Dictionary of Investment Terms

A stock remains within a price range of about 10% of its selling price for a long period of time that could be from several weeks to many months. If it breaks out to the upside the experts will tell you there has been a long period of Accumulation; however, if it breaks out to the downside the same experts will tell you there has been a period of Distribution. The experts don’t know. Don’t listen to them.

Annual Report
A report usually made a by a CPA firm that tells you what the company has been doing with your money. Shows annual sales, balance sheets, operating statements, earnings (if any) and lots of complicated footnotes that very few people understand. The footnotes are where they hide all the stuff they don't want you to know. Most of these numbers reflect what went on over a whole year and are therefore distorted by the time pattern. Basically worthless. It would be useful if you want to buy their business or loan them money but has no bearing on which way the stock price is headed.

The lowest price at which an investor is willing to sell — stocks, bonds, options, commodities or anything else for that matter.

The price that you paid for the shares including all fees and commissions. Mainly for tax purposes.

Basis Point
The smallest measure for quoting yields on bonds; one basis point is .01 percent of the yield of the bond. Also used to quote interest rates. One hundred basis points is equal to one percent, 50 basis points is equal to ½ percent.

Bear Market
Any time the stock market as a whole as measured by the Dow Jones Industrial Average or the Standard & Poor’s 500 Index loses 20% or more of its value. You don't want to be in the market during these times.

A measure of volatility.

Black-Scholes Theory
Mathematical equations used to determine the valuation of options. Too complicated for my head. If they really worked all option traders would be rich.

The highest price a buyer is willing to pay to purchase a security.

Blue Chip Stock
This is supposed to be the highest quality stock on the market, but you can still lose money with them. This is more of the smoke and mirrors mystique. There is only one type of "blue chip" stock and that is the one that goes up after you buy it. All the rest are dogs. The historical derivation goes back to the old, days when you played poker and the most expensive chips on the tables were blue.

A certificate which sets forth the amount of money you have lent a company or the government along with the terms and conditions of repayment.

Book Value
The total of all the company’s assets less the intangible assets and liabilities such as bonds. The final figure might be more or less than the market value of the company.

One who makes you broker. Especially if you take his advice. Remember, he works on commission.

Brilliant Strategy. Barbara Streisand. Brown Stuff. Whatever. Words of "advice" from your broker or financial planner.

Buy Price
The price paid for the shares when purchased. If you paid 40½ for 100 shares it adds up to $4,050. Of course you are going to have to add on the commission and fees that might come to several hundred dollars more depending upon the brokerage house. Discount brokers’ commissions are much lower and if you learn how to trade on the Internet, it will be even lower.

Call option. The right to purchase a certain company’s shares at a certain fixed price some time in the future no matter what the price of that security is at that time. You need not exercise this right should the security value be less and you may sell it any time prior to the expiration date.

CD, Certificate of Deposit
A debt instrument usually issued for a period of less than 5 years that pays interest only and the full sum at maturity. This is not what you want if you are building toward a retirement account. Many times it will not keep up with the rate of inflation.

Closed-end Mutual Fund
This type of fund sells only a fixed number of shares. The fund is then traded like a stock. It is listed in the stock section of the newspaper, not with the mutual funds. Most of these funds sell at a discount to the sum total of the shares. It is rare to see them sell at full value, but once in a while they may even sell at a premium. I don’t recommend them.

The vig. The juice. What the broker extracts from you for performing the service of purchasing and registering the stocks you purchase in your name. The less you pay the better for you.

Commodity Future
The right to purchase at today's price a particular food item, metal or financial instrument to be delivered to you according to contract specifications at some specific time and place in the future. It might be wheat, pork bellies (that’s uncured bacon), gold, treasury bills, oil, lumber, stock indexes, foreign currencies, etc. This is not where you want to put you retirement funds. For pros only or those who have more money than brains.

Another Wall Street euphemism for the market going down the sewer. A downward move of less than 20% (that’s a bear). If you are concerned and call your broker he will always tell you this is a correction and the market will come back. Right? Many corrections are in the 10 to 15% category. When the market is at Dow 10,000, it means the market can drop more than 1,000 points and still be in an up trend. Follow the signals in this book and you will sleep peacefully at night.

When a security is split into its parts and each part then sold as a separate item. A zero coupon bond stripped of the dividends and is sold at a discount representing the time value of the bond to maturity. Derivatives are more dangerous than commodity futures; the leverage is sometimes 100 times the price paid. Stay away. You can become bankrupt with these.

Opposite of accumulation. See above. This is the wild part of the market and many times distribution will be in a 20% trading range for several months before it tanks.

An amount paid to a shareholder of the company stock that represents a distribution of part of the profits of the company. I don’t pay any attention to dividends as I am more interested in price appreciation. Many company stocks go up that have never paid any dividends. An overrated reason to buy a stock.

