I want to play a game…

High water mark – A performance incentive, usually used in hedge funds. The fund manager who falls under this incentive strategy earns a commission only when he has outperformed the previous highest return achieved by the fund.

Venture Capital: alternative asset class whereby investment is injected into startup companies. Considered risky due to high chance of failure of the underlying business.

Time Horizon : One of the constraints to consider in an IPS. It refers to listing down and analysing the time constraints of the client, which would help the manager in devising a appropriate investment plan.

Due Diligence: gathering enough information to support your conclusion otherwise you might be liable and people will sue you for damages.

Unrealised return : The return that has accumulated but not yet cashed in. (I’ve given a very raw definition. Correct me if I’m wrong)

Normal contango = The condition in futures markets in which futures prices are higher than expected spot prices.

regulatory arbitrage: companies exploit differences/loopholes in regulations

opportunity cost = the cost of passing up the next best choice when making a decision.

Intangible assets: non-physical assets of a business 🙂

EBITDA = earnings before interest, taxes, depreciation and amortization. that’s a mouthful!

Dividend: a periodic distribution of surplus profits to shareholders.

Net income: profit after all relevant expenses have been deducted, including interest, tax, depreciation and amortization.

A frequent Level 3 question: roll yield = The yield that a futures investor captures when their futures contract converges to the spot price, in this case where the market is in backwardation

Depreciation: spreading the cost of a long-term asset over its usable life (and several reporting periods)

Gamma: A numerical measure of how sensitive an option’s delta (rate of change of value) is to a change in the underlying asset. Gamma is highest when option is at the money (ATM) and lowest when far in the money or out of money.

Also, gamma radiation is responsible for this jolly green giant.

Get on the Gamma train @mattjuniper!

Leading indicator = A set of economic variables whose values reach peaks and troughs in advance of the rest of the economy.

Legal and Regulatory constraints : One of the constraints to consider while drafting an IPS for a client. It is exactly what the name suggests, and serves to inform and guide the portfolio manager with respect to the Legal constraints of the client, if any. (Mostly Legal and Regulatory constraints are with respect to institutional investors)

Tax: Legalised theft created by and used by the government.

Net income: the amount of income left once all expenses and deductions have been made.

Leverage: a method used to amplify gains and losses, think Baring’s bank. It was sunk by the use of future contracts (which my their nature use tons of leverage). Leverage is also a good tv show!

Ibbotsen Chen Equity Risk Premium: a model for finding the appropriate equity risk premium

(Sorry dunno how to paste a photo of the formula in?)

(I’m sure I tried that photo button before and it didn’t embed the photo!)

Intra day trading : A trading strategy employed to exploit the mispricing and movements of securities during the trading hours in a day.

EBITDA: earnings before interest, tax, depreciation and amortisation

LOL, I think EBITDA has been done before…

LOL, I think EBITDA has been done before…

Did I say EBITDA? Must have been the predictive text on the iPad, as I definitely typed EBIT 😉

LOL, I think EBITDA has been done before…

Did I say EBITDA? Must have been the predictive text on the iPad, as I definitely typed EBIT 😉

And also added ‘amortization and depreciation’ all on its own. iOS predictive text is getting too omniscient.

😀

Active return = The return on a portfolio minus the return on the portfolio’s benchmark.

Contango and Backwardation concepts never ceased to confuse me. @-)

Reminds me of one of the comments posted on the Goldman Sachs Elevator Twitter account:

GS Banker 1: “My girlfriend thought backwardation was a sexual thing.”
GS Banker 2: “There’s a keeper.”

Information cascades – Uninformed traders watch well informed traders and make decisions.

Sales risk – Uncertainity about firm sales.

P.S. Sorry if this is too damn simple a term. Whatever popped in my head i put eere.

in-the-money-option: An option that has a positive value.

Out-the-money-option: An option that has a negative value.

Tankan survey one of the most talked about or written about term in asian economy especially Japan.

Well its an economic survey of the companies of japan issued by their central bank which is then used to formulate their monetary policies.

Wow, don’t recall seeing this, good to know!

bloomberg.com/news/2013-04-01/japanese-stocks-fall-as-manufacturer-sentiment-misses-estimates.html

Here’s the link, I just happened to read the same, so sent you one.

