Active Share

Share in which there are frequent and day-to-day dealings, as distinguished from partly active shares in
which dealings are not so frequent. Most shares of leading companies would be active, particularly those
which are sensitive to economic and political events and are, therefore, subject to sudden price movements.
Some market analysts would define active shares as those which are bought and sold at least three times a
week. Easy to buy or sell

Amortization
Writing off of he assets of a company over a number of years, not necessarily depending on the life of the
assets, for the purpose of their replacement of renewal. It is different from depreciation, which is periodic
writing off of the asset based on its normal life expectany. Amoritization is usually accompanied by putting
aside money in a SINKINGFUND, so that the considerably increased cost of replacement or modernization
can be met, when it is needed.

# Amortization (business), the allocation of a lump sum amount to different time periods, particularly for
loans and other forms of finance, including related interest or other finance charges.

* Amortization schedule, a table detailing each periodic payment on a loan (typically a mortgage), as
generated by an amortization calculator.
* Negative amortization, an amortization schedule where the loan amount actually increases through not
paying the full interest

# Amortized analysis, analyzing the execution cost of algorithms over a sequence of operations.

Application Money
The amount an investor is asked to pay with the application for new issues, usually less than the full value
of the shares, the remainder being either fully or partly collected on actual allotment. In the latter case there
will be a final call for the unpaid portion.
The amount an investor must pay at the time of making an application under a public offering of shares.
Asset Coverage –
A company’s net assets covering a debt. The concept becomes important when a company goes into
liquidation. From the total book value of the assets are deducted the claims of creditors, and the ratio of
what remains to the total number of preference shares represents the asset coverage for such shares. The
asset coverage for equity shares is the ratio obtained after deducting all creditor’s dues and the value of he
preference shares, divided by the number of equity shares. The result is also called the net book value of
equity shares.

Asset Financing
This converts particular assets of a company into liquid cash in exchange for a security interest to be paid to
a bank or a financing company. Distinct from borrowing from banks. Usually it take the forms of loans
against accounts receivable (which is an asset). But increasingly a company’s inventories and fixed assets
are being mortgaged to raise loans.

Auction Market
The stock market is an auction market, in as much as buying and selling are done through open bid and
offer, as distinguished from the OTC or over-the-counter market, where the prices are negotiated.

Auctioning of an Issue
A method of structuring of an issue, this involves auctioning an issue to the investor. An issue may be
marketed with a floor premium and a maximum premium, say, Rs 10 and Rs 50. Those who offer the best
premium get the allotment first, and the allotment is continued by accepting the nest best till the issue is
completely subscribed. If there is an oversubscription at any level and below, the usual method of
proportionate allotment is followed.

Automated Screen Trading (AST)

Electronic trading in stocks through visual display units. The associated computer unit enters, matches, and
executes deals. It makes possible a floorless exchange and brings transparency to deals.

Electronic trading (eTrading or e-Trading)

is a method of trading securities (such as stocks, and bonds), foreign currency, and exchange traded
derivatives electronically. It uses information technology to bring together buyers and sellers through
electronic media to create a virtual market place. NASDAQ and Globex are examples of electronic market
places.

Average
Properly weighted and adjusted arithmetic mean of certain significant to represent general market
behaviour, or a particular class of shares.

The annualized return is a type of average used in finance. For example, if there are two years in which the
return in the first year is -10% and the return in the second year is +60%, then the annualized return, R, can
be obtained by solving the equation: (1 - 10%) × (1 + 60%) = (1 + R) × (1 + R). The value of R that makes
this equation true is 20%. Note that changing the order to find the annualized returns of +60% and -10%
gives the same result as the annualized returns of -10% and +60%.

Averaging
Buying a share at different times, in different quantities. And at different prices, so that an advantageous
average price is obtained. For example, someone has bought 100 shares at Rs 80 in a rising market; when
the price falls to Rs 60 he may buy another 200. By averaging he has obtained a price of Rs. 66.33 for a
share. If he buys still further shares when the price is lower, by averaging he may obtain an even lower
price. Averaging is often done to offset the high price once paid in a rising market. Also, averaging is a
means of not paying too high a price when buying a lot of shares (there is no violent change in price, since
the buying is in small lots), or not getting too low a price when selling a large chunk of shares (the price
doesn’t drop suddenly).

Bear Cycle
An extended period, usually shorter than a BULL CYCLE, when share prices generally keep falling and the
stock market INDICES keep going down. See BEAR.

Book Profit
As a noun, unrealized profit, when shares which an investor holds have appreciated in price, but the
shareholders hasn’t sold any. It induces a sense of well-being, without bringing in any tangible profit. It is
only in the verbal use of the term, i.e. to sell shares when they have appreciated in price. That real profit
comes. Hence the stock market adage: Unbooked profit is only book profit.

Booking Profit
Making profit by selling a share which has gone above its purchase price. When shares, which an investor
holds, go up in price, the investor has made only a national profit, which is meaningless, except in a DRY
RUN PROTFOLIO. Only when he actually sells them does he make any tangible profit.

Broker
A member of the stock exchange who is licensed to buy or sell shares on his own or on his client’s behalf.
He charges a commission (brokerage) on the gross value of the deals. Commission brokers simply execute
buy or sell orders against a commission. Full service brokers simply execute buy or sell orders against a
commission. Full service brokers offer facilities such as safekeeping clients’ shares and bonds, offering
investment advice, planning clients’ portfolios of investments, managing clients’ portfolios and offering
credit when a client is buying on MARGIN.
Commission brokers usually charge around 2% of the gross value of a deal; in some cases there is a
minimum charge.
Book Value
1. The value at which an asset is carried on a balance sheet. Since the asset is subject to depreciation, the
book value is lower every year. Cost minus accumulated DEPRECIATIN will thus show the book value of
an asset. 2. The net asset value (NAV) of a company’s shares. Take the total assets of a company (equity
capital plus accumulated reserves) and deduct current liabilities, long-term liabilities, and preference shares.
What remains is shareholders’ fund. Divide this by the number of shares issued. The result is the book value
of a share.

BSE Sensitive Index or SENSEX

The index comprises 30 scrips whose weighted averages are taken. The list changes from time to time, but
comprises market heavy weights. With effect from 19 August 1996 the Sensex has been reconstituted, as
some of the scrips of the old

Bullion
period,, but the shareholS Gold, silver, or any other precious metal in bulk and not in the form of coins, used
by Central banks for settlement of international debts.
Buy and Hold Strategy
Accumulating shares of a company over the years for long-term growth benefits and favourable capital
gains tax on profits. This requires far less for the investor’s time, than BUY AND SELL STRATEGY,
which is frequent trading in shares.
Call Money
(1) Money which is loaned, in the call market, which can be demanded for repayment on call, i.e.,
immediately. Also known as money at short notice, also traded in the money market, is repayable in 24
hours.
(2) Price paid for buying a call option. See OPTION.
Capital Asset See ASSET.

