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Date: Tuesday 13th 2008f May 2008 09:19:23 AM

Glossary
 

C
 
CAGR: Compound Annual Growth Rate. This is the rate of appreciation of an investment at an annual rate.
Our take: CAGR of 10% means that an investment will appreciate 10% in value year after year. A $1000  investment that gives a 10% CAGR, will appreciate to $2,593 after ten years.
 
CAL: Capital Allocation Line. A graph depicting lines with all possible combination of asset class.
Our take: CAL helps investors gauge the risk they take by allocating resources to certain assets.
 
CAPEX: Capital Expenditure: certain resources allocated by a company to maintain or upgrade its fixed assets such as: machinery, building or even computer upgrades.
Our take: Companies with high fixed costs spend a lot of money to maintain their assets. For example: Intel Corp. spent $ 3.84 Billion on capital expenditure for year 2004.
 
CAPM: Capital Asset Pricing Model: A model predicting the return of your investment based on the amount of risk you take.
Our take: A lot of books has been written about this subject. We would not go further explaining what CAPM is as we feel that those books would provide a much better explanation.
 
CAR: Capital Adequacy Ratio: It is the ratio of the bank's capital against its credit exposures.
Our take: The higher CAR is, the less leveraged the bank is and the smaller the risk of default is.
 
CBOE: Chicago Board Options Exchange; This is where the trading for stock, index and interest rate options take place.
Our take: CBOE is the largest option market in the world.
 
CD: Certificate of Deposit; a binding agreement between a bank and a saver whereby the CD owner is entitled to a specified interest rate. In return, the CD owner is not allowed to withdraw the money until maturity date.
Our take: In our getting started thread, we showed you that CD may not give you the optimal return on your investment.
 
CEO: Chief Executive Officer; The senior manager who is appointed by the board of directors. He/She reports directly to the Chairman of the Board.
Our take: In a company with poor corporate governance, it is common for the CEO to act as  Chairman of the Board.
 
COGS: Cost of Goods Sold; The direct cost of producing certain products or services.
Our take: Example of COGS include the cost of direct material, direct labor required to make one unit of an item.
 
COO: Chief Operating Officer: A senior manager responsible for overseeing the day-to-day operation of a company.
Our take: COO is more of an inside manager while CEO deals with both inside and outside parties.
 
Calendar Year: A one year period from January 1st to December 31st.
Our take: The definition is pretty clear
 
Call: The right but not an obligation to buy specified amount of securities within a specified time period.
Our take: Investors buy a call option when they feel that in the future, the underlying securities will increase in value.
 
Call Date: This is the date that a bond can be redeemed by the issuer before its maturity date.
Our take: Bond trading at a discount would normally get called early if the bond issuers have enough liquidity to buy it back.
 
Call option: See Call.
 
Call protection: A special provision for a callable securities preventing the issuer from calling the securities early.
Our take: With this call protection, investors can predict their investment return more accurately since they know what the maturity date of the callable security is.
 
Callable bond: A bond that can be redeemed by the issuer before its maturity date.
Our take: Bonds that have a big chance of getting called is bonds that trade premium to its par value. This will happen if interest rate has fallen since the bond was issued.
 
Callable common stock: A common stock that can be redeemed by the issuing corporation.
Our take: This situation normally pertains to corporation that issues shares for its subsidiary. It can redeem the common stock for strategic purpose.
 
Cancel Former Order (CFO): An order given to the broker to cancel a previously placed order.
Our take: CFO can never be done for market order since market order is executed immediately after placing the order.
 
Capital flight: A term used to describe the selling of securities out of the country deemed to be unstable politically or economically.
Our take: Capital flight occurs during the 1994 Mexican crisis as the Peso was perceived to depreciate further in value against other currencies. 
 
Capital gain: The sum of money gained due to selling a profitable securities.
Our take: To encourage long term investment, the US government tax profitable securities held more than a year lower than if investors hold it for several weeks. 
 
Capital goods: Any assets used by an organization to produce other goods
Our take: Machinery, office building  are capital goods.
 
