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Date: Tuesday 13th 2008f May 2008 09:23:35 AM

Glossary
 

B
 

BEP (Break Even Point): refers to the minimum dollar amount of sales required by a firm to not incur a loss.

Our take: Companies with large fixed cost such as plants and equipments normally have a higher break even point.

 

B share: See A-share.
 

Baby bells: Refers to companies that were broken up from the old AT&T. The biggest baby bells of all include: BellSouth, US West (owned by Qwest), Southwestern Bell and Verizon.

Our take: The baby bells mentioned above combined have a market cap of $250 B excluding the current AT&T Corporation.

 

Baby bills: A term used for companies that will be broken up from Microsoft should the Justice Department decides to break up the company. The term baby bill is used to reflect the smaller Microsoft which was co-founded by Bill Gates.

Our take: As of right now, Microsoft Corporation is still standing intact without any swirling breakup news.
 

Back door listing: This refers to strategy used by unqualified companies to go public. They decide to buy other public companies and that way, they are listed on the stock exchange.

Our take: Sometimes, it is more cost effective to be listed by acquiring publicly traded companies.
 

Back Testing: refers to designing investment method based on historical performance or data.
Our take: A lot of mechanical investing relied on back testing. In reality, the future will always be different than the past and hence, relying on back testing investment method is not a good way of achieving the maximum return of your investment.
 

Back up the truck: it is investment slang where investors buy as much shares as possible believing that the drop in price is temporary.

Our take: While back up the truck attitude indicates bullish sign, it is advisable not to put all your money in one stock just because it has fallen sharply.

 

Backing away: Refers to the situation where a market maker fails to abide by the posted bid or ask.

Our take: When this happens, normally the transaction is rebutted. The market maker meanwhile may be punished for breaking the rules.

 

Backlog: refers to orders that have not been fulfilled. It can indicate the future direction of sales.

Our take: Higher backlog than current revenue, indicates better revenue prospect ahead.
 

Balance Sheet: One of the financial statements that needs to be disclosed to the general public if a company is a public company. It consists of three parts: Asset, Liability and Shareholders’ Equity.

Our take: Balance sheet is like a snapshot of the firm’s capital structure. It can be easily manipulated. Management can devise a way to improve its balance sheet by delaying payments for one day after the published date.

 

Balanced investment Strategy: refers to portfolio allocation designed to balance risk and return.

Our take: As with other things in life, the more risk you take, the higher your return is. Knowing your risk tolerance, then you can construct your portfolio accordingly.

 

Bank: A financial institution whose original purpose is to borrow and lend money to other individuals or organizations.

Our take: In recent years, bank has branched their business models into areas such as retirement planning and offering analysis on certain investment.
 

Bank rate: The interest rate charged by banks lending their money to other banks.

Our take: The rate normally is lower than the rate the bank charges on loan to individuals or companies.
 

Bank Reconciliation Statement: A form that is used by individuals to compare the difference between recorded bank statement and the individuals’ own record.

Our take: Since published statement is not always up to date. There will always be discrepancies between published bank statement and individuals’ own record.

 

Barter: Before money is invented, individuals will trade their belongings for other goods, instead of paying them up with money.

Our take: The invention of common currency like money has enabled smoother trade and more efficient transactions.
 

Base period: A time period where it is used to compare economic performance of another time period.

Our take: For example when our base period for measuring inflation is 1980, then we are comparing present price index with 1980 price index.

 

Basing: A term used to describe the price action of a stock that is not moving much for an extended amount of time.

Our take: Basing is caused by the tug of war between buyers and sellers. When one side is stronger than the other, stock will move in one direction until the force is equal again.
 

Basis point: refers to interest rate of a bond or federal fund rate. One hundred basis point is equal to one percentage point.

Our take: Federal Reserve would normally use basis points when they change federal fund rate. 25 basis points of rate increase indicates a 0.25 % increase in federal fund rate.

 

Bear: Refers to the belief of an investor that a particular stock is overvalued and is about to fall.

Our take: Bearish investors generally stay out of the market or sell their holdings.

 

Bear market: Refers to market condition in which stock prices are expected to fall. A 25% fall of market indices from the high is considered a bear market.

Our take: With volatility nature of the stock market, it is quite possible for stocks to fall steeply in a single month, only to rebound later. Therefore, we feel that the more accurate definition of a bear market is when the market indices fall 20% from the high and remains there for at least six months.

 

Bear trap: refers to a chart pattern formation where a stock price gaps down at the open, only to reverse higher by the end of the day.

Our take: Reversal like bear trap often occurs when there is news coming out during trading day.

