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FINANCIAL
TERMS DEFINED |
|
A |
| A.M.E.X. |
See 'American Stock
Exchange' |
Accumulate
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A recommendation which
could mean slightly different things depending on the advisor.
In general, it means to increase the number of shares of a particular
security over the short term - but not to liquidate other parts of
your portfolio to buy a security that might skyrocket. So, it is a buy
recommendation - but not strong buy. |
| Acquisition |
When one firm buys
another firm. |
| American Stock Exchange (AMEX) |
Stock exchange with the
third largest volume of trading in the U.S. Manhattan, New
York. The bulk of trading on A.M.E.X. consists of index options
(computer technology index, institutional index, major market index)
and shares of small to medium-size companies is predominant. |
| Analyst |
Employee of a brokerage
or fund management house who studies and researches companies to make
buy-and-sell recommendations on stocks of these companies. Most
analysts specialize in a specific industry. |
| Annual
Percentage Yield |
The effective, or true,
annual rate of return. The A.P.Y. is the rate actually earned or
paid in one year, taking into account the affect of compounding.
The A.P.Y. is calculated by taking one plus the periodic rate and
raising it to the number of periods in a year. For example, a 1%
per month rate has an A.P.Y. of 12.68% (1.01^12 -1). |
| Annual
Rate of Return |
There are many ways of
calculating the annual rate of return. If the rate of return is
calculated on a monthly basis, we sometimes multiply this by 12 to
express an annual rate of return. This is often called the
annual percentage rate (A.P.R.). The annual percentage yield
annual percentage yield (A.P.Y.), described above, is used to include
the affect of compounding interest. |
| Annual
Report |
Yearly record of a
publicly held company's financial condition. It includes a description
of the firm's operations, as well as balance sheet, income statement
and cash flow statement information. Most security commissions have
rules that require this report be distributed to all shareholders. |
| Ask |
This is the quoted ask,
or the lowest price an investor will accept to sell a stock.
Practically speaking, this is the quoted offer at which an investor
can buy shares of stock; also called the offer price. |
| Assets |
A firm's
productive resources. |
| Average |
An
arithmetic mean return of selected stocks intended to represent the
behavior of the market or some component of it. An example is
the Dow Jones Industrial Average, which adds the current prices of the
30 DJIA's stocks, and divides the results by a predetermined number,
the divisor. |
|
B |
| Back-End Load
Fund |
A mutual
fund that charges investors a fee to sell (redeem) shares, often
ranging from 4% to 6%. Some back-end load funds impose a full
commission if the shares are redeemed within a designated time, such
as one year. The commission decreases the longer the investor
holds the shares. The formal name for the back-end load is the
contingent deferred sales charge, or C.D.S.C. The ABC Funds are
no-load funds. |
| Back Office |
Brokerage
house clerical operations that support, but do not include, the
trading of stocks and other securities. Includes all written
confirmation and settlement of trades, record keeping and regulatory
compliance. The ABC Funds have Royal Trust as their back office. |
| Balance
Sheet |
Also called
the statement of financial condition, it is a summary of a company's
assets, liabilities, and owners' equity. |
| Balanced
(Mutual) Fund |
An
investment company that buys common stock, preferred stock and bonds.
The ABC Fully-Managed is our Balanced Fund. |
| Bear Market |
Any market
in which prices are in a declining trend. For a prolonged
period, usually falling by 20% or more. |
| Bearish |
Used to
describe investor attitudes. Refers to a pessimistic outlook |
| Benchmark |
The
performance of a predetermined set of securities, used for comparison
purposes. Such sets may be based on published indexes or may be
customized to suit an investment strategy. Our three funds each
have their own appropriate benchmark. |
| Bid (Price) |
This is the
quoted bid, or the highest price an investor is willing to pay to buy
a security. Essentially, this is the available price at which an
investor can sell shares of stock. |
| Block |
Large
quantity of stock or large dollar amount of bonds held or traded. As a
rule of thumb, 10,000 shares or more of stock and $200,000 or more
worth of bonds would be described as a block. |
| Blue-Chip
Company |
Used in the
context of general equities. Large and creditworthy company.
A company renowned for the quality and wide acceptance of its products
or services, and for its ability to make money and pay dividends. |
| Bond |
Bonds are
debt and are issued for a period of more than one year. Governments,
water districts, companies and many other types of institutions sell
bonds. When an investor buys bonds, he or she is lending money.
The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest
periodically. |
| Book Value |
A company's
book value is its total assets minus intangible assets and
liabilities, such as debt. A company's book value might be more
or less than its market value |
| Book Value
Per Share |
The ratio
of stockholder equity to the average number of common shares.
Book value per share should not be thought of as an indicator of
economic worth, since it reflects accounting valuation (and not
necessarily market valuation). |
| Bottom-Up
Equity Management Style |
A
management style that de-emphasizes the significance of economic and
market cycles, focusing instead on the analysis of individual stocks. |
| Broker |
An
individual who is paid a commission for executing customer orders.
Either a floor broker who executes orders on the floor of the exchange,
or an upstairs broker who handles retail customers and their orders.
Person who acts as an intermediary between a buyer and seller, usually
charging a commission. A "broker" who specializes in
stocks, bonds, commodities, or options acts as agent and must be
registered with the exchange where the securities are traded.
