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A measure of
selection risk (also known as residual risk) of a mutual fund in relation
to the market. A positive alpha is the extra return awarded to the
investor for taking a risk, instead of accepting the market return. For
example, an alpha of 0.4 means the fund outperformed the market-based
return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 %
less than would have been predicted from the change in the market
The alpha of a
fund is determined as follows:
[ (sum of y) - ((b)(sum of x)) ] / n
where: n =number of observations (36 mos)
b = beta of the fund
x = rate of return for the S&P 500
y = rate of return for the
AMERICAN DEPOSITARY RECEIPTS
Certificates issued by a U.S. Depositary Bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the
country of issue. One ADR may represent a portion of a foreign share, one
share or a bundle of shares of a foreign corporation. If the ADR's are
"sponsored," the corporation provides financial information and other
assistance to the bank and may subsidize the administration of the ADR's.
"Unsponsored" ADR's do not receive such assistance. ADR's carry the same
currency, political and economic risks as the underlying foreign share;
the prices of the two, adjusted for the SDR/ordinary ratio, are kept
essentially identical by arbitrage. American Depositary Shares (ADS) are a
similar form of certification.
contract that can be exercised at any time between the date of purchase
and the expiration date. Most exchange-traded options are American
Employee of a brokerage
or fund management house who studies companies and makes buy and sell
recommendations on their stocks. Most specialize in a specific
Yearly record of a
publicly held company's financial condition. It includes a description of
the firm's operations, its balance sheet and income statement. SEC rules
require that it be distributed to all shareholders. A more detailed
version is called a 10-K.
differences in the price of a single security that is traded on more than
Also known as TRading
INdex (TRIN):= #advancing issues/#declining issues
volume/total down volume
An advance/decline market indicator. Less than 1.0 indicates bullish
demand, while above 1.0 is bearish. The index often is smoothed with a
simple moving average.
The receipt of an
exercise notice by an options writer that requires him to sell (in the
case of a call) or purchase (in the case of a put) the underlying security
at the specified strike price.
AT THE MONEY
An option is
at-the-money if the strike price of the option is equal to the market
price of the underlying security. For example, if xyz stock is trading at
54, then the xyz 54 option is at-the-money.
data to predict future data.
An arithmetic mean of
selected stocks intended to represent the behavior of the market or some
component of it. One good example is the widely quoted 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.
The average time
to maturity of securities held by a mutual fund. Changes in interest rates
have greater impact on funds with longer average life.
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.
credit investment created by a non-financial firm and guaranteed by a bank
as to payment. Acceptances are traded at discounts from face value in the
secondary market. These instruments have been a popular investment for
money market funds.
The price an investor pays
for a security plus any out-of-pocket expenses. It is used to determine
capital gains or losses for tax purposes when the stock is sold.
Refers to yield on
bonds. Each percentage point of yield in bonds equals 100 basis points. If
a bond yield changes from 7.25 % to 7.39 %, that's a rise of 14 basis
An investor who believes a
stock or the overall market will decline. A bear market isa prolonged
period of falling stock prices, usually by 20% or more.
A situation in which
large traders sell positions with the intention of driving prices
Measure of a
stock's risk in relation to the market. 0.7 means a stock price is likely
to move up or down 70 % of the market change; 1.3 means the stock is
likely to move up or down 30 % more than the market.
BETA EQUATION (STOCKS)
of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x)
(sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for
the S&P 500 Index
y = rate of return for the stock
BETA (MUTUAL FUNDS)
of a fund's risk in relation to the market. 0.7 means the fund's total
return is likely to move up or down 70 % of the market change; 1.3 means
total return is likely to move up or down 30 % more than the market.
BETA EQUATION (MUTUAL FUNDS)
beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum
of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the
S&P 500 Index
y = rate of return for the fund
A steep and rapid
increase in price followed by a steep and rapid drop in price. This is an
indicator seen in charts and used in technical analysis of stock price and
A rise in a security's
price above a resistance level (commonly its previous high price) or drop
below a level of support (commonly the former lowest price.) A breakout is
taken to signify a continuing move in the same direction. Can be used by
technical analysts as a buy or sell indication.
An investor who thinks the
market will rise.
A market which is on
a consistent upward trend.
