STOCK MARKET TERMS A–Z
A GROUP SHARES
B1 GROUP SHARES
B2 GROUP SHARES
A-D INDEX OR ADVANCE-DECLINE INDEX
Stocks which have very high liquidity. The company has large equity base and large public holding. The company has a given consistent good performance over the years. Shares have high liquidity. Company has equity above Rs.30 million. Company fundamentals and financial parameters in line with the industry. Share with low investor interest. Shares trade below par value (face value). Company has equity below Rs.30million. Company's shares are not widely held. Company has surveillance measure initiated against it by the EXCHANGES for suspected price manipulations. Shares have low trading volume at the EXCHANGES. A tool for detecting bullish or bearish trend in stock market. One divides the number of traded shares which have risen in price by those which have fallen. Example: If 200 shares have advanced and 100 declined on a particular day the A-D INDEX is 2. Number more than 1 indicates a bull trend and less than 1 a bear trend. A concept, which measures the inherent volatility of share. A share with alpha factor of 1.5 is slated to rise in price by 50% in a year on its inherent strength, such as growth in EPS, regardless of the behavior of the market. The calculation:
ASPIRIN COUNT THEORY
ASSET VALUE OR NAV
BASE MARKET VALUE
(NAV-face value + dividend paid)/(Face value * number of years) Profiting from differences in piece of the same share traded on two or more stock exchanges. An arbitrageur makes money by buying in lower market and immediately thereafter selling in the higher market, or vice versa, thereby making a profit. A lighthearted approach to the market behavior which declares that if aspirin consumption rises in the country, about a year later the market will fall and vice versa..... Term used by mutual funds and other investment trusts, to indicate the net tangible asset value of each share, calculated by taking the total value of an investment portfolio on market rates on a certain date and dividing it by the number of outstanding shares. the net asset value of a mutual fund indicates how well or badly the fund managers have played the stock market. A complete absorption of a new issue(IPO) by the market. i.e. with no shares unsubscribed. A share, usually a blue chip, whose price is taken to show the state of the share market. It is a widely held, that for frequently traded share with a stable price record, the BETA COEFFICIENT is 1. Average market price of a group of shares at a given time. Used for plotting changes in market indexing.
BIGGER FOOL THEORY
BLACK KNIGHT BLOCK TRADE
.o1% of yield of a fixed interest bond. Thus with the fluctuation of price of a bond, if the yield increases from 14.27% to 15.31%, there has been increase of 104 basis points. A measure of performance of a particular share in relation to the general movement of the market. If a share has a beta of 1 its rise and fall corresponds exactly with the market. With a beta factor of 2 its rise and fall is double. With beta of 0.5 the particular share will rise only 55 if the market rises 10% and falls 5% if the market falls by 10%.shares with negative betas are contrarian shares. You may have been foolish enough to buy an overpriced stock, but you believe that there is an even bigger fool who will buy it from you at higher price. An unwelcome takeover bidder. Trading large blocks of shares, usually by mutual funds or institutional investors. There are specialist brokers who carry out the trade discreetly, without unduly affecting the price movement of the shares. Before a company declares a dividend or issues bonus or rights shares, it closes its register of members for a certain period, from 1week to 1 month, during which no transfer of shares is registered. After book closure shares are quoted ex-dividend, exbonus or ex-rights prices. The value at which an asset is carried on a balance sheet. Since the asset is subjected to depreciation, the book value is lower every year. Cost minus accumulated depreciation will thus show the book value of an asset.