Antithesis of dealer. |
| Bubble
Theory |
Security
prices sometimes move wildly above their true values until the
"bubble bursts". |
| Bull Market |
Any market
in which prices are in an upward trend. |
| Bullish |
Used to
describe investor attitudes. Refers to an optimistic outlook. |
| Business
Cycle |
Repetitive
cycles of economic expansion and recession. |
| Buy |
To purchase
an asset; taking a long position. |
| Buying the
Index |
Purchasing
the stocks of an index in the same proportion as the index to achieve
the same return. |
|
C |
| Capital
Gain |
When a
stock is sold for a profit, it's the difference between the net sales
price of securities and their net cost, or original basis. If a
stock is sold below cost, the difference is a capital loss. |
| Cash
Dividend |
A dividend
paid in cash to a company's shareholders. The amount is normally
based on profitability and is taxable as income. A cash
distribution may include capital gains and return of capital in
addition to the dividend. |
| Commodity |
A commodity
is food, metal, or another physical substance that investors buy or
sell, usually via futures contracts. |
| Contrarian |
An
investment style that leads one to buy assets that have performed
poorly and sell assets that have performed well. There are two
possible reasons why this strategy might work. The first is a
mean-reversion argument, that is, if the asset has deviated from is
usual level, then it should eventually return to that usual level.
The second reason has to do with overreaction. Investors might
have overreacted to bad news sending the asset price lower than it
should be. |
| Custodian |
See 'Back
Office' |
|
D |
| Distributions |
Payments from fund or
corporate cash flow. May include dividends from earnings,
capital gains from sale of portfolio holdings and return of capital.
Fund distributions can be made by check or by investing in additional
shares. Funds are required to distribute capital gains (if any)
to shareholders at least once per year. Some corporations offer
Dividend Reinvestment Plans (D.R.P.). |
| Dividend |
A dividend is a portion of a
company's profit paid to common and preferred shareholders. A
stock selling for $20 a share with an annual dividend of $1 a share
yields the investor 5%. |
| Dow Jones Industrial Average |
This is the best known U.S.
index of stocks. It contains 30 stocks that
on the New York Stock Exchange. The Dow, as it is called, is a
barometer of how shares of the largest U.S. companies are performing.
There are hundreds of investment indexes around the world for stocks,
bonds, currencies and commodities. The Dow is a price-weighted
average of 30 actively traded blue chip stocks, primarily industrials. |
| Dutch Auction |
Auction in which the lowest
price necessary to sell the entire offering becomes the price at which
all securities offered are sold. This technique has been used in
Treasury auctions. Often used in risk arbitrage. Auction
system in which the price of an item (stock) is gradually lowered
until it meets a responsive bid (government T-bills) or offer
(corporate repurchase) and is sold. |
|
E |
| Earnings |
Net income for the company
during the period. |
| Earnings Per Share
(EPS) |
EPS, as it is called, is a
company's profit divided by its number of outstanding shares. If
a company earned $2 million in one year had 2 million shares of stock
outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares
outstanding over the reporting term. |
| Earnings Surprises |
Positive or negative
differences from the consensus forecast of earnings by certain institutions.
Negative earnings surprises generally have a greater adverse affect on
stock prices than the reciprocal positive earnings surprise on stock
prices. |
| Exchange |
The marketplace in which
shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock
Exchange (NYSE), American Stock Exchange (AMEX) and the
National Association of Securities Dealers Automatic Quotation System
(NASDAQ). |
| Exchange Rate |
The price of one country's
currency expressed in another country's currency. |
| Ex-Dividend |
This literally means
"without dividend." The buyer of shares when they are
quoted ex-dividend is not entitled to receive a declared dividend.
Used in the context of general equities. It is the interval
between the record date and the payment date during which the stock
trades without its dividend -- the buyer of a stock selling
ex-dividend does not receive the recently declared dividend. |
| Ex-Dividend Date |
The first day of trading when
the seller, rather than the buyer, of a stock will be entitled to the
most recently announced dividend payment. This date set by the NYSE
(and generally followed on other US exchanges) is currently two
business days before the record date. A stock that has gone
ex-dividend is marked with an x in newspaper listings on that date. |
|
F |
| Financial
Analysts |
Also called
securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade
shows, in order to write reports recommending either purchasing,
selling, or holding various stocks. |
| Financial
Planning |
The process
of evaluating the investing and financing options available to a firm.
It includes attempting to make optimal decisions, projecting the
consequences of these decisions for the firm in the form of a
financial plan, and then comparing future performance against that
plan. |
| Forward
Contract |
A cash
market transaction in which delivery of the commodity is deferred
until after the contract has been made. It is not standardized and is
not traded on organized exchanges. Although the delivery is made
in the future, the price is determined at the initial trade date. |
| Fund Family |
Set of
funds with different investment objectives offered by one management
company. In many cases, investors may move their assets from one
fund to another within the family at little or no cost. At ABC,
their is no cost. |
| Future(s) |
A term used
to designate all contracts covering the sale of financial instruments
or physical commodities for future delivery on a commodity exchange. |
|
G |
| Goodwill |
Excess of
the purchase price over the fair market value of the net assets
acquired under the purchase method of accounting. At ABC, we
look down on goodwill. |
| Growth
Manager/Fund |
A money
manager/fund who/which seeks to buy stocks that are typically selling
at relatively high P/E ratios due to high earnings growth, with the
expectation of continued high or higher earnings growth. |
|
H |
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|
I |
| Index |
Often
applies to derivative products. Statistical composite that
measures changes in the economy or in financial markets, often
expressed in percentage changes from a base year or from the previous
month. Most relevantly, indices measure the ups and downs of
stock, bond , and some commodities markets, reflecting market prices
and weighing of the companies on the index. |
| Initial
Public Offering (IPO) |
A company's
first sale of stock to the public. Securities offered in an
I.P.O. are often, but not always, those of young, small companies
seeking outside equity capital and a public market for their stock.
Investors purchasing stock in I.P.O.s generally must be prepared to
accept very large risks for the possibility of large gains. I.P.O.'s
by investment companies (closed-end funds) usually contain
underwriting fees which represent a load to buyers. |
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