Purchase of a controlling
interest (or percent of shares) of a company's stock. A leveraged buyout
is done with borrowed money.
An option contract
that gives the holder of the option the right (but not the obligation) to
purchase, and obligates the writer to sell, a specified number of shares
of the underlying stock at the given strike price, on or before the
expiration date of the contract.
during a particular period to acquire or improve long term assets such as
property, plant, or equipment.
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.
between the net cost of a security and the net sale price, if that
security is sold at a loss.
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.
CASH AND EQUIVALENTS
The value of
assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as
government bonds and Bankers' Acceptances. Cash equivalents on balance
sheets include securities (e.g., notes) that mature within ninety
In investments, it
represents earnings before depreciation amortization and non-cash charges.
Sometimes called cash earnoings. Cash Flow from operations (called Funds
From Operations (FFO) by real estate and other investment trusts, is
important because it indicates the ability to pay dividends.
CHANGES IN FINANCIAL POSITION
Sources of funds internally provided from operations which alter a
company's cash flow position: depreciation, deferred taxes, other sources,
and capital expenditures.
Excessive trading of a
client's account in order to increase the broker's commissions.
A transaction in
which the purchaser's intention is to reduce or eliminate a short position
in a stock, or in a given series of options.
A transaction in
which the seller's intention is to reduce or eliminate his long position
in a stock, or a given series of options.
Te fee paid to a broker
to execute a trade, based on number of shares, bonds, options and/or their
dollar value. In 1975, deregulation led to the creation of discount
brokers, who charge lower commissions than full service brokers. Full
service brokers offer advice and usually have a full staff of analysts who
follow specific industries. Discount brokers simply execute a client's
order--and usually do not offer an opinion on a stock.
COMMON STOCK/OTHER EQUITY
of outstanding common shares at par, plus accumulated retained earnings.
Also called shareholders' equity.
A measure of
investors' faith in the economy and the securities market. A low or
deteriorating level of confidence is considered by many technical analysts
as a bearish sign.
The degree of
assurance that a specified failure rate is not exceeded.
statement that follows any "trade" in the securities markets. Confirmation
is issued immediately after a trade is executed. It spells out settlement
date, terms, commission, etc.
The movement of the
price of a futures contract toward the price of the underlying cash
commodity. At the start, the contract price is higher because of the time
value. But as the contract nears expiration, the futures price and the
cash price converge.
CORNER A MARKET
enough of the available supply of a commodity or stock in order to
manipulate its price.
In bonds, notes or
other fixed income securities, the stated percentage rate of nterest,
usually paid twice a year.
A short call option
position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit
the risk the writer takes because the stock does not have to be bought at
the market price, if the holder of that option decides to exercise
A put option position
in which the option riter also is short the corresponding stock or has
deposited, in a cash account, cash or cash equivalents equal to the
exercise of the option. This limits the option writer's risk because money
or stock is already set aside. In the event that the holder of the put
option decides to exercise the option, the writer's risk is more limited
than it would be on an uncovered or naked put option.
Value of cash,
accounts receivable, inventories, marketable securities and other assets
that could be converted to cash in less than 1 year.
for salaries, interest, accounts ayable and other debts due within 1
short-term debt paying ability. Determined by dividing current assets by
current liabilities. The higher the ratio, the more liquid the
For bonds or notes,
the coupon rate divided by the market price of the bond.
An order to buy or sell
stock that automatically expires if it can't be executed on the day it is
financial leverage. Compares assets provided by creditors to assets
provided by shareholders. Determined by dividing long term debt by common
time, rated on a scale of 1-10. 1 indicates that a mutual fund's return
was in the top 10 % of funds being compared, while 3 means the return was
in the top 30 %. Objective Rank compares all funds in the same investment
strategy category. All Rank compares all funds.
The date on
which a firm's directors meet and announce the date and amount of the next
A non-cash expense
that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.
A non-cash expense
that provides a source of free cash flow. Amount allocated during the
period to amortize the cost of acquiring long term assets over the useful
life of the assets.
security, such as an option, or future, whose value is derived in part
from the value and characteristics of another security, the underlying
To remove the general
drift, tendency or bent of a set of statistical data as related to
DIFFERENCE FROM S&P
fund's return minus the change in the Standard & Poors 500 Index for
the same time period. A notation of -5.00 means the fund return was 5
percentage points less than the gain in the S&P, while 0.00 means that
the fund and the S&P had the same return.