The net asset value (NAV) of a company's share. Take the total assets of a company 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. NOTE: A good company should focus on increasing its book value (asset) year after year. A brand is a promise of quality, and brand equity is a value addition to a product or a company. An order to the stockbroker to buy shares either at the BEST price or within a price limit (LIMIT ORDER). Net assets used in a business to make profits Expenditure on accruing. Fixed, rather than liquid assets. The ratio of fixed interest loan and preference shares to the ordinary share capital of a company. LOW GEARED: More share capital than loan. HIGHLY GEARED: More loan than share capital. The issue of shares by a company, whether as a new issue or premium issue or rights issue. The capital of a new company consists of issued and subscribed equity shares, redeemable preference shares, and secured and unsecured loans. When the company is making profits, that part of the profits remaining undistributed among the
BUY ORDER CAPITAL EMPLOYED CAPITAL EXPENDITURE
CAPITAL STRUCTURE OF COMPANIES
CAPITALIZATION CAPTIVE FUND
shareholders is transferred to reserves and becomes part of the capital structure. The difference between the nominal or face value of the shares sold by a company to the public and the sum realized by selling them as a premium issue. Annual sales divided by paid up equity. Studies over a period, it shows the extent to which a company can grow without additional capital investment. Conversion of free reserves of a limited company into capital by issuing bonus shares. A venture capital fund wholly owned by a larger body than individual entrepreneurs. It is the amount earned by a company before depreciation and other deductions which do not require any cash outlay. It is also called cash earnings per share. Shares with bonus entitlement. A buyer of such shares receive the bonus shares distributed by a company on registration on their shares before the record date. The buyer of the share is entitled to the dividend if he buys the share before the closure of the company's books. These shares are sold at a slightly higher price than the ex-dividend shares. A system to curb excessive speculation in the stock market, applied by the stock exchange. When the index spurts or plunges more than a % decided by the authorities, then the trading is then suspended for some time to let the market cool. NOTE: This happened during the crash in
COOKING THE BOOK
COST OF CAPITAL
2006 may...trading was suspended for 1 hr to stop the free fall of the market. A continued upward or downward trend, within a narrow range, of share prices of a company, or in general, indicating an imminent breakout in the same direction. Shares which behave in a fashion contrary to the general stock market trend, i.e., fall in rising market and rise in falling market. Falsifying the financial accounts of a company to keep the share holders happy and to attract investors with the lure of high profit. A high level accounting skill combines with low level cunning to achieve this end. Certain expenses are omitted, liabilities are concealed, write-offs delayed, valuation reserves not provided for, and other such fraudulent practices are followed to present a false picture. The return that an investment could earn if another, alternative investment with equal risk, were chosen. Also called the opportunity cost. The ratio of current assets to current liabilities. If it is more than 1, the company's operations are in a healthy state. An order, which is only good for the day it is placed, to a stockbroker to buy or sell particular shares. If the order is to be held till it can be executed, its called a GOODTILL-CANCELLED order. 1) The total liabilities of a company divided by the shareholders equity. 2) The total long term debt divided by shareholders equity. 3) The total long term debt plus the par
DELTA STOCKS DEMAND -PULL INFLATION DEPRECIATED COST DISCOUNTED CASH FLOW
value(face value) of preference shares divided by the par value(face value) of the equity shares. *this ratio measure a company's solvency. Opposite to 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 deflation period the stock market usually suffers from depression. Replacing fixed interest loan by issuing equity shares of a comparable value. This is done to lower the company's capital gearing or leverage. The least liquid shares of a stock exchange. Inflation caused by the increase in demand in excess of the industry's capacity to supply. The net book value of an asset after accumulated depreciation has been deducted from the original cost. Evaluation of discounted future cash flow in terms of their present value. Payment made to shareholders, usually once or twice a year out of a company's profit after tax. Dividend payments do not distribute the entire net profit of a company. Part or substantial part of which is held back as reserves for the company's expansion. Dividend is declared on the face value of a share, and not on its market price. Dividend per share divided by its market price, multiplied by 100.