Capital Market
Sources from which long-term capital is raised for the setting up the sustained growth of companies. The
stock exchange is a part of the capital market, not only because it readily provides money for new or
existing ventures, but also because it helps investors to trade in their shares and maintains the liquidity of
investments. Investment in further public and rights issues, convertible and non-convertible debentures,
therefore, become an attractive proposition and companies are able to raise the resource they need. The
capital market is distinct from money market – banks and lending institutions – which provides short – term
finance.

Cash Cow
A share which yields a consistently high rate of dividends. Also, a currently profitable business, but one
which does not have very bright growth prospectus and is therefore used to fund other enterprises.

Certificate of Deposit
A certificate from a bank stating that a company has so much money in the bank on term deposit. It is a
negotiable instrument and can be sold at a discount at a short notice to raise cash. See ROLL – OVER CD.

Certified Cheque
The one Cheque that is guaranteed not to bounce, as it is issued by a bank with a guarantee of payment. The
bank is legally obligated to honour it. The funds to cover it are immediately withdrawn from the depositor’s
account.
Chinese Wall
Watertight compartments in a business house which keeps the information of each department confidential,
so that those inside the company may not take advantage of or abuse such inside information, for example
for INSIDER TRADING. Chinese wall also separates stockbroking functions, e.g., jobbing, portfolio
management, etc. in a stockbroker’s firm, so that one department cannot influence the other’s decisions,
such as the section dealing with shares offering its holdings for investment by portfolio managers.

Circuit Breaker
A system to curb excessive speculation in the stock market, applied by the stock exchange authorities,
when the index spurts or plunges by more than 5%. Trading is then suspended for some time to let the
market cool down.
Although introduced in November 1992, it was used for the first time in the Bombay Stock Exchange on
Tuesday, 9 March 1993 when the Sensex declined by more than 5% from the opening level, i.e. from
2451.20 to 2318.26.
Clearing
Settlement of accounts of brokers in a stock exchange. Dates are fixed by th4e stock exchange for the first
and last business days of each clearing. The period between these days, normally two weeks, is the
settlement period.

Clone Fund
A new fund, set up by a company or corporation, which has affinity with existing funds. Funds of new
schemes floated by the Life Insurance Corporation, for example, would be regarded as clone funds.

Collection Ratio
ACCOUNTS RECEIVABLE divided by average daily sales (annual sales divided by 365 days), the
average number of days in which receivables are converted into cash, or in other words, the average
collection period.

Commodities Market
Market for trading bulk and basic good like grain, edible oil, rubber, cotton, metals, etc. Certain special
items like tea and coffee are traded in auctions with inspection facilities for the goods.

Commodity
Any raw material traded on a commodity market. Soft commodities are grain, coffee, coca, cotton, wool,
jute, rubber, etc., whereas hard commodities are metal sand solid raw metals.

Compound Growth Rate

An important indicator of a company’s long-term prospects. A company’s growth rate of profits is
compounded over a number of years, at least five, to see how it has growth and what is likely to lie for it in
the future.

Correction
A short and sharp reversal, usually downwards, in the price of and individual share or shares in general.
Corrections usually occur during any long-term move upwards or downwards, as share prices seldom move
straight up or down.

Cost-Benefit Analysis
Comparing the cost of a line of action and the benefit to be derived from it, e.g. raising a bank loan against
securities to buy equity shares. Assuming that the interest rate is 21%, one will enough to outstrip the cost.
Companies have to constantly perform this exercise to determine the benefit of alternative courses of action
against a certain cost.
Cover
1. The ratio of undistributed profits transferred to a company’s reserves to the total dividend distributed 2.
The ratio of interest on loans, secured and unsecured deposits and debentures to the earnings of a company.
The ratio indicates the safety of the loans. 3. A bear who has sold short i.e., without actually buying the
shares, in the hope of a all in prices, has to cover his position by buying and equal number of shares for
delivery. In the event the prices have risen, the covering operation results in a loss.
Covered Call
A contract to sell certain shares at a certain price on a future date. If the seller actually possesses the shares
the contract or the call is covered. If he doesn’t, he will have to buy the shares from the market, and if the
price has fallen by the he will make a profit. If it has risen above the contracted price, he will have to buy
the shares at a loss, since he is not covered.

Creeping Acquisition
A process in which the promoters of a company who hold less than 50% of its shares, increase their stake
by buying 2% of the company’s equity (the maximum permissible) each year, until they have acquired a
majority stake, either by making an open offer to the share holders, or buying from the open market.

CRISIL
The Credit Rating Information Service of India Limited, although set up in 1987 (see previous entry),
started functioning in January 1988. As on 30 June 1993 , CRISIL had assigned rating for 586 debt
instruments originated by 462 companies, covering a debt volume of Rs 32, 142 crore. The CRISIL rating
symbols for Debentures are ranked into three categories: High Investment Grades (AAA, pronounced ‘triple
A’) for highest safety, and AA (pronounced ‘double A’) for high safety; investment Grades (A for adequate
safety, and BBB for moderate safety) and Speculative Grades (B for high risk, C for substantial risk, and D
for companies in default). CRISIL may apply + or – symbols for ratings from AA to C to reflect
comparative standing within the category. Ratings for fixed deposits have F before the rating, while short-
term instruments have the ratings p-1, p-2, p-3, p-4 and p-5 for strong safety, less strong safety, adequate
safety, minimal safety, and possibility of default, respectively. For Structured Obligations the rating
symbols are the same as for debentures, with (so) added after the letters, e.g., AAA (so)
CRISIL makes it clear that its rating relates to the particular debt instrument and is not a rating for the
company as a whole, inasmuch as it takes into account the specific terms of the instruments. The rating is
not a recommendation to invest or not to invest. CRISIL ratings are confidential, unless the company
chooses to make them public, but if it does, CRISIL will monitor the rating over the life of the instrument.
Any change in the rating so effected will be made public by CRISIL.

Cum-Dividend or CD
The buyer of a CD share is eligible to receive the dividend for the preceding year. The eligibility lapses once
the company declares the share XD, or without dividend. See RECORD DATE.