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 ReinvestmentPlans
DIVIDEND REINVESTMENT PLANS (DRP)
Plans offered by many corporations for the reivestment of dividends,
sometimes at a discount from market price, on the dividend payment date.
Many DRP's also allow the investment of additional cash from the
shareholder. The DRP is usually administered by the company without
charges to the holder.
When two or more
averages or indices fail to show confirming trends.
Distribution of a
portion of a company's earnings, cash flow or capital to shareholders, in
cash or additional stock.
DIVIDEND YIELD (STOCKS)
Yield represents annual dividends divided by current stock price.
DIVIDEND YIELD (FUNDS)
Yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales
charges (at current rates), but ot redemption charges.
DIVIDENDS PER SHARE
paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is
determined by a weighted average of shares outstanding over the reporting
DIVIDEND REINVESTMENT PLAN
Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the
purchase of additional shares at a deiscount to market price. Dividend
reinvestment plans allow shareholders to accumulate stock over the long
term using dollar cost averaging.
A classic negative
change in ratings for a stock, and or other rated security.
Net income for the
company during the period.
EARNINGS PER SHARE (EPS)
referred to as Primary Earnings Per Share. Net income for the past 12
months divided by the number of common shares outstanding, as reported by
a company. The company often uses a weighted average of shares outstanding
over reporting term.
The ratio of
Earnings Per Share after allowing for tax and interest payments on fixed
interest debt, to the current share price. The inverse of the
Price/Earnings ratio. It's the Total Twelve Months Earnings divided by
number of outstanding shares, divided by the recent price, multiplied by
100. The end result is shown in percentage.
The value of the common
stockholders' equity in a company as listed on the balance sheet.
give the holder the right to buy or sell a specified number of shares of
stock, at a specified price for a certain (limited) time period. Typically
one option equals 100 shares of stock.
contract that can only be exercised on the expiration date.
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
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.
The process of
completing an order to buy or sell securities. Once a trade is executed,
it is reported by a Confirmation Report; settlement (payment and transfer
of ownership) occurs in the U.S. between 1 (mutual funds) and 5 (stocks)
days after an order is executed. Settlement times for exchange listed
stocks are in the process of being reduced to three days in the U.S.
To implement the right
of the holder of an option to buy (in the case of a call) or sell (in the
case of a put) the underlying security.
The percentage of
the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees,
overhead costs and 12b-1 (distribution and advertising ) fees. The expense
ratio does not include brokerage costs for trading the portfolio, although
these are reported as a percentage of assets to the SEC by the funds in a
Statement of Additional Information (SAI). the SAI is available to
shareholders on request. Neither the expense ratio or the SAI includes the
transaction costs of spreads, normally incurred in unlisted securities and
foreign stocks. These two costs can add significantly to the reported
expenses of a fund. The expense ratio is often termed an Operating Expense
cycle relates to the dates on which options on a particular security
expire. A given option will be placed in 1 of 3 cycles, the January cycle,
the February cycle, or the March cycle. At any point in time, an option
will have contracts with 4 expiration dates outstanding, 2 in near-term
months and 2 in far-term months.
The last day (in
the case of American-style) or the only day (in the case of European-
style) on which an option may be exercised. For stock options, this date
is the Saturday immediately following the 3d Friday of the expiration
month; however, brokerage firms may set an earlier deadline for
notification of an option holder's intention to exercise. If Friday is a
holiday, the last trading day will be the preceding Thursday.
company that runs and/or sells shares of the fund. Fund families often
offer several funds with different investment objectives.
FUNDS FROM OPERATIONS (FFO)
by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added
back. A similar term increasingly used is Funds Available for Distribution
(FAD), which is FFO less capital investments in trust property and the
amortization of mortgages.
