The 50 weirdest terms of financial jargon – and what they actually mean
Flummoxed by front-end loading? Bamboozled by bridging? Don’t know if your cap is split or your asset orphaned?
Here is Times Money’s alternative guide, for anyone who blushes at the mention of cum-dividends, or thinks churning is something that only happens to dairy products.
1. AER – Annual Equivalent Rate refers to the actual rate of interest you will receive on savings and current accounts after a year. It is different to the gross rate because the AER takes into account how frequently the interest is applied. Daily is better than monthly, because of the effects of compounding. It is useful to know, because most accounts have a bonus rate for a few months, which is later replaced by more bog-standard rewards.
2. Amortisation – It sounds like something to do with death, and in fact, it is. It is to do with the depreciation of intangible assets, or alternatively, the process by which the decrease in value of an asset is calculated, ie. The intangible bit is important. Tangible assets, like Volvos, depreciate. Intangible assets, like a patent or brand, amortise.
3. Annuity – Not something that young people need to worry about, but anyone approaching or already in retirement definitely needs to care about these, because they will have to buy one. Annuities are Government-enforced income plans that you must buy with your pension to provide you with an income. They are enforced because people over a certain age cannot be trusted not to squander their retirement pots in one go, on things like round the world cruises or expensive drumkits. The Government doesn’t want this to happen because it would then be forced to pay out more state pension money.
4. APR – like AER, only it means the amount of interest you will pay on mortgages, loans and credit cards. You want a nice a low one. Mortgage lenders will quote a headline interest rate which lasts for a set time period, then a (usually much higher) APR, which is what you would pay if you stayed on that mortgage for the full term. If you thought that only dullards did not know what an APR was, note that 71 per cent of 16-18 year olds recently questioned thought that a high APR was a good attribute on a credit card. This does not necessarily disprove the point.
5. Bear – Not the grizzly kind. A way of describing the stock market or an attitude towards the economic outlook. Describing someone as bearish does not mean they are large and hairy, it means that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times.
6. Beta - Inexplicably, beta, in the finance world, measures the volatility of a share relative to other markets and is nothing to do with them being second rate, as Greek etymologists might assume. Something that has a beta of more than 1 is more volatile than other shares in the index, while something with a beta less than 1 is considered relatively stable. Risk-takers like betas. Buying a beta is the stock-market equivalent of magic mushrooms - you never know whether you will end up higher or lower.
7. Bonds Bonds is a restaurant in the heart of the City of London where top bankers meet, as well as a famous Australian underwear manufacturer. The term also refers to something altogether less exciting, a type of investment where the investor lends money to a company for a period of more than one year that is then repaid at a specified time, with interest. If it helps: Bonds are good, ie James Bond, but bills are bad, ie. Bill Clinton, an economics teacher once said. Bonds are not always good, however. They are safer than buying shares, but they do not have the potential to make you higher returns. They are for people who do not like surprises.
8. Bridging – A bridge is a structure spanning and providing passage over a gap or barrier, such as a river or roadway. It is also the upper bony ridge of the human nose. In finance however, bridging is a type of loan that provides short-term funding before long-term funding is secure. This could be particularly relevant if you are building your own house or setting up a business because this is what lenders are likely to offer if they don’t trust you completely, but think you might be on to something.
9. Bull - The opposite of bear. A bull market is strong, aggressive and opportunistic. Being bullish in the City is a good thing. It basically means optimistic about the outlook.
10. CAT – Short for catastrophe bond. These are issued by insurance companies to raise finance in the event of a catastrophe. Dead cats can also be bounced, according to stock market investors (see below).
11. Churning – Anchor butter does it to milk, but in finance, this refers to a fairly mercenary practice by stockbrokers and IFAs, whereby they buy and sell stocks for clients in large volumes frequently to make more money in commission. In business, a churn rate also refers to the attrition of customers. A high churn rate therefore means lots of new business coming in and going out, while a low one means customers stay put.