DOLLAR COST AVERAGING
EARNINGS TO EQUITY RATIO
ELLIOTT WAVE THEORY
EARNINGS PER SHARE EXACT INTEREST EXTRAORDINARY GENERAL MEETING
FILL OR KILL ORDER
For example, 50% dividend on a share of 230, face value Rs.10 is (5/230) *100=2.17% Rather than buying a large number of shares all at once, at one price, the strategy of dividing the investment amount into a number of equal parts and buying at different intervals, to take advantage of lower prices. Useful strategy during bear phase when the lowest price of a share cannot be known. Profit after tax minus dividend on preference shares divided by equity share capital plus reserves, and the sum multiplied by a hundred. This ratio indicates how profitable the company is making use of its capital. A theory of recognition of market trend which postulates that the market follows a pattern of five waves up and three waves down to form a cycle of eight waves and that moves in short and long cycles. One of the most wildly used indicators of the worth of a share. EPS = PAT/no of shares. Interest calculated on 365 days a year, as against 360 days of ordinary interest. Any general meeting other than the annual general meeting, called to obtain shareholders consent to urgent decisions. An order to a stockbroker to buy or sell a particular share immediately. If the order is not executed at once, it should be treated as cancelled. Distinguished from capital structure of a company which includes only long term
FULLY DILUTED EPS FULLY PAID SHARE CAPITAL FULLY VALUED
debt and equity, the financial structure is influenced by the growth and stability of sales, market competition, the quantum of profits, the attitude of short-term lenders, and the efficiency of the company's management. The financial structure helps take leverage decisions. The number of shares of a company that is traded on the stock exchange; usually a fraction of the total number issued and outstanding. Raising the necessary capital for a new company by an open offer to the public to subscribe shares or through private placement. Where the company is already in existence as a private company, but wishes to expand and go public, flotation is the process by which it goes to a merchant bank or any financial institution which then offers shares to the public. Cash. Also shares of a company available to the public, i.e. shares not held by the controlling share holders, those on firm allotment or issued to institutions. EPS after accounting for all rights, bonuses, and issue of convertible debentures during a period. 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. A share which has attained a price that has taken into full consideration the
GAMMA STOCKS GDP
GOOD-TILLCANCELLED ORDER (GTC)
GREEN SHOE OPTION
GROSS NATIONAL PRODUCT
fundamental strength of the company. If the price further increases the share will become overvalued; if it decreases the share will be undervalued. Shares of small companies which are traded infrequently. Gross Domestic Product. Government securities and bonds, usually with an unattractive interest rate, these are nevertheless very safe assets to hold, as the government is responsible for the payment of interest and refund originally such certificates were edged with gold. A share that controls 51% or more of the voting rights of a company. A client's order to buy or sell shares, usually at a specific price, which remains valid till executed. Different from a day order or a fill or kill order. A provision in an agreement with the underwriters of an issue which states that in event of exceptional investor interest the issuer will authorize additional share for distribution. Value of a company's fixed assets before depreciation, the gross assets of a company include land, buildings, machinery and office equipment. The total value in money of all finished goods and services produced in an economy in one full year, and all net properly income from abroad. The GNP growth rate is one of the most important economic indicators of a country's
HEAD AND SHOULDER
HEDGING AGAINST INFLATION
HIGH GRADE BOND HYPERINFLATION
health. Net sales minus the cost of production, but without deduction of interest, depreciation, and taxes. Total sales at the full value of a commodity, before commissions and discounts are deducted. The growth rate is measured by the increased earning of a company over its previous achievement, expressed in percentage. The difference between the buying price and selling price of a market maker. 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 shoulder of a person. as the price moves down from the head to the right shoulder, we see this as a signal for a further fall in prices and vice versa. Protecting one's savings from loss of value through inflation by investing in such items whose price rises with the general rise in prices. Historically, the stock market has always kept pace with inflation. Funds held by a company but not disclosed in the balance sheet. This may be done by not disclosing an asset or deliberately undervaluing it to reduce taxation. A loan instrument graded triple A or double A by CRISIL. Swiftly rising prices at the rate of 50% or more a month.