 

Beginning Inventory: The beginning value of materials, goods and inputs at the start of an accounting period.

Our take: Beginning Inventory serves as a reference point to track how much inventory is used up or bought during a particular period of time.
 

Behavioral economics: A branch of economics that studies how psychological factors affect the economic decision being made.

Our take: This is an important subject to learn since all decision makers are emotional human being.
 

Behavioral Finance: Similar to behavioral economics, it is the study of how psychological factors affect the movement of stock prices.

Our take: This relatively new field has many believers as well as skeptics.
 

Beige Book: published almost monthly by the Federal Reserve, this book outlines the economic activity in key US regions for a particular month.

Our take: While it is important to know the economic activity around the region, we emphasize more on picking value in stocks; buying company less than what it is worth.
 

Bellwether company: A company dominant in its field that can be used as a leading indicator for that sector.

Our take: Some example of bellwether company include: Intel corp as a bellwether for chips sector, Walmart as a bellwether for the retail sector.

 

Below the market order: An order specifying transactions to be executed lower than the current market price.

Our take: It is worth a try although the chance of getting below the market order is slim.
 

Benchmark: Refers to standard measurement of a performance.

Our take: Money managers will use the return of S&P 500 as a benchmark for their performance. Investment return beating the benchmark means that the money manager has a higher return than S&P500 during a particular period.
 

Beneficial owner: It is the person who controls an asset and receives the privileges of owning some valuable assets.

Beneficiary: A person/s that is entitled for a claim of an asset when the beneficial owner passes away.

Our take: Beneficiary can be spouses, children, relatives or anyone chosen by the beneficial owner
 

Best Ask: It is the lowest price quoted from sellers in the market place.

Best Bid: It is the highest price quoted from buyers in the market place.

Our take: Quite simply, best ask is the lowest price investor can buy a stock and best bid is the highest price investor can sell a stock at one point in time.

 

Best Execution: It is the best price, order execution by brokers for its customers.

Our take: For most, best execution means getting stocks at the lowest price with the least delay.
 

Beta: It is a measure of the volatility of a stock compared with the market as a whole. The market here is normally S&P 500 index.

Our take: A beta value of one indicates the volatility equaling the broader index (S&P 500 index). High tech NASDAQ stock normally spots a beta of greater than one while utilities stock normally yields a beta that is lower than one.

 

Bid/ Bid price: The price buyers are willing to buy a particular stock.

Our take: For every transaction, there will always be a buyer and a seller. Therefore, if you intend to sell your stock, you need to look at the bid price.
 
Bid size: The number of shares that are currently being bid by buyers at certain price at a particular point of time.
Our take: If the bid size at $2 is 5000 shares, this means that buyers are willing to buy 5000 of its shares at $2 a piece.
 
Bid-Ask spread: It is the difference between the highest bid and the lowest ask for a particular security.
Our take: With the advent of electronic trading, bid-ask spread is approaching zero for a more liquid stocks such as Microsoft or Intel.
 
Big bath: The practice of taking a large charge in a particular earning period to make result look worse than it really is.
Our take:  CEO conducting the practice of big bath will normally impair assets, prepay various expenses and delay the recognition of revenues. On the following year, the earning result would look better in comparison as a result of the big bath.
 
Big board: refers to New York Stock Exchange.
Our take: New York Stock Exchange is the oldest exchange in the United States. Companies wanting to be listed in NYSE has to meet stringent requirements.
 
Big Four: Refers to the four biggest accounting firm in the United States.
Our take: The firms mentioned above include Ernst & Young, Deloitte & Touche, KPMG and Pricewaterhouse Coopers.
 
Big Three: Refers to the US biggest automakers; General Motor, Ford and Daimler Chrysler
Our take: A phrase : "What is good for General Motor is good for America" signified how influential the big three was. However, it is now less true now than before since there are several big US companies that rival those of the big three. For example: Walmart is now the largest private employers in North America with over 1 million total workforce.
 
Black Friday: Refers to the catastrophic day in the stock market where stock market plunged in one single day.
Our take: The term has now been used to describe several disastrous days in the stock market such as October 29th 1929 and October 19th 1987.
 
Black Knight: A company that make a hostile take over to another company.
Our take: A company that make a hostile take over will bypass the board of director and directly goes to open market and buy the target's stocks to gain majority vote.
 
Black Scholes model: named after the inventors (Fisher Black and Myron Scholes), this model is used to predict the value of the stock options issued by a corporation. Among the variables considered are expiration date, stock price, strike price, volatility and risk free interest rate.
Our take: Black Scholes is the most common method used to calculate the cost of issuing stock options for companies.
 