Agreement to buy
or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts
themselves are often traded on the futures market. A futures contract
differs from an option because an option is the right to buy or sell,
whereas a futures contract is the promise to actually make a
GOOD 'TIL CANCELED
simply called "GTC", it means an order to buy or sell stock that is good
until you cancel it. Brokerages usually set a limit of 30-60 days, at
which the GTC expires if not restated.
growth rate for the number of full fiscal years shown. If there is a
negative or zero value for the first or last year, the growth is NM (not
HEAD & SHOULDERS
In technical analysis, a chart formation in which a stock price
reaches a peak and declines, rises above its former peak and again
declines and rises again but not to the second peak and then again
declines. The first and third peaks are shoulders, while the second peak
is the formation's head. Technical analysts generally consider a head and
shoulders formation to be a very bearish indication.
A strategy designed to
reduce investment risk using "call" options, "put" options, "short"
selling, or futures contracts. A hedge can help lock in existing profits.
Its purpose is to reduce the potential volatility of a portfolio, by
reducing the risk of loss.
The highest (intraday)
price of a stock over the past 52 weeks, adjusted for any stock
that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.
of dividends that would be paid on a share of stock over the next 12
months if each dividend were the same amount as the most recent dividend.
Usually represent by the letter e in stock tables
The yield, based
on the most recent quarterly rate times four. To determine the yield,
divide the annual dividend by the price of the stock. The resulting number
is represented as a percentage.
The category describing
a company's primary business activity. This usually is determined by the
largest portion of revenue.
INITIAL PUBLIC OFFERING (IPO)
company's first sale of stock to the public. Securities offered in an IPO
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 IPOs generally must be prepared to accept very large risks for
the possibility of large gains. IPO's by investment companies (closed end
funds) usually contain underwriting fees which represent a load to
information about a company that has not yet been made public. It is
illegal for holders of this information to make trades based on it,
A "call" option is
in-the-money if the strike price is less than the market price of the
underlying security. A "put" option is in-the-money if the strike price is
greater than the market price of the underlying security. For example, an
xyz "call" option with a 52 strike price is in-the-money when xyz trades
at 52 1/8 or higher. An xyz "put" option with a 52 strike price is
in-the-money when xyz is trading at 51 7/8 or lower.
For companies: Raw
materials, items available for sale or in the process of being made ready
for sale. They can be individually valued by several different means,
including cost or current market value, and collectively by FIFO, LIFO or
other techniques. The lower value of alternatives is usually used to
preclude overstating earnings and assets. For security firms: securities
bought and held by a broker or dealer for resale.
The ratio of
annual sales to inventory. Low turnover is an unhealthy sign, indicating
excess stocks and/or poor sales.
fund regulated by the Investment Company Act of 1940. These funds have a
fixed number of shares which are traded on the secondary markets similarly
to corporate stocks. The market price may exceed the net asset value per
share, in which case it is considered at a "premium." When the market
price falls below the NAV/share, it is at a "discount." Many closed end
funds are of a specialized nature, with the portfolio representing a
particular industry, country, etc. These funds are usually listed on US
and foreign exchanges.
accounts where you can save and invest, and the taxes are deferred until
money is withdrawn. These plans are subject to frequent changes in law
with respect to the deductibility of contributions. Withdrawals of tax
deferred contributuons are taxed as income, including the capital gains
from such accounts.
After a stock split,
the number of shares distributed for each share held and the date of the
An order to buy a
stock at or below a specified price or to sell a stock at or above a
specified price. For instance, you could tell a broker "Buy me 100 shares
of xyz Corp at $8 or less" or to "sell 100 shares of xyz at $10 or
A mutual fund with
shares sold at a price including a sales charge--typically 4 % to 8% of
the net amount indicated. Some "no-load" funds have distribution fees
permitted by article 12b1 of the Investment Company Act; these are
typically 0.25%. A "true no-load" fund has neither a sales charge not 12b1
fee. A load implies that the fund purchaser receives some investment
advice or other service worthy of the charge.
Occurs when an
individual owns securities. An owner of 1000 shares of stock is said to be
"Long the Stock."
LONG POSITION (OPTIONS)
options position where a person has executed one or more options trades
where the net result is that they are an "owner" or holder of options
(i.e. the number of contracts bought exceeds the number of contracts
LONG TERM ASSETS
property, equipment and other capital assets minus the depreciation. This
is an entry in the bookkeeping records of a company, usually on a "cost"
basis and thus does not necessarily reflect the market value of the
LONG TERM DEBT
obligations of over 1 year that require that interest be paid.