Crossing
A method adopted by specialist institutional brokerage firms to handle large buy or sell orders, which
would, in the normal course, distort the price movement of shares. In this kind of negotiated transaction, the
brokerage firm matches the buyers with the sellers. Once the deal is closed, the prearranged orders are sent
to the exchange floor for execution. See also SECONDARY DISTRIBUTION.

Cum-Rights or CR
The buyer of a cum-rights share is entitled to subscribe to the forthcoming rights issue announced by the
company. The date up to which a share can be bough cum-rights is announced y the company. After this
date the share becomes ex-rights. Cum-rights shares are usually sold at a price higher than XR shares.

Cumulative Preference Shares

PREFERENCE SHARES whose dividends accumulate until such time as the company is in a position to
declare dividends. The accumulated dividends of the preference shares are to be paid first; only then can
dividend for equity shareholders be paid. These preference shares may have a clause guaranteeing their
conversion into equity shares at par after a stated number of years.

Cyclical Shares
Shares which rise and fall in price with the state of the national economy, of such industries as construction,
automobiles, cement, engineering; or those affected by international economy, such s shipping, aviation, and
tourism; also shares which are affected by natural phenomena, like fertilizers and tea. Non-cyclical shares
would be drugs, insurance, basic foodstuffs and many consumer products.

Daily Margin
An amount, to be decided by the stock exchange, to be deposited by a member, on a daily basis, for the
purchase or sale of securities. The amount is to be deposited at the stock exchange. The margin is imposed
to curb excessive speculation.

Dawn Raid
In this TAKEOVER attempt an individual or a company instructs brokers to buy all available shares of the
target company at current market prices as soon as stock exchanges open for business on a particular date.
With that as a base the bidder makes an attractive offer to the other shareholders in order to make a full
takeover bid.

Debentures
A long – term instrument of debt, called bond in the United States . A debenture holder is creditor to the
company who loans funds for a period of 7 -10 years against a fixed rate of interest. After the stipulated loan
period the debentures are redeemed, i.e., the loan is paid back, sometimes with a very small premium.
Debentures are generally secured against the company’s assets. Convertible debentures can be either fully or
partly converted into a certain number of shares, usually at a premium, after a stated period of time.
Convertible debentures may carry a lower rate of interest than non-convertible debentures which are
redeemed after the stated period. A very conservative investment; there is little risk but also little prospect of
appreciation. In the absence of an exit mechanism, and a properly organized secondary market where they
could be easily traded, they are virtually illiquid investments. See TRANSFER OF DEBENTURES.

Defensive Investment
Cautious investment strategy where a safe return on the investment is sought, in addition to ensuring that the
invested capital is not eroded by a downturn in prices. Investment in government bonds, debentures. Unit
Trust, Mutual Funds, and blue clip shares are defensive in character, as they bring in a regular income, and
do not depreciate in value as a result of information.

Defensive Stock
Shares which are more stable than others and tend to fall less in a bear market, providing a safe return of
the investor’s money. BLUECHIPS fall in the class.

Delisting
Striking off a company’s name from the OFFICIAL LIST of a stock exchange so that the company’s shares
are not traded. It charges the status of the company; from a widely held and traded company it becomes an
unlisted company with higher tax rates and higher borrowing costs. The listing agreement between a stock
exchange and a company requires regular publication of the company’s financial results and meeting such
obligations as timely issue of allotment letters, share certificates, payment of dividend and interest and
timely redemption of debentures. These are the company’s post – issue responsibilities; the pre – issue
conditions have been met before the listing.

Deflation
Opposite of inflation, it is a reduction in national income and output, accompanied by a general fall in
prices. it can be brought about by reduced imports, higher taxation, and high interest rates, among other
measures. During a deflationary period the stock market usually suffers from DEPRESSION. See also
DISINFLATION.

Delivery Order
At the end of a settlement period, an account is given to each member of the stock exchange, containing
details such as the number and value of shares, and names of receiving members, to enable him to deliver
such shares on time.

Delivery Price
The price determined by the stock exchange at which deliveries on FUTURES are invoiced. Also, the price
at which futures contacts are settled, when deliveries are made.

Dematerialization of Scripts
Making stock trading scripless, all transactions being computerized and electronically entered into a ledger;
an outcome of the options market. See NATIONAL DEPOSITORY SYSTEM.

Depreciation
The loss of value over time of a tangible asset from use or obsolescence that accountants deduct from the
book value of the asset, whether or not he asset actually depreciates. Depreciation accounting does not
necessarily provide for additional cost of replacement or renewal. In straight – line depreciation the asset’s
notional life divides the asset value in equal parts, i.e., for a 10 – year life the annual depreciation is 10%. In
accelerated depreciation larger amounts are written off in the earlier years of an asset’s life, to enable the
company to qualify for larger tax deductions at the initial stage, and invest in expansion and growth. The net
block or the net fixed assets of a company is GROSS BLOCK less depreciation. The diminishing balance
method of charging depreciation applies a fixed percentage of depreciation to the written down value, the
percentage depending on the life expectancy of the asset. Se also DOUBLE – DECLINING BALANCE
DEPRECIATION.

Derivative
A financial instrument, so called because it derives its value from an underlying asset, which can be
anything – company’s stocks or bonds or commodity or a currency – used to hedge or maintain an open
position. See HEDGING, OPEN POSITION.

Discounted Debentures
Debentures which sell at less than their par value Consequently their interest yield is higher than that
promised on the face of the debenture. Thus the effective yield of a 12.5% debenture bought at Rs 80/- will
be 15.62%. A discount of 20% or more is called deep discount and debentures which sell at such discounts
are deep discount debentures. Discounted debentures can offer a higher rate of return than fixed deposits
with companies, as well as better security. See, however, TRANSFER OF DEBENTURES.

Discounting
The stock market adjusting quickly to new information, i.e.. any change in the economic parameters of a
company or an industry which may affect the future earnings. Changes include decontrol, inflation, foreign
exchange fluctuation, recession in the industry, a change in the bank lending rates and banks’ SLR, a good
monsoon or drought, etc. The discounting of what is known usually happens quickly.

Dividend Cover
Dividend payout as a proportion of undistributed net profit transferred to reserves. Expressed as a multiple
of what is paid, e.g., if only one – third of the net profits are distributed as dividend, the dividend cover is 3.
See PAYOUT RATIO.
Dividend Play
Buying cum – dividend shares just before the ex – dividend date and selling is ex – dividend, making a
profit. However, the success of this depends upon quite a few eventualities: that the share price does not fall
after the ex – dividend date (it may), that the share transfer process does not fall after the ex – dividend date
( it may), that the share transfer process does not take too long (it often does), and that the brokerage, for
buying and selling, is lower than the dividend gained by this opportunistic ploy.