Block trade: An order submitted to trade a large quantity of securities.
Our take: 10,000 shares trade is considered large enough to be called a block trade.
 
Blocked currency: Any currency that is not freely tradeable in the open market. It is usually used for domestic transactions onlye. Local government usually intervenes heavily in order to regulate the price of blocked currency.
Our take: Countries with smaller GDP tends to favor this since it reduces the volatility of their currency should foreign investors bail out.
 
Blue Chip: A security that is commonly perceived to be safer because of its dominant business positions and balance sheet strength.
Our take: some companies that are considered as blue chips are: Johnson & Johnson, Pfizer, General Electric, Exxon Mobil and Walmart. These companies are capable of paying out dividends during good time and bad.
 
Board of Director: Elected by the shareholders of a company to oversee management.
Our take: These are the individuals that act on the shareholders' best interest to instill management.
 
Bond: A debt instrument issued by corporations or governments. Investors who bought this debt is compensated with the promise of certain percentage of interest paid biannually.
Our take: You can read more about bond in our getting started thread here.
 
Bond Fund: A fund that invests primarily in fixed income securities such as bond to provide stable return with minimal risk.
Our take: Buying a bond fund is  a great way of reducing risk.
 
Bond option: similar to stock option, but the underlying asset is a bond instead of a stock.
Our take: Options are used as an insurance against future investment loss.
 
Bond rating: a rating assigned to indicate the quality of a specific bond. The higher the rating, the higher the quality of the bond; meaning it is less probable for the bond issuer to default.
Our take: The highest bond rating is normally AAA which is assigned to only a handful of companies due to their superior ability to pay the bond.
 
Book building: analysis by the underwriter to determine how much the IPO price should be based on demand from institutional investors.
Our take: We never advise buying a stock IPO because normally the price that we get is after doing some analysis on the demand which means we'll never buy stock IPO for cheap.
 
Book Value: the theoretical value of all assets left over  after paying out all its liabilities.
Book Value per common share: The net asset of a company divided by the number of shares outstanding.
Our take: Buying a company below book value may mean buying a bargain investment.
 
Book to Bill ratio: The ratio of orders received and orders delivered for an industry. It is widely used in semiconductor industry
Our take: This ratio predicts future demand for an industry. If the ratio is above one, future demand will be bright. If the ratio is below one, the future demand is not too good.
 
Book to market ratio: This is the ratio of a company's book value versus its market value.
Our take: The ratio is used to determine how much above book value is a particular securities.
 
Boom: A period in economic cycle where GDP expands rapidly
Our take: Boom and bust is part of economic cycle. Smart management normally save cash during boom times and use it to defeat competitors during bust time.
 
Bottom: The lowest price of a security traded in a given period of time.
Our take: The goal of every investors is to buy at the absolute bottom while selling at the top. In reality, this is a very hard thing to do. A lot of studies has been devoted to finding bottom but the result has not been satisfactory so far.
 
Bottom fisher: investors who buy when the price has fallen precipitously searching for bargains
Our take: Becoming bottom fishers is not as easy as it looks. Normally when the price falls hard, there is certain fear that the stock will not recover due to certain issues such as bankruptcy, lawsuit and competitive pressures.
 
Bottom line: the synonym for net profit in the income statement.
Our take: The term comes about from the fact that net profit is usually found at the very bottom of an income statement.
 
Bottom-Up Investing: An investment approach that start at bottom, which is the company's operating condition and then move up towards analyzing the macroeconomic level such as GDP growth, inflation and so on.
Our take: Our approach here is to find undervalued companies no matter what others do. While we take into accounts the effect of recession into the whole equation, undervalued stock will tend to bounce towards their average value.
 
Bounced check: Check that cannot be withdrawn because of insufficient funds.
Our take: A lot of merchant charges $25 for a bounced check.
 
Bourse: Stock exchange located in the European continent
Our take: N/A
 
Bracket Creep: This occurs when our salary is raised and results in us moving up our income tax bracket.
Our take: If the salary raise occurs due to inflation instead of promotion, then purchasing power may be affected.
 
Brand: A distinguishing and recognizable feature of a company's product. This can come in the form of logo, name, icon, slogan, unique colors and so forth.
Our take: Some recognizable products include: Nike swoosh logo, Verizon Wireless 'Can You hear me now?' slogan, Mc Donald's Golden Arch logo etc.  
 