12. Compound Interest – There is no better illustration of the benefits of compound interest, which basically means earning interest on interest already paid, than here
13. Cum dividend – The word is latin for “with”, hence cum-dividend, benignly, relates to a share sale made close to the time that the dividend is due to be paid out that will still be eligible for the dividend. Nice if you can get it.
14. Dead cat bounce – Don't call the RSPCA, the bounce refers to a stock market phenomenon, where a temporary recovery in the market follows a long and pronounced period of decline. What this has to do with dead cats is unclear.
15. Endowment – If your mortgage broker says you are well-endowed, don’t slap him across the face straight away – he could be commenting on the performance of your mortgage investment vehicle. Endowments are investments that were originally sold alongside mortgages that are designed to grow in value by enough over the period to pay off the loan. They also provide some life insurance cover to the holder. However, endowments have a black mark against them, after a big misselling scandal left many homeowners without enough to pay off their mortgage.
16. Equity – another way of saying value, for instance, of a home or share. With homes, it relates to only that part which represents debt-free value. It also means impartial and fair, although these attributes do not necessarily apply.
17. Ex-dividend – Not a perk of divorce, a share sold ex-dividend means that the buyer is not entitled to any recent dividend payments on the share and has to wait until next time around. Thus, shares sold ex-dividend are often a bit cheaper than their cum-dividend cousins.
18. Front-end loading – In a lad’s mag, this could mean all sorts of things that have no place in a financial glossary. What it actually refers to, however, is the fee that advisers lump onto a mutual fund or insurance policy at the time they sell it to you, meaning you end up with a smaller investment at the beginning. Advisers argue it is the cost of their expertise, but the jury is very much out about whether loading is a good thing.
19. Future – Buying a future means entering into a contract to buy an asset at a certain time at its future selling price. It’s a bit of a gamble, since no one knows what that future price will be. Future traders would find one of these useful.
20. Gearing – It sounds like something Jeremy Clarkson might talk about, but it is actually just another word to describe borrowing. However with gearing, the borrowing is done expressly for the purpose of investing more. Investment trusts gear, for example.
21. Gilt – Gold-edging is not just an interior design feature. A gilt is also another word for a Government bond, also known as a risk-free bond, because when you are the Government and you owe people cash when their bonds mature, you can just print more.
22. Gross – Can describe slugs, eels and ugly people kissing. It also means amount received before tax is paid. For instance, your gross income will always be startlingly higher than your net income – by around 30 per cent in the UK according to one study. Much better to live in Dubai, where net income is only 5 per cent lower than gross, on average. Same applies to gross interest.
23. Hedging – Nothing to do with green leafy boundaries and everything to do with funds and betting. Hedging means taking two positions that will offset each other if prices change and so limiting financial risk. In Roulette, the ultimate hedge bet is putting your money on both red and black, however this is pointless and bound to lose half your money. Hedge fund managers are far more clever than that.
24. Illiquid – On the liquidity scale, think of cash as water and things like houses as rocks. Liquid assets are those which can be accessed easily to buy other things, Illiquid assets are harder to turn into ready money than things like cash and cheques.
25. Intestacy – A mistake Paul McCartney would definitely not have made. This means dying without a will, and is a big no-no for anyone with rich with a big family who do not get on. If you die intestate, then everything automatically goes to the next of kin, which can obviously cause major family rifts if the next of kin is a loathed step-mother or sibling.
26. Junk bond – These offer high interest but are high risk. The lyrics to this song should help you remember.
27. Leverage – A word that will provoke a wince from investment bankers right now, leveraging is the main reason that banks across the world are in so much trouble. It means borrowing to complete a transaction. Private equity houses do a lot of it when they buy out a company. The problem now is that since the credit crunch, no one trusts anyone to pay back the money they borrow. The general view is that too much leveraging has been going on and that banks are now at risk.
28. Liabilities – People running around with scissors, Britney Spears, and also debts. A liability is anything you owe to someone else. If you are in debt, the phrase “I have a few liabilities” sounds less controversial, if a bit silly.