LONG TERM DEBT/CAPITALIZATION
Indicator of financial leverage. Shows long term debt as a proportion
of the capital available. Determined by dividing long term debt by the sum
of long term debt, preferred stock and common stockholders' equity.
LONG TERM LIABILITIES
for leases, bond repayment and other items due after 1 year.
The lowest (intraday)
price of a stock over a certain period of time.
MANAGEMENT/CLOSELY HELD SHARES
Percentage of shares held by persons closely related to a company, as
defined by the Securities and Exchange Commission. Part of these
percentages often is included in Institutional Holdings--making the
combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to
be closely allied to the company.
MARGIN ACCOUNT (STOCKS)
leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the
stock and, if the value of the stock drops sufficiently, the owner will be
asked to either put in more cash, or sell a portion of the stock. Margin
rules are federally regulated, but margin requirements and interest may
vary among broker/dealers.
MARGIN REQUIREMENT (OPTIONS)
amount of cash an uncovered (naked) option writer is required to deposit
and maintain to cover his daily position valuation and reasonably
foreseeable intra- day price changes.
total dollar value of all outstanding shares. Computed as shares times
current market price. It is a measure of corporate size.
The period between
the 2 latest highs or lows of the S&P 500, showing net performance of
a fund through both an up and a down market. A market cycle is complete
when the S&P is 15 % below the highest point or 15 % above the lowest
point (ending a down market). The dates of the last market cycle are:
12/04/87 to 10/11/90 (low to low).
An order to buy or
sell a stock at the going price.
funds, the amount required to open a new account (Minimum Initial
Purchase) or to deposit into an existing account (Minimum Additional
Purchase). These minima may be lowered for buyers participating in an
automatic purchase plan
MONEY MARKET FUND
A mutual fund
that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net
asset value per share is maintained at $1.00. Such funds are not federally
insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.
Used in charts and
technical analysis, the average of security or commodity prices
constructed in a period as short as a few days or as long as several years
and showing trends for the latest interval. As each new variable is
included in calculating the average, the last variable of the series is
An open end
investment company that pools investors' money to invest in a variety of
stocks, bonds, or other securities. A mutual fund issues and redeems
shares to meet demand, and the redemption value per share is the net asset
value per share, less in some cases a redemption fee which represents a
rear-end load. A closed end fund, often incorrectly called a mutual fund,
is instead an investment trust. Both are investment companies regulated by
the Investment Company Act of 1940.
NET ASSET VALUE (NAV)
of a fund's investments. For a mutual fund, the net asset value per share
usually represents the fund's market price, subject to a possible sales or
redemption charge. For a closed end fund, the market price may vary
significantly from the net asset value.
The company's total
earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses
Price and volume
fluctuations that can confuse interpretation of market direction.
NO LOAD MUTUAL FUND
open-end investment company, shares of which are sold without a sales
charge. There can be other distribution charges, however, such as Article
12b-1 fees. A true "no load" fund will have neither a sales charge nor a
Abbreviation for Not
OBJECTIVE (MUTUAL FUNDS)
fund's investment strategy category as stated in the prospectus. There are
more than 20 standardized categories.
A transaction in
which the purchaser's intention is to create or increase a long position
in a given series of options.
A transaction in
which the seller's intention is to create or increase a short position in
a given series of options.
The number of
outstanding option contracts in the exchange market or in a particular
class or series.
Gives the buyer the right,
but not the obligation, to buy or sell stock at a set price on or before a
given date. Investors, not companies, issue options. Investors who
purchase call options bet the stock will be worth more than the price set
by the option (the strike price), plus the price they paid for the option
itself. Buyers of put options bet the stock's price will go down below the
price set by the option.
OTHER CURRENT ASSETS
non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.
OTHER LONG TERM LIABILITIES
of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more
than 1 year.
Amount of funds
generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free Cash Flow calculation.
OUT OF THE MONEY
A call option is
out-of-the-money if the strike price is greater than the market price of
the underlying security. A put option is out-of-the-money if the strike
price is less than the market price of the underlying security.
indicator that attempts to define when prices have moved too far and too
fast in either direction and thus are vulnerable to reaction.