Brand Equity: The value of a company's brand and trademark estimated by the difference in pricing power that can be generated by the particular brand.
Our take: One example is Coca Cola. The brand is priced 30% higher compared to generic soda in the supermarket aisles. Multiplying it by the number of units Coke can sell, we can then obtain the value of its Coca Cola brand. 
 
Breadth Indicator: A technical tools used to identify the number of rising and falling stocks in a given day or month.
Our take: This indicator shows where the buying and selling occurs in the stock market
 
Break fee/Break up fee: A fee paid to the bidding company if the target company decide to terminate the deal
Our take: Most recent situation is the deal between Qwest/MCI. MCI has agreed to terminate the merger deal with Verizon and therefore it has to give Verizon a break up free of $200+ million.
 
Break even point (BEP) : The dollar sales or unit sales figure in which a company will not incur a lost.
Our take: If BEP for a company is at $ 5 million, any sales below that will produce a loss while any sales agove $5 million will produce profit.
 
Breakaway gap: Technical term used to describe price movement that gap above the previous high.
Our take: Accompanied with high volume, breakaway gap signals the direction of the gap. For example if a stock is gapping higher with high volume, then the new trend is for the stock to go higher.
 
Breakout: A stock breaks out when it moves above the previous high with high volume.
Our take: The term breakdown is used when a stock moves below the previous low.
 
Brent Blend: A specific type of crude oil that is used as a benchmark for commodity trading.
Our take: Crude oil and other commodities are commonly traded in the Chicago Mercantile Exchange.
 
Brick and Mortar: Retailer with store presence that deals with customers face-to-face.
Our take: With the rise of internet, some companies can set up their own retail operations without having to meet the customers.
 
Broad-based index: An index designated to mirror the movement of the entire stock market as closely as possible.
Our take: One of the market index that is used widely as a broad-based index is S&P 500.
 
Broadband: An internet connection that can transmit data a lot faster (5 times or more) than normal dial-up connection.
Our take: As cost falls and economy of scale is achieved, a lot of households are now switching to broadband internet connection.
 
Broker: A person or organization which receives commission by facilitating transaction between buyers and sellers.
Our take: Internet gives rise to the emergence of discount brokers which charge as little as $7 per stock transaction.
 
Bubble: a state where a particular asset class is bid up excessively
Our take: It is called bubble because the high price is unsustainable and sooner or later price will come down substantially with rapid pace.
 
Buck the trend: When a security price movement goes against the prevailing price movement of other similar security.
Our take: Consumer staples stock normally buck the trend as this group tends to move higher during bear market and vice versa.
 
BUGS index: is the AMEX index consisting of gold mining companies
Our take: These companies tend to move in tandem with the gold bullion prices.
 
Bull: investors who feel that the market or a particular stock is currently undervalued
Our take: Consequently, bullish investors will tend to buy stocks.
 
Bull market: Stock market where the price of securities is expected to rise.
Our take: During bull market, investor optimism is running high and companies are announcing better and better earnings.
 
Bull trap: A stock price that moves up initially but reverse in direction and trap buyers along with it.
Our take: In technical term, the stock normally gaps to the upside, only to reverse direction by the end of the day.
 
Bull Bear Ratio: The ratio of investors feeling bullish and bearish published by Investor's Intelligence.
Our take: Contrarians look at a high bear/bull ratio as a good time to buy and vice versa.
 
Burn rate: The rate at which a new start-up uses up cash before a new financing is needed.
Our take: Burn rate is measured with dollar per time period.
 
Business Cycle: The recurring period of expansion and contraction of business activities.
Our take: It consists of five period: growth (expansion), peak, recession (contraction), trough and recovery.
 
Business Model: A specific way in which a business derives its revenue and eventually, profit.
Our take: a unique business model can mean a competitive advantage for the specific company.
 
Business Risk: The uncertainty of doing businesses such as future cash flow, future survivals and future profits
Our take: The most commonly thought business risk is the risk of future cash flow. When cash flow dwindles (or goes negative), there is a chance of the business not surviving.
 
Business to Business (B2B): A business whose customers are another corporations.
Our take: One example of B2B is Intel Corp. which mainly do business with other computer manufacturers.
 
Business to Consumer (B2C): Business that sells directly to end users.
Our take: One example of B2C is Amazon.com which deals with
 
Buy: obtaining a specific asset in return with cash
Our take: A buyer buys an asset hoping to get more cash out of it in the future when he sell it.
 
Buy and Hold: An investment method where a specific asset is bought and held for a long period of time regardless of the short-term fluctuation.
Our take: Longer term, it is easier to predict the direction of a specific asset. And hence, the reasoning behind Buy and Hold.