Dividend Rollover Plan

A short – term investment policy in which a person buys a share before it has become ex – dividend. He
collects the dividend, and when the price has recovered from its ex – dividend level and has risen a little, he
sells it at a small profit which pays for the share transfer charges and brokerage. His gain is the dividend for
a short – period investment.

Dow Theory
It holds that there is no primary trend in the stock market, unless the movements of industrial,
transportation, and utility shares substantially follow the same trend.

DR or Depository Receipt
A depository receipt is a tradeable instrument, equivalent to a fixed number of shares, which is floated on
overseas markets. Depending on which market it is floated on, it can be ADR or American Depository
Receipt, or GDR, i.e. Global Depository Receipt. A means of raising funds in the overseas market, several
Indian companies have tried this route. A depository house is given information on the company to provide
it to foreign institutional investors, brokers, equity analysts, and other investors. The order is placed through
an investment banker overseas, who contacts a broker in India , The local broker picks up the shrews for the
depository house, which then issues DRs against these shares at a particular ratio. The DRs are traded on the
OTC counters abroad.

Efficient Market Hypothesis

The hypothesis that holds that the financial market is in possession of all available information which may
influence the price of a share or financial security, that as a result there is perfect competition in the
financial market. Perfect competition in the stock market context implies that buyers and sellers have perfect
knowledge, and neither are in possession of any information unknown to the others. Since the present prices
in the stock market have already assimilated the available information, expectations of future prices are
revised randomly. See RANDOM WALK.

Eligible Securities
Shares, debentures, and bonds which banks will accept as COLLATERAL for loans. Only listed shares are
eligible, although banks tend to make their own rules about what they will accept among the eligible
securities.

ELSS
Equity Linked Savings Schemes. Introduced in 1990 under the now – repealed Section 88CCB of the
Income Tax Act, the scheme is now embraced by Section 80 of the same Act. The duration of such a
scheme is ten years, and nay gains made under the scheme will be treated as long – term capital gains. The
original investment, up to Rs 10,000 will be added to the investor’s income in the year of receipt. These
schemes are run by the Unit Trust of India, LIC, and various banks.

Employee
The control of a company passing on to the employees through acquisition of shares individually or by an
employee’s trust, usually in the face of a closure. The buyout price offered is usually more than what the
erstwhile management of the company could obtain by selling its assets. In some cases government
controlled companies are offered for employee buyouts, when the closure of a company will cause large –
scale unemployment.
Employee Participation
Appointment to the board of directors of a representative of the employees to take part in policy decisions.

Equity Shareholders
They are the owners of the company, sharing its risks, profits, and losses. They have a residual claim on the
earnings and assets of a company. They are paid their share of the company’s profits after all other claims
are met, and in the event of the liquidation of the company they share whatever is left of the company after
all its creditors have been paid. They enjoy limited liability, i.e., liability only to the extent of their
shareholding. Only equity shareholders are entitled to vote at the company’s meetings, thus controlling the
management. If the company prospers, it is the equity shareholders who is the greatest gainer.

Eurodollar
U.S. dollars held by European banks to be used to pay for intercountry trade. See PETRODOLLAR.

FIFO or First In First Out

A method of inventory valuation in which the cost of first items received in the inventory is taken into the
cost of the first items sold. Under this method the cost of goods sold equals the opening inventory plus
purchases during the year, less closing inventory. Since in an inflationary situation the first costs of the
inventory are lower than the last costs, the cost of goods sold figure will be lower, showing a higher value of
the closing in inventory and higher gross profits. See LIFO.

FII Foreign Institutional Investor

. See INSTITUTUTIONAL INVESTOR. Foreign financial companies are now permitted to operate in the
Indian Stock Market. Besides operating mutual funds, they sometimes invest on their own. With large
amounts of funds, these have a considerable clout in the market. It’s bad news when they choose to sit idle.

Fill or Kill Order An order to a stockbroker to buy or sell a particular share or shares immediately. If the
order is not executed at once, it should be treated as cancelled.

Fixed Income Investments

Investments such as fixed deposits, non – convertible debentures, monthly income plans, or any other
government bonds or certificates which yield a fixed rate of interest. When the rate of inflation, both their
capital value and yield value are eroded. Assuming an inflation rate of 8% per year, the value of a rupee in
five years will be 68p., in ten years 46p, in fifteen years 31.5p., and in twenty years it will be only 21.5p. So
much for fixed income planning when people have started living much longer after retirement. See
INFLTION AND THE VALUE OF RUPEE – APPENDIXE.

Floating Stock
The number of shares of a company that is traded on the stock exchange; usually a fraction of the total
number issued and outstanding.

Floor Broker
A person who actually does the buying and selling of shares on behalf of a member of the stock exchange
for a small share of the commission charged by a broker. See BROKER.

Floor Trader
A member of the stock exchange who trades on the floor of the exchange on his own account. He buys
neither for the public, nor for the broker, but looks for profitable buying or selling opportunities for himself,
sometimes engaged in DAY TRADING, sometimes speculating.
Forward Dealing / Trading
Contracts to buy or sell specific quantities of goods, currency, or freight at a stated price and a stated time in
the future. These contracts are made in trade by buyers who wish to cover themselves against price
fluctuations, and sellers who wish to benefit from them. Forward contracts are bought and sold din the
FUTRUES MARKET.

Forward Delivery
A contract in which goods are purchased for delivery at some date in the future, usually in commodity
trading, sometimes for delivery up to a year ahead.

Forward Shares
See SPECIFIFED SHARES.

Forward Integration
This is a process by which a company acquires other companies which make use of its products to
manufacture finished goods. Forward integration may go up to the point of acquisition of retail outlets.

Free Lunch Theorem

The theorem states that there is no such thing as a free lunch. If one wishes to make money on the stock
market one must work hand and take carefully selected risks.

Free Market Economy

Also simply, market economy. An economic system in which the government does not interfere in any way
with business activity. There are no price controls, no permits, no kickbacks, no trading restrictions nor
foreign exchange control. India is making hesitant moves towards this economy.

Frozen Assets
Assets which cannot be traded because they are mortgaged in favour of some class of creditors, e.g.,
debenture holders.

Fully Diluted Earnings Per Share

Earning per share after accounting for all rights, bonuses, and issue of convertible debentures during a
period.

Fully Paid Share Capital

Share capital whose full value has been realized from the investors, as against partly paid up share capital
where investors have yet to pay one or more calls.