29. LTV – If mortgage lenders owned their own Sky channel, this is what they would call it. It means loan-to-value, and is the maximum proportion of a property’s value that a lender is willing to lend on. High LTVs are for people who have not saved up much, and come with higher interest rates. Low LTVs come with much lower rates, but require big deposits of 30 per cent of the property’s value. A real headache for first-time buyers. It looks like mortgage TV is only one step away.
30. Margin – This is the difference between costs and revenue and basically means the amount of profit. Obviously, you want a nice big one, like him.
31. Mutual – Is a lovely word that conjures up all sorts of feelings of warmth and reciprocity, which is arguably why building societies, which are mutual, are apparently so well liked. A mutual company does not have shareholders. Instead, it shares out profits between its customers, or “members”. If you couldn't care less about mutual values, what you want is a demutualisation. This gives you a taste of what it must feel like to win the lottery, because you could get a nice big cash windfall.
32. NAV – Nothing to do with Satellite Navigation systems or these boys, a NAV is the Net Asset Value of a mutual fund share. This is calculated by subtracting a mutual fund’s liabilities from its assets.
33. Negative equity – Lots of people who took out mortgages for 100 per cent or more of the value of their properties are in danger of this, which translates as losing money on your house. During times when house prices are falling, more homeowners are at risk of this. So expect to hear lots about negative equity in coming months then, if this forecast comes true.
34. Net – simply means amount of money left after tax is paid. Usually looks pitiful when compared with your gross salary.
35. Nominal – means a value not adjusted to take account of inflation. Inflation is pretty high at the moment, and looks set to carry on rising, so nominal values should basically be ignored, as they might lead you to think that something is worth more than it actually is.
36. OEIC - pronounced OIK, like the word that tweedy men use to describe teenagers who play music on their iPods loudly in public. OEIC stands for an Open-ended investment company, which invests in other companies. It is open-ended because it can increase or decrease the amount of shares in issue at will.
37. Option – Unimaginatively titled, an option is a contract that gives a share buyer the right to buy or sell a stock at a given price until a specific date. Yet another way of making the stock market more interesting and lucrative. Do you ever get the feeling that city boys just make stuff up as they go along?
38. Orphan - The rather tragically-named orphan assets are so-called because they are the unclaimed pots of cash built up by with-profits funds, to which no-one is really entitled. What to do with these assets has become the subject of controversy. Can companies hold on to them to boost balance sheets or should they divide the spoils between policyholders and shareholders?
39. PEP – This stands for Personal Equity Plan. They are the O-levels of the tax efficient investment world - you can’t get them anymore – they were replaced by Isas in 1999, but some people still have them. Like Isas, they were designed as a tax-efficient way of investing in the stock market.
40. Preference – We all have them, but in finance, a preference is naturally more complicated than, say, favouring tea over coffee. A preference share is one which pays a fixed rate of interest. So, like insurance, it is only actually preferential in the bad times. They are lower risk than normal shares because if a company goes bust, then preference shareholders will be at the front of the queue for payouts. Good news, if you have preferential shares in Northern Rock, perhaps. But this rarely happens. On the downside, if a company does well, preference shareholders will not benefit as much as normal ones, who will receive bigger returns.
41. Price-earnings ratio – a company’s current share price compared to its earnings per share. That obviously still means nothing. So just remember that a high one means investors are expecting higher earnings growth in the future, whereas a low one is more pessimistic. Only compare the PE ratios of companies in the same industry.
42. Redemption – Hedonists and erring Christians seek it, and so do investors who want the money they put in bonds or shares back, thank you very much.
43. Scrip – It sounds cooler than it is. A way of paying something via a means other than money. Scrips are things like gift tokens, points and tickets that act as a subsititute for cash.
44. Sipp – SIPP stands for Self-Invested Personal Pension. In the pensions world, these are sexy. They are the Agent Provocateur lingerie of pensions, compared with other more Spanx-like products, such as stakeholders. This is because they are more flexible, as well as more expensive. They look prettier, because you can put things like your art collection in them. Pension advisers get very excited about these because they can make lots of money from selling them to you, but this doesn’t mean you should. Only those who think Agent Provacateur lingerie is a bargain need apply.
