When I have read about an investing term, it won't just make me understand more about the topic. I also grasp how it must have been or still is in the big investing community.
These investing terms are just a few I have been collecting over the years, derived from movies, series, and topics on forums.
It is essentially all investments an investor/fund owns.
In the good old days, people bought stocks and other investments on pieces of paper and stored them in an actual portfolio.
2. Blue Chip
Well-established company with high quality. Typically, considered safe and boring while adding safety to a portfolio.
An investment that should but not necessarily have an edge. That would attract other investors meaning it should go up in price.
It can, for example, be a company having high earnings and selling so low investors should be drawn to it.
An entire sector can also be a bellwether meaning these investments should draw in new blood.
4. Asset Allocation
Allocation means to distribute or change where the money is at work.
For example, what stocks to buy and how much of each.
A detailed filed annual report should provide more information than an annual report.
By law, reports must be provided by the company.
A quarterly report. Q stands for quarterly.
A quarterly report that any institution must fill with over 100 million in assets.
A global structured report. This format is always the same, no matter the country or company. It is easier to compare since always has the same structure.
It is the law in many countries that businesses must have their report in an XBRL format. Besides the standard annual and quarterly reports.
9. Absolute Returns
Absolute returns are the return from an asset at a specific period.
10. Relative Return or Alpha
Alpha is when a strategy, person, or someone else beats a benchmark (typically a well know index) over a long period.
Relative is the return over a given period compared to an index or sometimes another kind of benchmark.
11. Activist Investor
Is someone or a team buying shares in a company to get seats to change the company.
12. Adverse Selection
An investor buys or sells a stock knowing something others do not know.
13. Anti-Dilution Provision
Protection for stock owners if new stocks are issued. Since adding new stock can dilute the ownership.
If there are five stocks in a company and you own 1, then you have 20% ownership. If the company issued five additional, then you would own 10%.
14. Basis Points (Bps) ( BP)
In finance, the units of percentage.
1 BP = 0,01%
10 BP = 0,1%
100 BP = 1%
200 BP = 2%
Generally speaking, a benchmark is an index such as the S&P 500, which funds and investors compare.
16. Black Swan Event
A random, unpredictable awful event that has huge consequences. Such as a war, a pandemic, a flood, etc. These are rare and hard to predict.
From the book: The Black Swan, by Nassim Nicholas Taleb
17. Block Trade / Block Order
A big and hidden transaction outside of the stock market. To try and lessen the fluctuations of the price.
If a buy or sell order is massive, it would change the price of the stock. So whoever buys or sells stock loses a lot more just because of the size of the trade.
18. Bloomberg Terminal
Probably the best tool an investor can have for any investment and news. All real-time and advanced data is available. It is also expensive to own, costing about $2 000 per month. A bit less for bulk orders but still very expensive.
19. Bucket Shop
Bucket shops are illegal but still talked about to describe firms involved in unethical practices.
20. Buy-Side Analyst
Buy-Side Analyst typically works for some financial company. And are the ones that look into if an investment is promising.
Often ignoring awful stuff and only focusing on how promising the investment is. Being right here is very important compared to sell-side Analyst
21. Sell-Side Analyst
They are making recommendations (also called blanket recommendations). By a firm for its clients or the public to make them buy or sell. The brokerage fee is where the firm makes its money.
This means the firms want to make clients buy or sell. Don´t matter which one it is.
22. Seed Capital
Menas is the first capital the business owners put towards their business. Typically this is their money or money from close relatives/friends.
23. Initial Public Offering (IPO)
The first time a company is available for the public to buy. And will be publicly available to buy and sell on the stock market.
24. A, B, C, Round Funding
A round refers to the first time ownership is offered to outside investors to get capital in the business. B refers to the second, C to the third, etc.
An IPO usually comes after all these, if needed, of course.
25. Chapter 11
Refers to a form of bankruptcy to make the debtor available to fix his situation. It is also known as a reorganization bankruptcy.
26. Cold Calling
Contact someone to try making them buy something. A perfect example is a telemarketer calling and trying to make someone want to buy something.
And in bigger businesses, it is the same, but the products are different.
27. Credit Default Swap (CDS)
Insurance against a failure to fulfill an obligation. Such as repaying a loan to lessen the risk for the investor.
28. Dark Pool
A privately organized exchange for securities that are not available to the public. Used by institutions to provide anonymity.
29. Dead Cat Bounce
Typically a huge price increase on an asset decreased heavily in price. And it is just temporary or short-lived until it falls even further in price.
Also called a Sucker Rally.
An insurance that you can buy or sell a security at a given (or often called strike) price. These do expire eventually.
Option Call refers to the right to buy a stock at the strike price.
Option Puts mean the right to sell a stock at a strike price
31. Opportunity Zone
These are distressed low-income zones that the state tries to make attractive to investors, for example, cut taxes.
A country tries to devalue its currency to help with exports and imports.
33. Discretionary Investment Account (DIA)
Allows a broker to buy and sell securities for a client inside of that DIA account.
34. Event-Driven Strategy
An investment strategy. That attempts to take advantage of mispricings followed by corporate events. This strategy is more speculative, so it should not be the only factor when investing.
35. Family Office
A wealth management advisory firm for ultra-rich people that offers solutions to every investment and money need you can think of needing.
For anything that has something to do with money, a family office can help. Primarily focus on educating the next generation to preserve their wealth for generations.
36. Financial Models
It combines accounting, finance, and business metrics and then uses them as a decision-making tool before buying an asset. Also, it's used in the valuation of, for example, IPOs.
37. Finder's Fee (aka Referral Fee)
Bringing customers or sometimes fixing a meeting with a possible client can receive a reward.