Tail value at risk = expected value of the loss given that an event outside a given probability level has occurred (the VAR plus the expected loss in excess of VAR)

Salvage value = The amount the company estimates that it can sell the asset for at the end of its useful life.

Uptick rules = Trading rules that specify that a short sale must not be on a downtick relative to the last trade at a different price.

This was what happened during the 2008 crisis…

Tangible assets: physical assets of the business

Option: A financial instrument allowing the ability to sell or buy a particular asset at a pre-determined price.

(I did that from memory, not sure if that is the right definition!)

Option-Adjusted Spread: The spread of a bond over treasuries once the premium/discount for an embedded option has been removed.

Exchange Traded Fund: A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

ETFs trade throughout whole day, so prices are always updated, while mutual funds only have a price at the close of the day. ETFs are also cheaper use compared to mutual funds.

Net Present Value: the current value of a particular asset. Calculated by summing up the current value of all future cash inflows, minus all future cash outflows.

Exchanges – A venue or place where traders can meet.

Noooo…just realised that I wasn’t looking at page 2, so ‘depreciation’ is wrong! What a loser…

REIT: Real Estate Investment Trust. An alternative asset class, basically a firm or fund specializing in real estate investments, including commercial office spaces, hotels, shopping centres, warehouses, hospitals, and so on.

Safety-first rule. Rules for portfolio selection that focus on minimizing the risk that portfolio value will fall below a minimum acceptable level over some time horizon.

Moneyness – the relationship between the option’s exercise price and the underlying security.

Earnings before taxes : The earnings of the company before the applicable taxes have been deducted.

@Sophie Contango and Backwardation concepts never ceased to confuse me. @-)

Amen to that…I never really got that.

Operating lease. A lease used to acquire equipment on a short term basis (when compared to the actual full life of the asset).

On the Run Treasury securities : The latest treasury fixed income securities in the market.

Keep getting the same letters lol.

Indifference curve – A curve which shows combinations of risk and return with for which an investor is indifferent.

Rate duration: A bond’s sensitivity to a change in maturity, all other points in the yield curve being constant. Nothing to do with time.

new growth theory = a.k.a endogenous growth model, this theory argues that economy growth is a function of innovation, human capital and knowledge (no external factors).

ANOVA = a statistical procedure that attributes variation in dependent variable to the regression model or a residual

Tankan survey one of the most talked about or written about term in asian economy especially Japan.

Well its an economic survey of the companies of japan issued by their central bank which is then used to formulate their monetary policies.

Yield-to-maturity: Annualized rate of return based on bond price and estimated cash flows.

Economic indicators – Stats provided by government/organizations that contain information on the economy’s recent past activity, or present/future positions in the business cycle.

P.S. Why has this thread become so inactive?

Value Investing – principle of investment strategy focusing on buying equity that is priced low in relation to earnings or assets.

@xyz I’m still working on learning the English alphabet?

split-rate tax system: When retained earnings and dividends are taxed at different rates. Dividends are taxed at a lower rate to compensate for the double taxation that dividends are faced with.

Equity: the shareholders stake in the business

Equity charge – the estimated cost of equity

Merger: the integration of two separate businesses into a single entity

Real Interest Rates: The actual rate of return after excluding the inflation component.

Sample : A set of representative sample observations from the original statistical population.

Goal based investing – A technique wherein the investments are divided into layers and matched to specific goals. The riskiness of the investments rises with each layer. So the bottom most layer would contain almost risk free assets to meet the essential life goals.

Informationally efficient capital market – A market wherein the current price reflects all existing information about the security.

Initial public offering (IPO): When a company goes public by issuing common stock on an exchange.

Share price: the price of a single share, usually by reference to the current market price albeit could also apply to privately held shares as well.

Data-mining bias = Bias that results from repeatedly researching to prove a certain point until some statistically significant pattern is found.

serial correlation = a problem in regression analysis where the residuals are correlated over time intervals.

VAR (Value at risk) : A risk measure that provides the probability of loss at a given level of risk. (Please correct me if this is wrong)

On the run / off the run treasuries.