45. Split-cap – Can lead to pregnancy in another context, but investors are more likely to assume you are talking about a type of investment trust that splits capital growth from income. A full definition would take a while, but there is one here. A horrible misselling scandal in 2004 meant that they became as unpopular for a while, but there are reports that they are beginning to regain popularity.
46. Stagging – Where two male deer lock antlers? No. It describes the act of buying a share at its initial public offering price and selling it on immediately for a profit. It is also called flipping. Honestly, who invents these words?
47. Stagflation – The English language just keeps on giving. Stagflation describes an economic period of high inflation, low growth, rising unemployment and recession. The word comes from the marriage of stagnation and inflation, apparently. Expect to hear this word more often from taxi drivers and economists when debating whether the Bank of England should cut interest rates.
48. Serps – Not a sexually transmitted disease, SERPs was the State Earnings Related Pension Scheme set up provide a second pension income, on top of the basic state pension, for people who did not have occupational schemes. The system has now been replaced by the State Second Pension, or S2P, which is the Government’s way of making pension savings sound cool. Unfortunately however, it sounds too much like Y2K – the millennium computer bug that sparked fears of Armageddon, to ever go down well.
49. Underwriter – A company that stumps up the money behind insurance policies. These people have extraordinary power in society, because they can work out things like when you are likely to die.
50. Wind-up – It means something else to humourists, and Jeremy Beadle. In the world of money, it means when a company ceases activity with a view to shutting down altogether. It can also refer to a way of ending a pension scheme, or a relationship, if you want to dump someone: "I'd like to wind things up with you", should do the trick, or alternatively, do what this guy did. It's time to do that here too.
Compiled by Rebecca O'Connor
Photo courtesy of jhhwild
"Dead Cat Bounce" ie; 'Even a dead cat will bounce a little' meaning a small rally in a bear market.
Posted by: Will Davis | 20 Jan 2009 15:40:45
I can't believe you omitted "basis".
Posted by: Tamara | 18 Jan 2009 00:55:36
How about a definition for "Banker" viz:- "A person who purports to understand complex financial vehicles but doen't"
AKA " A clown of the Universe"
Posted by: Stephen Green | 12 Jan 2009 12:30:44
Hilarious! Brightened up my day at the office where I work with these terms on a daily basis! :)
Posted by: Michelle | 5 Dec 2008 17:57:47
You missed the weirdest: "triple witching".
"An event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. " - Investopedia
Posted by: Jon H | 29 Nov 2008 06:19:38
43. Scrip – .... A way of paying something .....
It comes from (sub)SCRIP(tion receipt). However, 43. is not a good definition in Stock Market terms!
The definition of a SCRIP issue (also called a capitalisation issue or a bonus issue) is the issue of new shares to existing shareholders AT NO CHARGE, pro rata to their current holdings.
I think that this would be a more relevant definition for most readers of this glossary.
Posted by: G Evans | 24 Nov 2008 14:59:01
35. Nominal – means a value not adjusted to take account of inflation.
This definition is not correct - NOMINAL, in Stock Market terms, has no relation to INFLATION - it refers to the name of the share and indicates the proportion of the company's share capital represented by the share.
e.g. LLOYDS TSB GROUP PLC ORD shares currently have a (fixed) NOMINAL price of 25P, whereas the current market price is about 136P
Posted by: G Evans | 24 Nov 2008 14:44:34
May I illucidate leveraging, It is something where the Banks say when wanting your money:
You put up $100,000.00 the bank puts up the same amount as leverage and you get a yield of say 9% instead of 6% BUT
if the market crashes then(in small
print)you keep on paying on the loan erosion OR we sell your stock to cover our losses. So the bank never loses!!!!!!
Posted by: eraj | 11 Nov 2008 08:33:16
I'm sure all these 'useless' financial terms will be particularly handy now, esp now that the looming financial bubble has apparently burst in the worst way possible.