Fundamental Analysis
Scientific study of the basic factors which determine a share’s value. The analyst studies the industry and
the company’s sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the
company’s management, compares the company with its competitors, and then estimates the share’s
intrinsic worth. The fundamental analysts’ tools are FINANCIAL RATIOS arrived at by studying a
company’s BALANCE SHEET and PROFIT AND LOSS ACCOUNT over a number of year. More
effective in fulfilling long – term growth objectives of shares, rather than their short – term price
fluctuations.

Futures
Shares or commodities bought or sold for delivery at a future date. These can be sold at a profit before
delivery if prices in the market have changed.

Futures Contract
 A contractual agreement to buy or sell a specified quantity of a commodity, currency or shares at a
particular price on a fixed date in the future. It differs from an option in that it does not provide an option to
buy or sell, but is a definite contract to do either. Futures are a hedge against prices fluctuations for those
who must buy at future dates. There are speculators who buy and sell these contracts for price. A bought
futures contract can only be cancelled by a sales contract.

Futures Market
Market where FUTURS CONTRACTS are traded. Such contracts are for buying and selling at a particular
price on a future date. These can be a number of such markets for trading in different types of goods.

Glamour Shares
Shares of companies very popular with individual and institutional investors, who are happy to have them
in their portfolios. The glamour has been achieved by consistent above – average growth in sales and
earnings over a considerably period. A glamour stock is often a blue chip, but its essential characteristic is
its high earnings growth rate.

Godfather Offer
A takeover offer so attractive that the target company cannot refuse. Usually takeovers result in a change of
the management team. Shareholders too, sometimes have reasons to assume that the takeover will serve
some ulterior motive of the predator (such as asset stripping, transfer of reserves) rather than uphold their
interest. A godfather offer has none of these nasty implications.

Going Long
Buying a share for speculation; opposite of GOING SHORT where the operation is that of selling.
Speculators hwo take long or short positions do not actually buy or sell shares, nor do they have nay
intention of doing so. Rather, they hope to make money based on UNDHA BADLA or BADLA charges,
and through favourbale movement in the prices of the shares.

Going Private
Change from public ownership of a company to private ownership either by the company repurchasing all
its shares, or by a private buyer doing so. This usually happens when the company isn’t doing well and the
market prices of its shares has fallen below their book value, making it possible to acquire the assets
cheaply. Sometimes the management itself will do so to fend off takeover threats.

Going Public
Offer by a private company to sell it shares to the public by making a public issue. It does so to expand its
capital base and finance growth plans. After the public issue the shares of the company may become
marketable, i.e., if the listing requirements of stock exchanges are met.

Going Short
Selling a share that the seller does not actually possess. but hopes to pick up when the price has gone
further down, and so make a profit.

Gold Certificates
Issued in exchange of specified amounts of gold, these are tradable in the market in a deregulated economy.
The central bank of the country fixes the price of the certificates daily in line with price of gold in the
London Metal Exchange and the dollar rate against the local currency. Investors have an option to receive
cash equivalent or gold when surrendering the certificates. The interest rate offered is usually low.
Government have modified the central ideal in various small ways to suit their requirements, sometimes in
an attempt to unlock the country’s hidden gold, sometimes to mobilize black money (with the promise of no
– questions – asked), and sometimes to meet a national emergency.
Golden Handcuffs
Opposite of GOLDEN HANDSHAKE. In this, a contract is entered into by a brokerage firm and a broker,
which assures attractive commissions, bonuses, and other benefits as long as the broker serves the firm. If he
leaves, he has to return much of his gains.

Golden Handshake
Generous compensation for the termination of office, a courtesy reserved usually for the senior
management.

Golden Share
A share that controls 51% or more of he voting rights of a company.

Good Delivery
A share certificate together with its transfer form which meet all the requirements of transfer, e.g.,
unmutilated certificate, the necessary endorsements, signature of the transferor tallying with what is
registered with the company, etc. The buying broker is obliged to accept such a delivery.

Good Faith Deposit

When someone is dealing with a stockbroker for the first time, he may be asked for a deposit of 25% to 50%
of the value of a buy order, because he is not known to the broker.

Graham and Dodd Strategy of Investment

A method advocated by the two authors in their book Security Analysis, published some sixty years ago,
which advises: 1. Buy shares of companies with undervalued assets, as these are bound to appreciate to their
true value; 2. Buy shares in companies where current assets exceed current liabilities and all long – term
debt; 3. Also, such shares should be selling at a low of P/E. 4. Sell the shares when they have appreciated by
50 – 100 percent. This should take less than three years.

Great Crash
On 2 October 1929 the New York Stock Exchange price index fell by 49 points, followed b a drop of 43
points the next day. Stock prices continued to drop, until on 8 July 1932 the index stood at 41, 10.76% of its
peak level at 381 in September 1929, All the symptoms of DEPRESSION were seen in their most
aggravated state. On one day alone, 29 October 1929, 16,410,030 shares changed hands at throwaway
prices, millions became unemployed, scores of factories shut down, over 5000 banks failed, and the US
went through its worst ever economic disaster. As a result reformative Acts to control the stock market
started being legislated from 1933 onwards.

Gross
The amount without deductions; hence gross profit is without deduction of depreciation and tax, gross
income is without deduction under any of the exemption clauses, and gross dividend income is without
deduction of income tax.

Gross National Product (GNP)

The total value in money of all finished good and services produced in an economy in one full year, and all
net property income from abroad. The GNP growth rate is one of the most important ECONOMIC
INDICATORS of a country’s health. The inflation – adjusted version of the GNP is called the real GNP.

Growth Shares
Shares of fast – growing companies which show increasing and higher than average earnings per share than
the industry. Good for long term investment, although the current yield of such shares can be insignificant
because of their high P/E RATIOS.
Gun Jumping
Trading in shares on information before it is made public, e.g. information that a large, successful company
has decided to take over a company which has been a sick and closed for a long time. Also, securing orders
for a company’s shares not yet registered. IIIegal.

Glamour Issue
A public issue of shares, accompanied by much fanfare, often at a high premium, which the investing
public take a fancy to. Usually floated by a very successful, high – Profile Company. A recent example was
the Tata Steel 1989 issue: face value Rs 100, premium Rs 500, fund locked away for 7 – 9 years in the non –
convertible portion of the debenture of Rs 600; total price of debenture Rs 1,200, for one share. Yet the
mega issue was easily oversubscribed.

