the National Association of Securities Dealers (NASD).
price paid by the buyer to purchase an option. Prices are determined by
“open outcry” in the pits.
Price-to-earnings ratio (P/E)
The share price of a stock, divided by its per-share earnings over the
past year. See Fool's School: The P/E Ratio.
The basic element of the loan as distinguished from interest
and mortgage insurance premium. In other words, principal is the
amount upon which interest is paid. Principal can also be the original
cash put into an investment.
Current assets minus inventories divided by current liabilities. By
taking inventories out of the equation, you can check and see if a company
has sufficient liquid assets to meet short-term operating needs.
economics, a downward trend in the business cycle characterized by a
decline in production and employment, which in turn causes the incomes and
spending of households to decline.
Return on invested capital
Return on invested capital (ROIC) is a measure of financial
performance and a financial performance forecasting tool.
Money that a company collects from customers for the sale of a product
or service. When you subtract out all costs from revenues, you get profits
In economics and finance, an allowance for the hazard ( risk)
or lack of risk
in an investment or loan. Default risk
refers to the chance of a borrower's not repaying a loan.
This concept refers to the fact that individuals are willing to pay
money (or not to receive a high return) to avoid playing a risky game,
even when the expected value of the game is in their favor.
The measurement of an investor's willingness to suffer a decline (or
repeated declines) in the value of investments while waiting and hoping
for them to increase in value.
An investment that is represented by a negotiable document by a
corporation or governmental entity for the purpose of raising capital like
bonds, stocks, mutual funds.
Exchange Commission (SEC)
The federal agency charged with ensuring that the U.S. stock market is
a free and open market. All companies with stock registered in the United
States must comply with SEC rules and regulations, which include filing
quarterly reports on how the company is doing. The SEC, headed by five
appointed members, was created under the Securities Exchange Act of 1934.
A profit on the sale of a security that has been held for one year or
less. Short-term capital gains are taxed as ordinary income.
An ownership share in a corporation. Each share of stock is a
proportional stake in the corporation's assets and profits, and purchasing
a stock should be thought of as owning a proportional share of the
successes and failures of that business.
An individual who has been licensed by the National Association of
Securities Dealers to trade stocks and advise clients on various personal
A charge assessed by a broker for assisting in the trade of a stock or
Treasury bill (T-bill)
A short-term discounted security issued by the U.S. government, with a
maturity of one year or less.
Treasury bond (T-bond)
A long-term security issued by the U.S. government, with a maturity of
10 years or more.
Treasury note (T-note)
An intermediate-term security issued by the U.S. government, having a
maturity of 1 to 10 years.
"What makes the
desert beautiful is that somewhere it hides a well."
A wire transfer is an automated electronic transfer between two
bank accounts in 2 banks that have an established agreement. The bank has
to be part of the Federal Reserve System in the USA. Practically every
bank in any country is part of this network, at least through a third
party partner bank. For instance, Banco de Merida has a bank account with
Chase Manhattan to send and to receive wire transfers.
Antoine de Saint-Exupery