The only thing that I don't quite understand is why the whole situation is made to look a lot worse than it actually is esp. by the press, this not only builds fear into those who do not understand the situation properly but it also causes unnecessary speculation which then inevitably leads to a loss in consumer confidencce. Once they've caused this type of damage, they then turn around and ask 'Who's to blame?' on the front page of their paper!
Posted by: Josh | 7 Oct 2008 02:19:05
On the other hand, some entrepreneurs, again start-ups, drastically overestimate their costs. This will make lenders not only question the entrepreneurs’ assumptions, but also question whether they know what they are doing.
http://gewdir.com Information on Loans with Bad Credit Blog
Posted by: David | 22 Sep 2008 01:42:52
I wish I had seen this article before, reading Enron - The Smartest Guys in the room, it would have made a lot more sense....
Posted by: Flyss Williams | 27 Jun 2008 11:24:20
my understanding is that 'leverage' is just the American word for the British word 'gearing', where the list seems to imply there is some sort of difference. Gavin: Closing a short position - or in fact any position/contract - is just to sell that open contract or to take out an equal and opposite position so to neutralise any potential future liability or gain, locking in the current profit or loss before the contract date forces you to deliver the obligation of the contract.
Posted by: Lyndon | 25 Jun 2008 16:24:28
Bob Smith, I totally agree with you. I thought this was going to be a serious and useful article to keep. Why is it that the British press treats finances as somethhing arcane that people in the street will not be able to grasp unless it is delivered in a puerile style? The comments are much more informative than the article.
Posted by: Roxy | 17 Jun 2008 11:14:39
I'm obviously in a minority here but I found this the most puerile thing I've ever read from The Times.
Good idea for the article, but why the need for all the sub-Beano remarks?
Posted by: Peter Greenly | 22 May 2008 08:30:28
Nice read, more info to add to my useless knowledge of financial terms lol
Posted by: bob smith | 17 Apr 2008 01:03:51
Excellent.
Please could you give us a facility to email this to our personal a/c for reference?
Please could the moderator send it to my email address above.
Thanks.
Posted by: Joe | 28 Mar 2008 15:43:37
Can I expand on the underwriter?
Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products like equity capital, insurance, mortgage or credit to a customer.
The name derives from the Lloyd's of London insurance market in London, United Kingdom.
Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information which was written on a Lloyd's slip created for this purpose.
In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary, and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report; and the lender's evaluation of the borrower's credit needs and ability to pay. Underwriting can also refer to the purchase of corporate bonds, commercial paper, Government securities, municipal general obligation bonds by a commercial bank or dealer bank for its own account, or for resale to investors.
Bank underwriting of corporate securities is carried out through separate holding company affiliates, called securities affiliates, or Section 20 affiliates.
Posted by: Don - Needs Slot Machine Tips | 17 Mar 2008 21:05:18
Having just heard the budget I predict we are heading for Stagflation
Posted by: christine marshall | 12 Mar 2008 16:13:22
No. 49 Underwriters & No. 25 Intestacy ???
Underwriters consider the medical & moral risk to an insurer - AN ACTUARY calculates mortality (i.e. the estimated lifespan).
Intestacy: Are you positive that next of kin inherits everything where a person dies intestate?
How do journalists get away with publishing this kind of diatribe ???
Posted by: mcblade | 20 Feb 2008 10:17:32
SIPP ???
What a load of rubbish Rebecca - The Times just like all the other tabloids...I have a SIPP and it is the best thing I have done with my pension in years. Pray tell Rebecca, where can one achieve an 8% investment return with little risk and some capital growth for charges of less than 1% per annum...comment on stupid movies Rebecca.
Posted by: mcblade | 20 Feb 2008 10:06:51
You should look again at the explanation of the results of intestacy. The next of kin does not automatically inherit when someone dies without a will. It is much more complicated than that.
Posted by: John Kennett | 19 Feb 2008 10:16:00
How about some of the classic terminology used on our rates desks:
Recieving/paying the belly
Sexy fly
Also you started on the greeks with alpha but delta, gamma, theta, vega, rho, nova, deriv are still quite common.