Havala or Hawala (also, Making Up Price)

The rate fixed by the stock exchange for the purpose of working out the liabilities between member –
brokers at the end of the SETTLEMENT PERIOD in respect of unfulfilled contracts in specified securities
which are to be carried over to the subsequent period. If members were to try and individually settle all
carry over accounts, there would obviously be considerably confusion due to the larger number of
transactions at varying prices they may have entered into. As such, for determining the liabilities of
members via – a – vis the unfulfilled contracts, the stock exchange decides a rate for each specified share,
known as the havala rate, or making – up price. The havala rate is generally fixed at the level of the closing
price of the share on the last working day of the settlement period.
Havala also means illegal trade in currency exchange, it involves selling of foreign currency at black –
market rates; also clandestine transfer of foreign exchange abroad in lieu of Indian currency paid here.
Head and Shoulders
A pattern in a share price chart with two short bulges on either side and a large one in the middle,
resembling the head and shoulders, technical analysts see this as a signal for a further fall in prices. In the
reverse pattern, head and shoulders down, i.e., the head and shoulders forming below the line, when the
price in the right shoulder has touched the baseline, the signal is for a continued rise.

Hedging Against Inflation

Protecting one’s saving from loss of value through inflation (see Appendix E) by investing in such items
whose price rises with the general rise in prices. This means fixed income securities are out, equity shares
and other items which rise in value are in. Historically, the stock market has always kept pace with inflation.

Inefficient Market
THE EFFICIENT MARKET hypothesis holds that the stock market, at any time, is possessed of full
information on the shares and that nothing is unknown which can have a further influence on a share’s
future prices. IN an inefficient market the potential of all shares is not fully known or remains neglected.
Shares of small companies with growth potential may remain low-priced in such a market, or turnaround
situations may pass unrecognized for some time.

Insider
Not just a person working in a particular company, but one in a key position in possession of crucial facts
about the company, such as contracts won, takeover bids, current results, etc, which the public do not yet
know. Insiders include owners, executives and consultants of a firm. It is illegal for an insider to indulge in
speculative trading in the company’s shares, although the proverbial ‘circles close to the management’ who
engage in buying or selling sprees before good or bad news is made public, act on insider information.
Insider Trading
An illegal activity in which persons in a company having confidential information, such as expansion plans,
financial results, takeover bids, etc., take advantage of such information to make a profit on the stock
exchange by buying or selling shares.
Insolvency
If a company is unable to pay its creditors because it doesn’t have liquid funds, it is technically insolvent. If
a creditor presses for payment ad the company cannot pay within a short period, the creditor can sue the
company and it may have to sell off some assets to meet the obligation. This is called technical insolvency.
If, however, the company’s assets fall below its liabilities, it is insolvent in the sense of bankruptcy. If the
Bankruptcy court declares the company bankrupt, its creditors are paid in a particular pecking order. See
LIQUIDATION, BANKRUPTCY

Institutional Investor
Mutual funds, Unit Trust, Insurance Corporation of India , banks, and other large institutions which invest
their members’ money in shares and bonds, re institutional investors. Since they trade in large volumes, they
may play a supportive role when the share market is bearish. When ordinary investors, and even speculators
to a certain extent, shy away from the share market, it is the institutional investor who often accounts for the
bulk of the trade done on the stock exchange, over a sustained period. The absence of institutional investor
sin a bear market can have damaging results. In view of their often substantial holdings they can play a
major role in influencing company policy and in takeover bids. They have professional analysts and
advisors, and can usually read stock market trends much better than individual investors. With their larger
holdings they are often represented on the board of directors, and can influence company policy.

Intangible Assets
Unseen and non-physical assets of a company which are of value to it and also perhaps a cash value. These
increase the value of a company in the market. Such assets are trademarks, copyright, goodwill, patents,
capitalized advertisement costs, licenses, leases, franchise, permits, etc. It is often because of these that loss
– making companies become attractive takeover targets.