Date on which a
declared stock dividend or a bond interest payment is scheduled to be
In mutual funds,
the ability to transfer shares between funds in the same family by
telephone request. There may be a charge associated with these transfers.
Phone switching is also possible among different fund families if the
funds are held in street name by a particpating broker/dealer.
Price level established as
being significant by market's failure to penetrate or as being significant
when a sudden increase in volume accompanies the move through the price
POINT AND FIGURE CHART
price-only chart that takes into account only whole integer changes in
price, i.e., a 2-point change. Point and figure charting disregards the
element of time and is solely used to record changes in price.
A security that
shows ownership in a corporation and gives the holder a claim, prior to
the claim of common stockholders, on earnings and also generally on assets
in the event of liquidation. Most preferred stock pays a fixed dividend,
stated in a dollar amount or as a percentage of par value. This stock does
not usually carry voting rights.
The price of an option
contract, determined on the exchange, which the buyer of the option pays
to the option writer for the rights to the option contract.
Price of a share of common
stock on the date shown. Highs and lows are based on the highest and
lowest intraday trading price.
stock's market value to the value of total assets less total liabilities
(book). Determined by dividing current price by common stockholders'
equity per share (book value), adjusted for stock splits. Also called
"multiple" of earnings at which a stock sells. Determined by dividing
current price by current earnings per share (adjusted for stock splits).
Earnings per share for the P/E ratio is determined by dividing earnings
for past 12 months by the number of common shares outstanding. Higher
"multiple" means investors have higher expectations for future growth, and
have bid up the stock's price.
P/E RATIO EQUATION
Assume XYZ Co
sells for $25.50 per share and has earned $2.55 per share this year
$25.50 = 10 times $2.55
XYZ stock sells for 10 times
dividing stock's current price by revenue per share (adjusted for stock
splits). Revenue per share for the P/S ratio is determined by dividing
revenue for past 12 months by number of shares outstanding.
The first buyer of
a newly issued security buys that security in the primary market. All
subsequent trading of those securities is done in the secondary
profitability. Determined by dividing net income by revenue for the same
12-month period. Result is shown as a percentage.
Trades based on
signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.
document to sell securities that describes the plan for a proposed
business enterprise, or the facts concerning an existing one, that an
investor needs to make an informed decision. Prospectuses are used by
Mutual Funds to describe the fund objectives, risks and other essential
Document intended to
provide shareholders with information necessary to vote in an informed
manner on matters to be brought up at a stockholders' meeting. Includes
information on closely held shares. Shareholders can and often do give
management their proxy, representing the right and responsibility to vote
their shares as specified in the proxy statement.
An option contract
that gives the holder the right to sell (or "put"), and places upon the
writer the obligation to purchase, a specified number of shares of the
underlying stock at the given strike price on or before the expiration
date of the contract.
Indicator of a
company's financial strength (or weakness). Calculated by taking current
assets less inventories, divided by current liabilities. Also called Acid
The difference between the
high and low price during a given period.
The percentage gain or
loss for a mutual fund in a specific time period. This number assumes that
all distributions are reinvested.
Date by which a
shareholder must officially own shares in order to be entitled to a
dividend. For example, a firm might declare a dividend on Nov 1, payable
Dec 1 to holders of record Nov 15. Once a trade is executed an investor
becomes the "owner of record" on settlement, which currently takes 5
business days for securities, and one business day for mutual funds.
Stocks trade ex-dividend the fourth day before the record date, since the
seller will still be the owner of record and is thus entitled to the
charged by a mutual fund when redeeming shares. For example, a 2 %
redemption charge (also called a "back end load") on the sale of shares
valued at $1000 will result in payment of $980 (or 98 % of the value) to
the investor. This charge may decrease or be eliminated as shares are held
for longer time periods.
A stock's price
movement over the past year as compared to a market index (the S&P
500). Value below 1.0 means the stock shows relative weakness in price
movement (underperformed the market); a value above 1.0 means the stock
shows relative strength over the 1-year period. Equation for Relative
Strength: [current stock price/year-ago stock price] [current S&P
500/year-ago S&P 500]
A price movement in
the opposite direction of the previous trend.
RETURN ON ASSETS (ROA)
of profitability. Determined by dividing net income for the past 12 months
by total assets. Result is shown as a percentage.