INCOME TAX REBATE
Pledging assets against a loan. The ownership of the asset or the income from the asset is not transferred; expect that in default of repayment of the loan the asset may be sold to realize its value. Brokers will accept shares as collateral for loans to finance purchase of shares or to cover short sales. Shares with low P/E and low price. Gives good dividend, sometimes equaling or excelling the rate from fixed deposit. The companies follow a policy of high payouts. The various opportunities for gaining rebates are now curtailed. Under section 80L interest and dividend income up to Rs.7000 is exempted from income. Under section 80 investments in Govt. approved schemes like the NSS, NSC, PFF, LIC schemes, etc. will qualify for a 20% rebate on the gross tax up to a savings limit of Rs.60000. Mutual fund whose portfolio of shares is identical to a well known Index, such as Sensex or Nifty. Such an investment policy reflects the brief that trying to beat the market index over the long term is futile, and it is best to keep up with the market. The practice of relating economic variables such as wages, taxes, annuities, dearness allowances, and pensions to changes in the general price level, which offers some relief against inflation, but leaves savers and lenders worse off. Supplementing traditional financial
INFLATION AND THE RUPEE INFLATION HEDGE
statements by showing the effects of inflation on the items contained in them, and adjusting profit and loss accordingly. Under the pressure of varying rates of inflation, the value of a rupee against today's purchasing power is worked out. An asset whose market price keeps ahead of the rate of inflation, so that the owner of the asset suffers no loss of purchasing power. 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. 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 and 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. If the company's assets fall below its liabilities, it is insolvent in the sense of bankruptcy. 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, franchise, permits, etc. The ratio of a company's earnings to interest due. The interest is for the loan capital of the company.
INTEREST RATE RISK
JOINT VENTURE LAY OFF
With rise and fall of interest rates, announced by the RBI from time to time, the fortunes of the bond and stock markets are closely tied. Highly leveraged companies suffer if the interest rate rises, as they have to pay more for their borrowing. This reduces their profitability. An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim dividend is a fair indication of a company's profitability, during the working year. The intrinsic value of a share, as against its market driven prices, is its fundamental strength and potential measured by data like sales, operating profit, book value, debt structure, market share, future potential, etc.. Annual sales divided by the average cost of the inventory gives the ratio of inventory turnover. Higher the ratio, the more prosperous the company. The amount of authorized capital issued by a company. A part of the authorized capital may be withheld for subsequent issue, at par or at a premium. Collaboration, usually both collaborators have equity stakes in the company. Selling off unsubscribed portions of a rights offer by the issuer to the underwriter at the offer price.
MARKET CAPITALIZATION MARKET SHARE MINIMUM LENDING RATE
An arrangement under which a company, in order to raise cash, sells a piece of equipment, land, or building on condition that the buyer will lease it back to the seller for an agreed rental, for a fixed term. Taking over a company, using borrowed funds. A company with borrowed funds in its capital structure. If the debt component is more than a third of the capitalization, it is called a highly leveraged company. The winding up of the business of a company, either through bankruptcy or through a resolution passed by the shareholders when the purpose of the company has been fulfilled. Additional charge to cover expenses, usually administrative. This is usually deducted from the NAV of a mutual fund unit at the time of repurchase by the fund. The difference in prices at which a jobber will buy and sell. Also called a HAIRCUT An account with a brokerage firm which will allow the client to buy shares with money borrowed from the broker. Margin requirements can be met with a deposit in cash or shares. The total market value, at the current stock exchange list price, of the total number of equity shares issued by a company. The percentage of an individual company's sale of a product in relation to the total sales of that product by all companies. The rate of interest charged by the central bank of a country to a discount approved
MOU OPERATING PROFIT OR LOSS
PAID UP CAPITAL
P/D RATIO PSU