DJIA Dow Jones Industrial Average
Also called the Dow, the Dow 30. Comprised of 30 large company stocks trading on the New York Stock Exchange and is the best known of all U.S. indexes. There are hundreds of indexes not just for stocks, but for everything including, bonds, currencies, commodities and on and on.Each foreign exchange has several. I like the S&P 500 better. See S&P.

Advice from a broker.

Anyone who takes advice from a broker.

One who knows all about everything in the local, national and world economies, but knows nothing about how to apply it to practical situations. The last one to ever consult for investments.

EPS Earnings Per Share
The total of company profits divided by the number of shares. Each day in the Investor’s Business Daily newspaper you will find this figure in the stock listings as a ranking of where the stock stands in relation to all other stocks on that exchange. You don’t want to own any stock with a rating of less than 80. Also note that just because it may have a high rating does not guarantee it is going to up. See RS, relative strength as a companion to EPS.

Where securities orders of listed companies are matched with buyer and seller. The big exchanges are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDQ). Both are usually quoted on the nightly news. Unlisted securities are sold Over The Counter (OTC) by your broker by certain brokerage houses that ‘make the market’ in that particular issue. Transfer of ownership need not be done through an exchange; you may sell the stock certificate to another person by merely endorsing the certificate on the back.

Fed Funds Rate
Actually Federal Funds Rates are set by the Federal Reserve Board. The amount of interest charged by one bank to another bank when it loans money on overnight transactions. This is the Feds way of trying to micromanage the economy.

Many times referred to as the total number of shares outstanding and available for trading. Actually most shares are squirreled away and not traded. The true float is a certain percentage of the outstanding shares that are actively traded. This number will vary widely from issue to issue. Usually the smaller the float, the more violent the price action and wider the spread.

The highest price that a security, stock or option sells at during a specific time frame such hour, day, week, month, year or longer.

This is another term for smoke and mirrors. You will receive advertising for a system some highbinder is trying to sell you with a table of big profits from trading his method. In fact, it has a money back guarantee, but not on what you lost using it. At the bottom is an asterisk * with very fine print that tells you the results are fictitious. Trash it.

The officers and directors of the company or anyone who owns more than 10% of the outstanding stock which means he has "inside" information that may be used for trading purposes. For listed securities these people are required to report their purchases and sales to the Securities and Exchange Commission that publishes them in a special bulletin that you may order at no charge. There are several advisory services that compile these numbers with comments. Another technical tool. If I were an "insider" I’d have an account in my wife’s name at a Swiss brokerage house. I’m sure glad those folks are so honest and report everything.

IPO Initial Public Offering
Stock being offered for the first time to the public with the issuance of a prospectus. And lots of hype by the selling broker. You know what I have to say about both of these in the preceding pages. Nothing positive.

Keep It Simple Stupid. The best trading systems, whether mathematical, psychological or technical, follow this method. The more complicated the method the less likely it is to work.

A long term option usually going out more than one year

Load - No-Load
Commission. Many times as high as 8½%. If you buy $10,000 worth of a load fund with 8½% commission you pay $850 to the broker. You now have $9,150 invested. Most people figure the market has to go up 8.5% to get "even". Wrong. It actually takes more than a 9.25% increase to get you almost even. I don’t like starting this deep in a hole. Don’t buy load funds; there are too many good no-load funds that do not charge any commission. There are also many low-load funds; I don’t even buy these. Some funds such as Fidelity charge a one time low-load commission and then allow you to switch from fund to fund within the Fidelity group at no commission charge. There is no correlation showing that a commission fund performs better than a no-load fund. Your broker will tell you this but he is lying.

The buyers, owners of the security.

The lowest price that a security, stock or option sell for during a specific time such as minute, day, month, year, etc.

A brokerage company will lend money at their broker loan rate to purchase additional shares using a certain percent of the value of your stocks. Currently it is 50%. If you have $100,000 in marketable securities in your account you may purchase up to $50,000 of additional shares in the same or other companies. I don’t recommend this. Also a margin account gives your brokerage company the right to loan your securities to people who are selling 'short'.

Market Value of the Company
Also Market Cap or Market Capitalization. The price of the shares times the number of outstanding shares of the company. Pretty much a meaningless figure, but the "experts" all talk about it. I can’t see how knowing this will ever make you any money.

Money Market
A fund composed of short term interest bearing government bonds, T-Bills or commercial paper. A good, safe place to park your money during a bear market.

Moving Average
The sum of a number computed by adding up all the closing prices of the stock, bond or mutual fund for a period of time, such as 200 days, and then dividing by 200 to give you the 200 day moving average which is plotted daily to form a line on a chart. Any time period may be used such as 10 days, 50 days, etc. When two moving averages with different periods of time are used to create lines that cross this is called an oscillator.

Municipal Bond
A bond issued by a state or local government usually, but not necessarily for, a specific project. Many, not all, are tax exempt.

Something kept in the dark and fed brown stuff. Customer.

Mutual Fund
A company organized under the rules and regulations of the Securities and Exchange Commission that collects money from various individuals, companies or other entities in order to invest in stocks, bonds and/or other types of securities. The share price of an open-end mutual fund will change daily as to the total net asset value divided by the number of shares outstanding.