There's also all your vanilla's with staddles and stranggles good fun. So there's so many classicly strange names before you even get on to the exotics, or slang terminology. Definitely enough to write a hefty book on "weird financial terms" anyway- should you ever have the time... and be bothered.
Posted by: Phil Rush | 7 Feb 2008 17:52:40
Two other phrases I would like to send my friends 'across the pond' that we use in the energy markets here in the states:
Stonger than a Mexican plate lunch
A bullish market as indicated by a mexican lunch which can be very spicy and strong on palate
Coming off like a prom dress
A bearish market. Prom is the ritual dance at the end of high school where if you're lucky...well never mind :)
Posted by: Patrick | 26 Dec 2007 20:47:54
Portuguese breakfast - Investment funds that return repeated dividends tat the back end of the investment scheme.
Posted by: Olden Atwoody | 26 Dec 2007 19:01:17
They are clever!
Posted by: Hedge Fund Consultant - Richard Wilson | 20 Dec 2007 05:02:08
If you throw a cat from a skyscraper it will bounce once.The term derives from a small recovery in a plummeting share based upon future based trades previously pledged.Similar but not identical to the explanations already offered!
Posted by: Laurence | 19 Dec 2007 00:36:46
On roulette and hedging - if I remember rightly, if you put half your money on red and half on black you'll lose on average 1/61th of your stake every round.
Incidentally, this is a lower loss than the front-loaded fee on most investment funds, and substantially less than the usual hedge fund manager fee of 3-6% annually.
You're also forgetting strategic and tactical. A strategic investment is a tactical investment gone wrong.
Posted by: Alex | 12 Dec 2007 22:44:49
Margin - in financial jargon margin usually refers to collateral (usually cash) that the holder of a position must deposit to cover part of the holder's exposure in, say, short selling, spread betting, or a futures contract.
A margin call occurs when the 'bet' is moving against the holder who is then required to stump up more cash.
Posted by: Tony Dunlop | 8 Dec 2007 11:11:34
You mention beta but not alpha. Does this mean that you think alpha is not weird but beta is?
Well done.
Posted by: Veryan Allen | 8 Dec 2007 06:26:24
Surely, in roulette, if you bet on red and black you either get all your money back or (if it comes up zero / green) nothing. You will never lose half your money.
Pedantry over... back to work
Posted by: Simon | 7 Dec 2007 18:38:33
Intestacy - I do not believe this is correct. The next of kin does not get everything, certainly not under English law (can't speak for Scotland or NI). A statutory apportionment applies and dependants can seek a court ruling if this does not make adequate provision. But making a will is still generally desirable, particularly if there are non-family members or organisations that one wishes to benefit.
Posted by: James | 6 Dec 2007 05:47:23
You forgot "dog" - the stock you bought in May and which has dropped in value every month since. There is also "strategically positioned for an upturn in the market", which means your whole portfolio is under water with no hope of recovering your initial investment.
Posted by: doggiebag | 5 Dec 2007 23:15:01
Shorting takes place when someone believes that a share will fall in price.
To benefit from this belief, they borrow some shares from someone else and sell them.
When they think the share price has fallen enough they buy them back and return them to the original owner with interest. This is called closing out.
Usually the realm of hedge fund managers who borrow from other fund managers, though punters can do it with spread betting and CFDs.
It turns out that half the city was shorting Northern Rock for several months before the news broke. Presumably the other half that lent the shares wish they hadn't.
Posted by: Nick | 5 Dec 2007 12:29:03
You forgot poison pills and white knight...the financial war terms..:)
Pierluigi Rotundo
PS: nice post..!
Posted by: Pierluigi Rotundo | 2 Dec 2007 19:21:20
Great article, and I particularly liked the links under Compound Interest and Wind-up. But is Paul McCartney dead? I hope not. BTW owning ANY shares in NRK is not good!
Posted by: Justin | 2 Dec 2007 16:32:41
How about "pig on pork" for adding to the list !