bills of exchange or make short-term loans. It is the rate which determines the domestic interest rates charged by banks. Memorandum of Understanding - Setting out terms of a contract, for technical collaboration. Profit or loss arising out of the principal business of a company. These measure a company's operating efficiency by comparing various income and expenditure figures from the balance sheet and profit and loss account. Some of these ratios are sales to cost of goods sold, operating income to operating expense, net profit to gross income, net income to net worth. These are compared with the company's previous results, and the industry averages Capital acquired by selling shares to investors, as distinguished from capital accumulated from earnings or from secured or unsecured loans. This is dividend per share divided by earnings per share and the sum multiplied by 100. If the payout ratio is 40%,it means that 40% of the company's profits after tax have been distributed as dividend and 60% transferred to reserves. A very high payout may not be healthy, as it will slow down the building up of an adequate reserve. Price-dividend ratio; price/last dividend. Measures the value of an investment. Public Sector Undertaking - Run by
PUBLIC OFFERING QUICK ASSETS RATE OF TURNOVER RETURN ON EQUITY
RULE OF 72
government. Offering shares to the investing public, as distinguished from rights offering to existing shareholders. These are liquid or near-liquid assets, such as cash, money in bank, gold, etc. Total annual sales divided by the average inventory shows the speed with which stock has been turned over. Net income of a company as a percentage of its equity capital. These are expenses incurred; income earned; in the course of, carrying on a business, and are shown in the income statement of a company as revenue account. Issue of shares at par or at a premium by an existing company to its share holders in a certain proportion to their holdings, as a matter of their right to receive preferential treatment. A most useful formula for calculating the number of years an investment will take at a compound rate of interest to double. Divide 72 by the compound rate of interest and you get the period of time. or again, if you know the period of time it takes an investment to double, divide 72 by the number of years and you will get the compound interest rate. A reward sometimes offered to the employees of a company to buy shares at a favorable price or on a preferential basis. A chart pattern in technical analysis which forms a V, which indicates that the share price has bottomed out and is on an upward
course, a reverse V will indicate the opposite trend. A chart pattern, forming a W, showing that a share's price has hit the support level twice, and is now likely to move up. Dividend divided by market price multiplied by 100.
BOOKS WHICH WILL HELP
o o o o o o o o
Intelligent Investor How To Pick Stocks Like Warren Buffet The Real Warren Buffet Beating The Street One Up On Wall Street Warren Buffet Speaks Warren Buffet Way How To Read Annual Reports And Balance Sheets – Raghu R Palat
THE TRADING CYCLE
We accumulate trading information - buying books, going to seminars and researching. We begin to trade with our 'new' knowledge. We consistently 'donate' and then realize we may need more knowledge or information. We accumulate more information. We switch the commodities we are currently following. We go back into the market and trade with our 'updated' knowledge. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in. We start to listen to 'outside news' & other traders. We go back into the market and continue to donate. We switch commodities again. We search for more trading information. We go back into the market and continue to donate. We get 'overconfident' & market humbles us. We start to understand that trading success fully is going to take more time and more knowledge then we anticipated.
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8. 9. 10. 11. 12. 13. 14.
Many Traders Will Give up at this Point as they Realize Work is Involved….. But do go on…..
We get serious and start concentrating on learning a 'real' methodology. We trade our methodology with some success, but realize that something is missing. We begin to understand the need for having rules to apply our methodology. We take a sabbatical from trading to develop and research our trading rules. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute. We add, subtract and modify rules as we see a need to be more proficient with our rules. We go back into the market and continue to donate. We go back into the market and continue to donate. We start to take responsibility for our trading results as we understand that our success is in us, not the trade methodology. We continue to trade and become more proficient with our methodology and our rules. As we trade we still have a tendency to violate our rules and our results are erratic. We know we are close.
We go back and research our rules. We build the confidence in our rules and go back into the market and trade. Our trading results are getting better, but we are still hesitating in executing our rules. We now see the importance of following our rules as we see the results of our trades when we don't follow them. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better. We continue to trade and the market teaches us more and more about ourselves. We master our methodology and trading rules. We begin to consistently make money. We begin to consistently make money. We get a little overconfident and the market humbles us. We continue to learn our lessons. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size. We are making more money then we ever dreamed to be possible. We go on with our lives and accomplish many of the goals we had always dreamed of.
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