Interbank Market
That part of the money market in which banks lend to one another, for very short periods, generally to
maintain their SLR. The trading is done through a select number of brokers. In the London market the
interest rate charged on such loans is called LIBRO (London Inter Bank Offered Rate).
The interbank market also deals in foreign currency transaction between banks, both on a spot basis and on
forward options.
Similar rates are offered in other countries, e.g., Toronto (TIBRO), Hong Kong (HIBOR), Singapore
(SIBOR), etc.
Interest Rate Risk
With the rise and fall of interest rates, announced by the Reserve Bank of India from time to time, the
fortunes of the bond and stock markets are closely tied. Fixed rate debt instruments fall in value as the
interest rate rises, and vice versa. Highly leveraged companies suffer if the interest rate rises, and vice versa.
Highly leveraged companies suffer if the interest rate rises, as they have to pay more for their borrowing.
This reduces their profitability.
International Finance Corporation (IFC)
A UN organization set up in 1956 as a complement to IBRD to provide finance to private industrial
undertakings in less developed countries. Although IBRD and IFC are distinct entities, financially and
legally, IFC can borrow from IBRD and make loans to private enterprise.
International Monetary Fund (IMF)
Organization set up in 1945 as an outcome of the Bretton Woods Agreement (1944), it seeks to promote
international monetary co – operation, expand international trade, stabilize exchange rates, and help
countries with short – term balance of payment difficulties to maintain their exchange rates. Its member
countries may buy foreign exchange from the fund to tide over temporary shortages. However, for nay
substantial borrowing the Fund may require the borrower to accept its advice, the fund’s objectives re to
ensure that the debtor countries can achieve sustainable growth, balance of payments viability, and normal
relations with creditors, including access to international financial markets.
Inventory
 A value entered on the balance sheet of a company of the firm’s raw materials, work in progress, materials
used in operations or manufacture, and finished gods. The valuation may be made on the LAST – IN –
FIRST – OUT method or FIRST – IN – FIRST – OUT method.
The term also means the net security position, long or short, that a dealer or an investor has in a share. See
POSITION
Inventory Turnover
Annual sales divided by the average cost of inventory given the ratio of inventory turnover. The higher the
ratio, the more prosperous the company. A low turnover ratio would indicate unsold stock and a weak sales
strategy.
The term also means the net security position, long or short, that a dealer or an investor has in a share. See
POSITION
Inverted Yield Curve
A normal yield curve is ascending, e.g., long – term bonds show a greater yield than short – term bonds. An
inverted yield curve on the other hand, is descending, showing higher yield on short – term bonds than long
– term bonds. This happens when there is a greater demand for short – term credit, and borrowers are
unwilling to commit themselves to paying a higher rate of interest of many years. An inverted yield curve is
a sign of unsteady economy, with possible spiraling inflation and low level of confidence.
Investment Analyst
A finance professional employed by banks, stockbrokers, investment companies, mutual funds, and unit
trusts to advise them on investments. They study the market, together with trends in the country’s economy,
and by using FUNDAMENTAL ANALYSIS and TECHNICAL ANALYSIS make their recommendations.
Investment Club
A voluntary association of individuals who pool their money to build up an investment portfolio, which
otherwise would not have been possible with the small sums at each one’s disposal. The gains are divided
proportionately. The advantages are that more than one mind is engaged in taking buy and sell decisions,
and the low risk each member carries. These clubs also help build up investment consciousness among
small investors.
Investment Company
A firm which uses, not its own money, but the pooled funds of individuals, to buy and sell shares for
collective benefit. An open – ended investment company is one which keeps accepting new investors and
redeems the funds of those who wish to opt out, whereas a closed – ended investment company has a fixed
number of investors and a fixed number of outstanding shares which are traded in the stock exchange. The
Unit Trust is an open – ended investment company, whereas Mastershares or Canshares are close – ended.
Investment Horizon
People usually make investments with a future date in mind when they would like to cash in on their
investments. The length of time from the date of purchase of a share to the date when it is sold is the
investment horizon, provided that it is planned. A share bought with the objective of selling it off at a rise
does not fall within its scope. Perhaps the horizon can be said to start after one has held a share for one year
which, incidentally, is the minimum period to qualify for long – term capital gains.
Investment Letter
When shares are privately placed, there is a written agreement between seller and buyer which stipulates
that the shares are bought for investment purposes only and the these are not to be resold publicly for short –
term gains.
Investment Trust
Actually a company, not a trust in the strict sense, it invests shareholder’s funds in a wide variety of
securities, carefully chosen by investment analysts, with the objective of providing capital appreciation and
income. The risk is diversified, unless the company publicly asserts that its policy is aggressively growth –
oriented.
The reason these should be called companies is that investors re their shareholders, whereas in a trust
proper, such as the Unit Trust and India , investors are unit holders, and have no say in policy matters.
For the small investor, these companies, owing to their professional expertise, perhaps offer better
opportunities for gains than individual hunch.
Investor Protection
Theoretical measures to ensure that investor interest is protected by regulating the promotion of new
companies by scrutinizing the claims they make in their prospectuses meant of the public, making
mandatory the publication of financial results at regular intervals, their audit, and their control by the stock
exchange. The office for investor protection is the SEBI or SECURITIES AND EXCHANGE BOARD OF
INDIA which is supposed to deal with erring companies. Another supposed – to – help office is the
grievance cell attached to each stock exchange. The Indian investor, however, remains slaughter chicken, s
ever.
IPO
Initial Public Offering; new shares offered to the public in the PRIMARY MARKET. IPOs are sometimes
preceded by very liberal bonus issues to existing shareholders as a reward for their faith in staking money
when the venture was new.
Irredeemable Debentures
Perpetual debentures which cannot be redeemed ever. The issue of these has been discontinued.
Issue Price
It is the price at which new issues are offered to the public, at par, or at a premium, i.e., at a price above the
face value. The issue price is fixed in consultation with the lead manager, which may be a bank or a
financial institution. If there is a premium, the company is required to state in the prospectus for the public
and in issue advertisement as well what premium the erstwhile CONTROLLER OF CAPITAL ISSUES
would have permitted. The trend now is to fix a premium at as high a level as the investors can be made to
accept, as if premium is a matter of company prestige.
Call Money
(1) Money which is loaned, in the call market, which can be demanded for repayment on call, i.e.,
immediately. Also known as money at short notice, also traded in the money market, is repayable in 24
hours.
(2) Price paid for buying a call option
Asset Anything owned by a company which has a market value. These are: CAPTIAL ASSETS, which are
long-term assets not usually bought or sold; land, building, equipment, furniture and fixtures, etc.:
CURRENT ASSETS like cash, accounts receivable; manufactured goods ready to be sold, and other assets
which are likely to be sold within a year; deferred charge, i.e. expenditure made now for a future date, such
as advance rent or insurance premia; and INTAGIBLE ASSETS, like goodwill, copyright, trademark,
patents, import and export permits, leases, and distribution rights. See LIABILITY.

Key Indicators Economic date which point to the direction in which the economy of the country is moving.
These comprise: Gross National Product, Gross Domestic Product, Agricultural Production, Foodgrains
Production, Industrial Production, Electricity Generated, Wholesale Price Index, Consumer Price Index for
Industrial Workers, Money Supply (M3), Imports at Current Price, Exports at Current Price, Foreign
Currency Assets, and Exchange Rate (Rs:US$).

Khoka A Gujarati term meaning the empty shell of a coconut, khoka is the non – convertible portion of a
partly convertible debenture. Not only may the non – convertible portion carry an unattractive rate of
interest (for example, 12.5%), it is extremely difficult to sell in the debenture market, and furthermore, if it
is sold at all, the discount may be as high as 40%. It is t remove this difficulty of holding the khoka that the
SILK scheme has been introduced. Refer to that entry, please.

Kicker An incentive to a buyer of a debt instrument, in the form of an attached equity warrant, a loyalty
coupon offering a small amount of cash if the original investor holds on to the instrument for the full term,
or if regulations permit, conversion into equity of a non – convertible bond. Kickers are also called
sweeteners. The Secured Premium Notes (SPNs) issued for the first time by TISCO, had a kicker in the
promise of one equity share at a pride of Rs. 100 only for those who subscribed to them.

Know Your Customer The US rules of fair practice for dealers in stocks recommend that before dealing
with a customer the stockbroker must find out the client’s other stockholdings and his financial situation and
needs. The customer’s risk – bearing ability, his investment horizon, his financial liquidity, are important
factors in a good broker – client relationship.

Lagging Indicators:
A lagging indicator is a measure that only changes after the economy has changed. It is of little use in
looking ahead. However, they are helpful in confirming a trend. Unemployment is the most popular lagging
indicator, because it shows whether companies anticipate things getting better or worse. If companies
believe things are bad and getting worse, unemployment will rise. If they are more optimistic, then
unemployment will fall.
Leading Indicators:
A leading indicator is an economic measure that changes before the economy does. Changes in leading
indicators may predict the course the economy is to take in the future, although not with great accuracy.
Some of the leading indicators are new unemployment claims, building permits, inventory changes, and
money supply.

Margin call:
If your account falls below minimum maintenance, your broker will issue a margin call for you to either
deposit more more or sell securities to correct the situation. In extreme cases, your broker may sell securities
without contacting you first.