Posted by: Steve Godby | 2 Dec 2007 10:43:17
DEAD SEAL BOUNCE: better descriptor of a falling market than a "dead cat bounce". Refers to the situation where the market tries to rally but gets "clubbed" right back down.
Posted by: raven | 1 Dec 2007 17:23:50
Dead Cat Bounce - the point here is that when the price of something has fallen a long way, people are hesitant to buy it (hence the phrase "catching a falling knife can hurt you"). However, when the price starts to move back up again, people feel more comfortable buying, as it appears that "bottom" has been found and that all the bad news is out. Market sages will in some cases just say "dead cat bounce" meaning: the price might going up a bit, but it is still "dead", so don't be fooled into buying it, as it will fall sharply again soon. (Witness Northern Rock recently which bounced several times on the way down, only to fall further). I first heard the expression as an inter-bank FX dealer in the '80s.
Posted by: Jon Barker | 1 Dec 2007 15:41:12
"When my missus was at school in Chicago they had a class called "consumer ed" which taught basic personal finance."
Oops! No-one was paying attention!
Posted by: Karl | 30 Nov 2007 14:10:57
Dead Cat bounce - premise being that if you drop it from a sufficiently high altitude, even a dead cat would bounce. Likewise the stockmarket - if it falls froma great enough height, it is bound to bounce back to some degree. No etymology on why a cat in particular - probably their ability to leap up and down from unfeasibly high garden walls.
Posted by: Jon Baker | 30 Nov 2007 13:23:22
Beta is related to correlation more than volatility. Its entirely possible for a share to be highly volatile, but if the movement of the share price is not correlated to the movement of the index, then beta will be zero.
Here's a good explanation: http://www.statistics-help-online.com/node76.html
Posted by: Andrew Clarke | 30 Nov 2007 11:55:17
Beta as a financial coefficient is well explained in the Wikipedia under the search heading "Beta_coefficient". The choice of the Greek letter is common among mathematicians when writing formulae.
Posted by: Charles Bockett-Pugh | 30 Nov 2007 10:03:32
"Hedge fund managers are far more clever than that" - debatable. There are plenty of ‘hedge' funds that aren't particularly hedged, they just take huge geared positions and cross their fingers.
Posted by: Guy Blackburn | 30 Nov 2007 08:58:44
Very helpful but I can't see "shorting" being defined. Just what is it and what does it mean when hedge funds close out short positions? Which then, for example, today is part of the reason for the increase in A&L
Posted by: Gavin Bushell | 30 Nov 2007 08:38:06
I can explain the origins of "Dead Cat Bounce":
It comes from the 1970s when our economy was in dire straights. Many quoted companies were going bust. I was a fund manager at Simon & Coates at the time. A phenomenon was picked up on by the Lex Column in the Financial Times, which observed that even though a Company was known to be bankrupt - and therefore dead - its shares would actually rise from a low point just before they were suspended from trading. (The result of bear closing.) It was at the time likened to "a cat, having fallen from the top of the Empire State Building, hits the pavement. Even though it then bounces up several stories of the building, it doesn't necessarily mean that the cat is still alive!" Of course the phrase is misused these days to mean any bounce in a share price but, strickly speaking, it should only be used when a company is bankrupt.
Posted by: Nigel Rawlings | 28 Nov 2007 15:26:10
Dead Cat
Even a dead cat will bounce if it's dropped from high enough....
i.e the share price bounces after a steep decline. It's not an indication of any strength.
Posted by: Steve Hitchens | 28 Nov 2007 15:25:29
This stuff should be taught in schools! When my missus was at school in Chicago they had a class called "consumer ed" which taught basic personal finance. I thought it was consumerist conditioning in a credit-bloated country. Now I accept that even a peyote shaman needs to know what gross means. More facts in a memorable manner please!
Posted by: K-roc | 27 Nov 2007 09:23:38
At last: hedging explained.
Good work Rebecca O'Connor, champion of the little people.
Posted by: David Barclay | 26 Nov 2007 17:30:02