RETURN ON EQUITY (ROE)
of profitability. Determined by dividing net income for the past 12 months
by common stockholders' equity (adjusted for stock splits). Result is
shown as a percentage.
REVERSE STOCK SPLIT
proportionate decrease in the number of shares, but not the value of
shares of stock held by shareholders. Shareholders maintain the same
percentage of equity as before the split. For example, a 1-for-3 split
would result in stockholders owning 1 share for every 3 shares owned
before the split. A firm generally institutes a reverse split to boost its
stock's market price and attract investors.
"rights" to current shareholders allowing them to purchase additional
shares, usually at a discount to market price. Shareholders who do not
exercise these rights are usually diluted by the offering. Rights are
often transferrable, allowing the holder to sell them on the open market
to others who may wish to exercise them. Rights offerings are particularly
common to closed end funds, which cannot otherwise issue additional common
The fee charged by a
mutual fund when purchasing shares, usually payable as a commission to
amarketing agent, such as a financial advisor, who is thus compensated for
his assistance to a purchaser. It epresents the difference, if any,
between the share purchase price and the share net asset value.
The Securities and Exchange
Commission, the primary federal regulatory agency of the securities
A market that
provides for the purchase or sale of previously owned securities. Most
trading is done in the secondary market. The New York Stock Exchange, as
well as all other stock exchanges, the bond markets, etc., are secondary
If an investor
thinks the price of a stock is going down, the investor could borrow the
stock from a broker and sell it. Eventually, s/he must buy the stock back
on the open market. For instance, you borrow 1000 shares of XYZ on July 1
and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares of
XYZ at $7 per share. You've made $1000 (less commissions and other fees)
by selling short.
Options: All option
contracts of the same class that also have the same unit of trade,
expiration date, and exercise price.Stocks: shares which have common
characteristics, such as rights to ownership and voting, dividends, par
value, etc. In the case of many foreign shares, one series may be owned
only by citizens of the country in which the stock is registered.
The date on which
payment is made to settle a trade. For stocks traded on US exchanges,
settlement is currently 5 business days after the trade, but this will be
reduced to 3 days in 1995. For mutual funds, settlement usually occurs in
the U.S. the day following the trade. In some regional markets, foreign
shares may require months to settle.
Certificates or book
entries representing ownership in a corporation or similar entity
Program by which
a corporation buys back its own shares in the open market. It is usually
done when shares are undervalued. Since it reduces the number of shares
outstanding and thus increases earnings per share, it tends to elevate the
market value of the remaining shares held by stockholders.
SHORT POSITION (OPTIONS)
position wherein a person's interest in a particular series of options is
as a net writer (ie, the number of contracts sold exceeds the number of
SHORT POSITION (STOCKS)
when a person sells stocks s/he does not yet own. Shares must be borrowed,
before the sale, to make "good delivery" to the buyer. Eventually, the
shares must be bought to close out the transaction. Technique is used when
an investor believes the stock price is going down.
Selling a security
that the seller does not own but is committed to repurchasing eventually.
It is used to capitalize on an expected decline in the security's
The difference between
estimated transaction costs and actual transaction costs. The difference
is usually composed of revisions to price difference or spread and
Abbreviation for Standard
Industrial Classification. Each 4-digit code represents a unique business
Payment of a
corporate dividend in the form of stock rather than cash. The stock
dividend may be additional shares in the company, or it may be shares in a
subsidiary being spun off to shareholders. Stock dividends are often used
to conserve cash needed to operate the business. Unlike a cash dividend,
stock dividends are not taxed until sold.
STOP (-LOSS) ORDER
An order to
sell a stock when the price falls to a specified level.
The stated price per
share for which underlying stock may be purchased (in the case of a call)
or sold (in the case of a put) by the option holder upon exercise of the
Annual report required by
the SEC each year. Provides a comprehensive overview of a company's state
of business. Must be filed within 90 days after fiscal year end. A 10Q
report is filed quarterly.
A market indicator
based on the number of stocks whose last trade was an uptick or a
downtick. Used as an indicator of market sentiment or psychology to try to
predict the market's trend.