Maintenance Margin:
Investors are required to keep a minimum amount of equity in their accounts. The major exchanges require
the level be maintained at least at 25%, however many brokers require much higher levels.

Minimum margin:
Minimum margin is the initial amount deposited in a margin account before margin trading can begin. That
amount may vary from $2,000 and up.
Margin:
Margin is a way to finance your stock purchases. Your broker will lend you up to 50% of the purchase
price. For example, if you had $5,000 to invest, you could buy $10,000 worth of stock. You pay interest on
the loan and repay it when you sell the stock. If the price of the stock falls below 75% of the original price,
your broker will require you to deposit more money in your account or sell the stock a pay back the loan.
Maturity:
Maturity refers to the length of time before the par value is returned to the bondholder. It may be as short as
a few months, 50 years, or more. At maturity, the bondholder receives the par value of the bond.
Market cap:
Market capitalization or market cap is a way of measuring the size of a company and is calculated by
multiplying the current stock price by the number of outstanding shares. A stock trading at $55 with
100,000,000 outstanding shares would have a market cap of $5.5 billion.
Market timing:
Market timing is the attempt to know when market lows and highs are going to occur. It is the short-term
pursuit of buy low and sell high and almost always fails over the long run.
Market Order:
A market order to buy or sell placed with your broker requests the best price at that moment. Brokers fill
market orders first before other pending orders.
Mid cap stock:
A mid cap stock is any company with a market capitalization of $1 to $8 billion.
Nominal yield:
This is the coupon or interest rate. Nothing else is factored in to this number. It is actually not very helpful.
NASD:
The NASD or National Association of Securities Dealers is a self-regulatory body of securities brokers and
is supervised by the SEC. The NASD licenses and examines brokers and handles consumer complaints.
NASDAQ:
The NASDAQ, which used to be known as the over-the-counter market, is the relative new kid on the block
of stock exchanges. Trades are executed over an electronic network of brokers. Many of the companies
listed here are fairly young and this is the home of many of today’s survivors of the high tech boom of the
1990s.
NYSE:
The New York Stock Exchange or NYSE is oldest and most prestigious of all stock exchanges. The NYSE
is home to many of the “blue chip” companies. Its Wall Street address makes it the heart of America's
financial district.
Options:
Options give the owner the right, but not the obligation, to purchase or sell a specific number of shares of a
stock at a specific price. Options are bought and sold on the open market. They can also be part of an
employee compensation plan where the employer grants options based on performance or other conditions.
Online Broker:
Online brokers allow investors to buy and sell securities over the Internet without ever talking to a human.
Online brokers often offer the least expensive commissions.
Par value:
Par value, also known a face or principal value, is how much the bondholder will receive at maturity. A
$1,000 par value bond will be worth $1,000 when it matures.
Penny Stocks:
Penny stocks are a special category of low priced, usually $1 or less, stocks often issued by highly
speculative companies. They are frequently the focus of stock scams and manipulations.
Position:
Position describes your current holdings. If you owned 100 shares of IBM, your position would be “long
100 IBM.”
Preferred stock:
As the name implies, preferred stock is a different class of stock with additional rights not granted to
common stock owners. Among these rights is first call on dividends. Investors buy preferred stock for its
dividend income.
Price earning ratio:
The price/earnings ratio (P/E) is a way to show how a company’s earnings relate to the stock price. The
P/E is calculated by dividing the current price of the stock by the annual earnings per share. The higher the
P/E the more earnings growth investors are expecting and the higher premium they are willing to pay for
that anticipated growth.
Prospectus:
A prospectus is a legal document that potential shareholders of an initial public offering of a stock must
have before they can invest. It lists complete financial details of the company as well as the associated risks
of the investment. A prospectus is also required for mutual funds and any regulated security.
Qualified retirement plan:
Qualified retirement plans are authorized by the Internal Revenue Service and must adhere to certain rules
and regulations. Participants in the plans, often sponsored by an employer, may accumulate money in their
accounts on a tax-deferred basis. A 401(k) plan is an example, but an IRA is also a qualified retirement plan.
Risk tolerance:
Risk tolerance is how much risk you are willing to take to achieve an investment goal. The higher your risk
tolerance, the more risk you are willing to take
Round lot:
A round lot is the standard transaction unit in stocks and is 100 shares. Any order not divisible by 100 is
considered an odd lot and may trigger an additional fee from your broker.
SEC:
The Securities and Exchange Commission (SEC) is the chief regulatory body over the stock markets and
companies that are publicly traded.
Selling short:
Short selling is where you sell a stock you do not own in anticipation that the price is going to fall. Your
broker will “borrow” the stock from another client. You sell the stock and put the money in your account. If
you are correct, you buy back the stock at the lower price and pocket the profit. The original owner then gets
the stock back. This all perfectly legal.
SIPC:
SIPC (Securities Investor Protection Corporation) is a private, government sponsored agency that provides
insurance to protect your assets at a brokerage firm in the event the brokerage fails. Coverage is up to
$500,000 per account. The insurance does not protect against trading losses.
Small cap stock:
A small cap stock is any company with a market capitalization of $1 billion or less.
Technical analysis:
Technical analysis is a form of stock evaluation that relies on stock data, such as price movement, volume,
open interest to predict future price trends. Technical analysis is not concerned with the business, but
focuses strictly on the data, using charts and graphics to spot trends and certain buy and sell points.
Trade:
Trade refers to the buying or selling of stocks, bonds, mutual funds, and other financial instruments.
Depending on the usage, it can mean a single transaction, or refer to the total market (trading was heavy).
Value stocks:
A value stock is one that is under priced by the market for reasons that have nothing to do with the business
itself. Often a stock’s only sin is not being a part of the current hot sector.
Warrant:
Warrants give the holder the right, but not the obligation, to purchase a specific number of shares of a
stock at a specified price. Warrants are often issued along with new stock as an incentive to investors.
Wealth builder:
Wealth builders are concepts founded in fact and reason that provide for the accumulation of wealth.
Compounding of interest is the best known and most powerful of all wealth building concepts.

Yield:
Yield is the annual return of a stock or bond or any investment expressed as a percentage.

Yield to maturity:
Yield to Maturity is the most complicated, but the most useful calculation. It considers the current market
price, the coupon rate, the time to maturity and assumes that interest payments are reinvested at the bond’s
coupon rate. It is a very complicated calculation best done with a computer program or programmable
business calculator. However, when you hear the media talking about a bond’s “yield” it is usually this
number they are talking about.