On the run treasuries – is the latest or most frequently traded treasury securities of its maturity. They are the most liquid securities.

Off the run treasuries – The moment new treasury security of any maturity is issued then existing securities become off the run securities. This securities tend to be less liquid. 🙂

Oligopoly

A type of market, where small (few) group of firms control the over all market share hence the market.

Implicit cost

its an opportunity cost related to undertaking a certain project like depreciation on mach used for capital project

Euribor – Europe Interbank Offered Rate published by European central bank.

Receiver swaption = An option that allows the holder to enter into a swap as the fixed-rate receiver and floating-rate payer.

NAV Return – it’s a change in the net asset value of the etf over a period of time

straddle = the sale of a put and a call on the same underlying asset at the same exercise price and maturity. It’s a bet that the asset price would be stable and not volatile.

EDGAR – Electronic Data Gathering, Analysis and Retrieval System.

PVGO – the present value of all future cashflows.

Growth Investing – Investment strategy that focuses on investing in equities with relatively high fundamental ratios like P/E,P/B . In short, a security that is priced high relative to earnings or assets. The relatively low earnings compared to price indicates high earnings growth potential.

@Diya Isn’t PVGO the present value of the growth component of future cash flows?

Oh noes I made a mistake! You are absolutely correct. PVGO is used to estimate how much of the stock price is related to the growth component of the company and the “left-over” component is the value of the company if there was no growth.

equity carve outs = a type of restructuring process where a new independent company is created by giving a proportionate equity interest in a subsidiary to outside shareholders through stock public offering.

@Thanks Christine. One of those few concepts that I can recall 😉

Bear Hug – when the acquiring firm goes around the management and straight to the board of directors. This usually only happens when the management isn’t being all nice and friendly about the M&A deal.

EPS: Earnings per share. The amount of income earned per share of stock. Commonly used as a rough gauge of performance, one of many metrics in equity research.

Index: a portfolio of assets of similar type which act as a reference

call option = An option to buy assets at an agreed price at (or before) a particular date.

Takeover: a merger, usually hostile. The target company’s managements’ ego is bruised.

(excuse the poor grammar at the end)

Vertical integration: expanding your business to incorporate parts of the supply chain that occur before or after the market where the business currently operates

Non-cash charge: a charge/expense which is passed through the profit & loss account but is based on a balance sheet movement only rather than a cash outflow.

triangular arbitrage: a three currency transaction that exploits the difference to earn a mostly risk-less profit.

Geometric mean: A mean calculation one order higher than an arithmetic mean. I.e. in arithmetic mean you sum all and divide by n, in geometric mean you multiply all and take the root of n.

(OK that was a really un-textbooklike explanation…)

LIFO: last in first out, a method of assigning a value to ‘cost of goods’ given the stock you hold in your inventory, where the most recent item bought is the one you use

Equitized = an equity market’s systematic risk exposure

Sharpe Ratio : A measure of risk adjusted return.

Where’d you get ‘B’ from @diya? But it’s ok this means I can add…

H-model: A dividend discount model variation where a period of abnormal growth is assumed, followed by normal long term sustained growth. Formula represented by:

Earnings per share – The total earnings of the company divided among the individual shares.

TVM = time value of money. The principle of value of money given a certain interest and certain period of time, with the core assumption that the same amount of money has different buying powers across time due to factors such as inflation and interest.

God you guys are good! =D>

@Sophie Contango and Backwardation concepts never ceased to confuse me. @-)

Fixed Asset : Tangible/Physical Assets of a company. For ex : Land, P&E, etc.

earnings per share: the amount of earnings attributable to each share subscribed in the company. EPS = (Net Profit)/(number of shares)

Tankan survey one of the most talked about or written about term in asian economy especially Japan.

Well its an economic survey of the companies of japan issued by their central bank which is then used to formulate their monetary policies.

Wow, don’t recall seeing this, good to know!

@sidmenon – naturally we would run out of terms to play with! Might be time to tally the scores…

Haha, but there are SO MANY terms out there. But i don’t mind having the scores being tallied and maybe the winner gets a badge? 😛

Yep, hardwood floors boston