The portion of the
premium that is based on the amount of time remaining until the expiration
date of the option contract, and that the underlying components that
determine the value of the option may change during that time. Time value
is generally equal to the difference between the premium and the intrinsic
Total sales and
other revenue for the period shown. Known as "turnover" in the UK.
A verbal (or electronic)
transaction involving one party buying a security from another party. Once
a trade is consummated, it is considered "done" or final. Settlement
occurs 1-5 business days later.
The date on which a
trade occurs. Trades generally settle (are paid for) 1-5 business days
after a trade date. With stocks, settlement is generally 5 business days
after the trade.
between the high and low prices traded during a period of time; with
commodities, the high/low price limit established by the exchange for a
specific commodity for any one day's trading.
Mutual Funds: A
measure of trading activity during the previous year, expressed as a
percentage of the average total assets of the fund. A turnover ratio of 25
% means that the value of trades represented one-fourth of the assets of
the fund. Finance: The number of times a given asset, such as inventory,
is replaced during the accounting period, usually a year. Corporate: The
ratio of annual sales to net worth, representing the extent to which a
company can growth without outside capital. Markets: The volume of shares
traded as a percent of total shares listed during a specified period,
usually a day or a year. Great Britain: Total revenue
The percent of a
mutual fund's assets used to defray marketing and distribution expenses.
The amount of the fee is stated in the fund's prospectus. The SEC has
recently proposed that 12b1 fees in excess of 0.25% be classed as a load.
A true "no load" fund has neither a sales charge nor 12b1 fee.
The classification of
an option contract as either a put or a call.
short call option position in which the writer does not own shares of
underlying stock represented by his option contracts. Also called a
"naked" call, it is much riskier for the writer than a covered call, where
the writer owns the underlying stock. If the buyer of a call exercises the
option to call, the writer would be forced to buy the stock at market
A short put option
position in which the writer does not have a corresponding short stock
position or has not deposited, in a cash account, cash or cash equivalents
equal to the exercise value of the put. Also called "naked" puts, the
writer has pledged to buy the stock at a certain price if the buyer of the
options chooses to exercise it. The nature of uncovered options means the
writer's risk is unlimited.
security subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying security to IBM
options. Depositary receipts: The class, series and number of the foreign
shares represented by the depaositary receipt.
A measure of risk
based on standard deviation in fund performance over 3 years. Scale is
1-9; higher rating indicates higher risk.
Std Deviation Rating Std Deviation Rating
up to 7.99 1 20.00-22.99 6
8.00-10.99 2 23.00-25.99 7
11.00-13.99 3 26.00-28.99 8
14.00-16.99 4 29.00 and up 9
Stock that has fallen
out of favor with investors; tends to have a low P/E.
WANTED FOR CASH
displayed on market tickers which indicates that a bidder will pay cash
for same day settlement of a block of a specified security.
A security entitling the
holder to buy a proportionate amount of stock at some specified future
date at a specified price, usually one higher than current market. This
"warrant" is then traded as a security, the price of which reflects the
value of the underlying stock. Warrants are usually issued as a
"sweetener" bundled with another class of security to enhance the
marketability of the latter,
An asset which has
a limited life and thus, decreases in value (depreciates) over time. Also
applied to consumed assets, such as gas, and termed "depletion."
A list of securities
selected for special surveillance by a brokerage, exchange or regulatory
organization; firms on the list are often takeover targets, companies
planning to issue new securities or stocks showing unusual activity.
The ability to
establish automatic periodic mutual fund redemptions and have proceeds
mailed directly to the investor.
The seller of an option
A double bottom
where the price or indicator chart has the appearance of a W.
The percentage rate of return paid on a stock in the form of
dividends, or the rate of interest paid on a bond or note.
YIELD TO CALL
The percentage rate
of a bond or note, if your were to buy and hold the security until the
call date. This yield is valid only if the security is called prior to
maturity. Generally bonds are callable over several years and normally are
called at a slight premium. The calculation of yield to call is based on
the coupon rate, length of time to the call and the market price.
YIELD TO MATURITY
rate of return paid on a bond, note or other fixed income security if you
buy and hold it to its maturity date. The calculation for YTM is based on
the coupon rate, length of time to maturity and market price. It assumes
that coupon interest paid over the life of the bond will be reinvested at
the same rate.