38. Front Running
Trading stocks on insider knowledge is often illegal to do.
Contract for an asset that is typically paid and delivered later. So you buy the contract. And maybe sell the contract instead of having it delivered or using it personally.
For example, many people buy the contract for oil barrels instead of the actual ones. Easier to buy and sell without needing transportation all the time.
A company tries to market its ecological or otherwise environmentally friendly arguments to seem to be eco/environmentally friendly. Think of this as brainwashing but with greens instead.
41. Hard to Borrow List
Refers to companies that are hard to borrow shares for short sales. Sometimes even not allowed to borrow them.
A way to protect yourself against financial loss, for example, inflation. Diversification is also a popular hedge strategy.
43. High-Frequency Trading (HFT)
An algo-trading strategy in which a huge amount of stocks are being bought and sold very fast.
44. Holding Company
The purpose of a holding company is to purchase and hold shares or other assets and control them. Minimize the risk of losing assets.
Since if you take a business and separate it. And if one fails, the other one is still in the picture.
Also called the parent company.
45. Impact Investing
An investment can also have a positive impact. Such as environmental, social, or otherwise considered positive for the world.
You still seek a return on the investment but, not the only reason.
These can attract investors because they do good and can make better returns.
46. Lock up period
An investor is not allowed to sell an asset for a given time.
After an IPO, some investors can have a lock-up period before selling. To preserve market stability and decrease the high price fluctuations.
47. Margin Call
An investment account with leverage falls below a certain price (maintenance margin). Forced to sell their investments or deposit additional money inside that account (guarantee the lender its money back).
Only happen if you have a leverage of some sort.
48. Municipal Bond/ Muni-Bond
Investors loan money to governments. Considered safer since hard for an entire government to go bankrupt. At least for rich states.
49. Real Estate Investment Trust (REIT)
An investment company that only owns income-producing real estate.
Redemption is the return of an investor's principal
51. Revenue Sharing
A business model to share the revenue with one or more stakeholders (share owners, businesses, employers, or others).
One example is you can get rewarded for helping a company get sales.
Companies can also sometimes work together and then share the profits.
52. Road Show
Promotion to current or/and potential investors, by an issuer. Often referred to as stocks in the investing world.
In short, a sales pitch.
53. Statistical Arbitrage (Stat Arb)
A computerized method of investing that buys and sells thousands of securities for a few seconds or even days.
S&P 500 (SPX)
54. Sharpe Ratio
The sharpe ratio is a formula to measure the risk of a portfolio. In short, the more companies you have, the less risk, and the less return you have, the less risk.
(Return of Portfolio - Risk-Free Rate) / The standard deviation (volatility)
55. Sortino Ratio
Another formula. Meant to be an improvement of the Sharpe Ratio.
(Expected Returns - Risk Free Rate) / Downside Standard Deviation (volatility))
56. Sovereign Wealth Fund (SWF)
A state-owned Investment fund with money generated by the state,
57. Special, Extra, Windfall Dividend
Sometimes companies can give a very large or otherwise big dividend because of some event.
Often a special sale of assets. Like a company selling real estate or a company that they own.
58. Spread or bid-ask
Ask price is the lowest price anyone is preparied to sell their asset for.
Bid price is the highest.
Spread is the price between.
59. Toxic Debt
Debt is unlikely to be repaid.
60. The Cboe Volatility Index (VIX) (CBOE)
You can say that the index shows the feelings of the investors/traders in the stock market.
Going up means people believe less in a stock-rising market.
Based on the S&P 500 index options, more people buying these options instead of stocks means the VIX is going up.
61. Window Dressing
It means displaying something more attractive than it is, like showing something at the window in a store. And it is less attractive inside.
Fund manager sells their less-performing stocks hence making the portfolio look a lot better than it has been.
Or it can mean an accounting term for writing up the result for one or several years by taking it from other years. For example, managers and other people inside the business can show off a good result or increase their bonuses temporarily.
62. Zero Cost Collar
An options strategy involves buying a call and putting options that cancel each other.
To minimize the risk of the investments. Another term is a zero-cost option.
63. Bear Raid
When one or several traders tries to force down the stock price to cover a short position. It's often illegal since it can mean spreading false rumors or anything else to try and force down the price.
64. Short Selling / Shorting / Going Short
In short, it means to bet against an asset.
How it works is that you borrow an asset (like a stock), then sell it immediately. And later on, you repurchase and return it to its owner.
And if the asset has decreased in price, you will have received a profit.
Buying can only lose 100% of your capital, but with shorting, there is no limit on how much you could lose.
65. Short Squeeze
An investor or funds can try to buy as many stocks as possible of a shorted asset. And force the short sellers to finally sell since they could lose an infinite amount of money. And the buyers can only lose what they paid.
In the investing world, it means using borrowed money to invest.
67. Exchange-traded funds (ETFs)
Often a machine invests in an index. These are cheap and considered a very safe and stable investment. At least compared to buying stocks yourself.
And if it follows, a good-performing index such as S&P 500.
68. Hedge fund
Is an actively trading fund that invests in all kinds of assets. They do all kinds of strategies and are often excluded from very rich or otherwise authorized people.
Hedge funds are considered riskier since they do so many types of risky strategies.
69. Mutual Fund
They often just invest in securities such as stocks and bonds. Often they are available to the public and you can even day trade them.
70. Quant Fund
All securities in these funds are made with quantitative analysis. It's a computer that makes the trades based on just the numbers.
71. Debtor / Creditor
The person who owes the money to another person.
Failure of a debtor to make payments of interest and principle.