Net Asset Value
In the paper it is listed as NAV. The total value of all assets in a mutual fund ? cash, stocks, bonds — divided by the total number of shares outstanding.

The use of two or more differently computed moving averages to create crossover patterns that give buy and sell signals.

P/E Price/Earnings Ratio
The price of the stock divided by the earnings of the stock. This can be over any period of time even a future projection, but usually refers to the past year. If a stock is selling for $100 and has earned $10 for the past year it has a P/E of 10. Many stocks have P/E’s of 30, 40, 50 or more which makes them more “speculative”. The higher the P/E the riskier the stock is considered.

Put option. The opposite of a call option. The right to sell a fixed number of shares of a certain security at some time in the future at a designated price. You may or may not own the stock when the put is issued.

RS Relative Strength
A number that describes the comparative strength of a particular stock to other stocks. Investor’s Business Daily newspaper publishes a number that identifies a particular stock in relation to all other stocks on that exchange. You should not own a stock with an RS of less than 70. For example, a stock with a rank of 83 means it has a stronger upward price movement than 83% of all other stocks. Do you want to own a stock with a rating of 40, 33, 17 or any number less than 70? Any stock with a rating of less than 70 is a dog.

Securities that represent equity ownership. Most of them traded on the major exchanges are common shares. The fancier the name the more complicated the instrument.

You sell what you don’t own by borrowing the security from someone you don’t know at the brokerage house to sell to another person you don’t know because you think the price will go down so you can pay the guy you don’t know who you borrowed the stock from. You have looked into the future and said I want to buy this $40 stock at a lower price so I’ll sell it today and buy it when it goes down to $30 or whatever. Let me warn you. If it keeps going up you can be in deep do-do. This is one time you better have a buy stop in place. Markets go down about three times faster that they go up. I like the short side, but it is not for everyone.

S & P Standard & Poor’s 500
This index is composed of 500 different stocks traded on the New York Stock Exchange, but it is weighted by the size of the company that is claimed by the "experts" to be a drawback to its accuracy; however, it’s following is quoted almost as much as the Dow 30. These same "experts" say it is poorly weighted so it is a poor indicator and should not be used as a gauge of their mutual fund performance. Yet they are the first ones to shout from the top of the Empire State building that they beat the S&P500. Hey, guys, you can't have it both ways.

Social Security Trust Fund
There ain’t no such thing. This is ‘Washingtonspeak’ for your taxes going into the general fund that the politicians spend any way they want to. It is merely a governmental Ponzi scheme and will die of its own weight or be cut back severely some time in the future.

The difference between the bid and asked prices of a stock, option or other security. I have seen so-called spreads advocated in stock trading, but not with my money. In commodities you may buy or sell a near option and buy or sell the distant option having two positions, long one and short the other. Money is made or lost as the spread widens or narrows depending on your position and market fundamentals.

There are both sell stops and buy stops. If you own a stock and wish to limit your loss to a specific amount, or to exit your position should the stock take an unexpected tumble, you may place an order with the broker to sell when the stock trades at a specified price. For example you bought a stock at $28 and it is now trading at $44. You may place a GTC Stop at $40. GTC means Good Until Cancelled and also called an Open Order. If the stock trades at or below the $40 price, you will be filled at the next trade price. You are not guaranteed the $40 price. Should the market open sharply lower the next day you will be filled in the opening range even if it might be at $30. I have had it happen to me. If you feel you have been ripped off you may request a "Time & Sales Report" from your broker which shows every trade and the time the trade was executed along with the time your order was entered and the time it took to get to the floor. Sometimes an adjustment will be made.

Strike Price
The price agreed upon in the call or put. If a stock is selling at $25/share, you might purchase a call with a strike price of $25, say 90 days in the future. You think the stock price is going to advance over the next 60 days and you wish to be able to purchase shares at that time at the $25 price. $25 is the strike price. Of course, you will pay a premium for this privilege, but if the stock advances substantially it should be a very profitable trade.

The letters used to designate a particular security. In mutual funds the symbol for Rydex Ursa Fund is RYURX, for General Motors it is GM.

The number of shares or contracts traded between buyer and seller during any period of time designated.

Valuation is in the mind of the beholder. Various experts who write market advisory letters and investment columns for brokerage houses have some weird way of figuring that some stocks are undervalued or overvalued. One ‘expert’ will say a stock is ‘undervalued’ and another ‘expert’ at a different brokerage house will tell you that same stock is ‘overvalued’. The value of a stock is what it sells for that day even though tomorrow the same issue may be selling for more or less. Part of the Greater Fool Theory.

The wild gyrations of price either in the general market or individual issues. As we used to say, "There’s blood in the pit today".

The number of shares traded during a specific time period — minute, hour, day month, year or longer.

Zero Coupon Bond
A debt instrument that pays no interest. It is sold at a discount price that depends upon the time to maturity and the rate of interest quoted.

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