Capital Intensive: A business where a lot of investment is needed to produce a particular good.
Our take: On the positive side, a capital intensive industry will defer potential competitors. On the flip side, the company cannot lower production when demand tapers off. It will instead cut price to get marginal profit out of its products.
 
Capital Loss: It occurs when investors sell a particular asset for less than what they bought it for. In other words, investors sell an investment at a loss.
Our take: Investors can get a tax deduction of up to $3000 a year if they sell a losing investment.
 
Capital Markets: market for source of capitals such as bond or stocks to be traded.
Our take: This include the stock market, the bond market where companies can raise additional fund.
 
Capital Structure: The way by which a firm is financed.
Our take: The most common ways to finance a newly-minted firm is by equity and by debt. With equity, investors get the share of ownership of the firm. With debt, investors will get a steady stream of interest rate and the principal amount at maturity.
 
Capitalism: An economic system where the market is free to competition and anyone can choose to compete in any industries legally.
Our take: In pure capitalism, government has no control of any economic interest in the country.
 
Capitalization: The sum of a firm's stocks, debts and retained earnings.
Our take: Basically, this is the price tag of a company if outsiders want to gain the whole control of it.
 
Capitalization Rate: This is the minimum rate of return that an investment should get based on the volatility and the valuation of the market in general.
Our take: Securities with higher volatile require a higher capitalization rate due to its unpredictable nature
 
Capitalize: In accounting, it means to spread the cost of an acquiring a single asset into several accounting periods.
Our take: A lot of companies with corporate governance issue sometimes spread out expenses that are supposed to be expensed in the current period. One example is Worldcom.
 
Capitulation: it is the period where selling pressures climaxed accompanied by high volume and sharp downward move. It equates to panic selling.
Our take: There is a lot of studies proving that capitulation period is a great way to buy equities since those that intend to sell has already done so.
 
Capped option: an option with the potential profit already capped. If the security goes beyond certain price, the potential profit is still the same.
Our take:  This strategy can work by buying calls at one strike price and then selling the covered calls at a higher strike price.
 
Cardboard box index: An index used to predict industrial output by observing the number of cardboard produced to predict the growth in non-durable goods.
Our take: This proves to be a reliable indicator since 75-80% of boxes are used for packaging of non-durable goods.
 
Carrying value: This is another term for book value.
Our take: see book value.
 
Cartel: A small group of producers who agree to control supply in order to sell their products at a favorable price.
Our take: OPEC is an example of an oil carter although their influence has waned recently.
 
Cash: The most liquid asset in the balance sheet.
Our take: Cash is king. The value is easier to value compared to other kinds of assets.
 
Cash Accounting: An accounting method in which revenue and expense is recorded at the same time when cash is received.
Our take: The way most people account for their personal finance is by the means of cash accounting. We record the expense for our new DVD players as we pay them.
 
Cash and Cash Equivalents (CCE): Cash or any other assets that can be converted to cash within the next three months.
Our take: If a firm is holding a 3 month bond or a stock in another corporation that can be sold in the open market, then it is considered as CCE in the balance sheet.
 
Cash charge: a one time expense that requires cash to be disbursed
Our take: When a company announces a plan to reduce its workforce, it might offer some cash in advance for some workers to retire early.
 
Cash Conversion Cycle: The time between the purchase of an inventory and the collection of accounts receivable as a result of the inventory sale.
Our take: Firm with excellent cash conversion cycle will have a competitive advantage over the other firms as they require little working capital to operate.
 
Cash Cow: refers to a firm or an industry where the business is producing a lot of cash without having to spend much  money on capital expenditure.
Our take: Industries such as consumer product or health care are excellent cash cow.
 
Cash dividend: a portion of a firm's profit distributed to the shareholder
Our take: Cash dividend provide a nice supplement to the capital gains obtained from the rising value of the stock price.
 
Cash Flow: The amount of money a company generates and used after adding non-cash charge and the change in working capital.
Our take: Companies with excessive cash flow signifies a financial strength and the ability to whether short-term economic hiccups.
 
Cash Flow after taxes: The amount of cash generated by a business after paying taxes.
Our take: This measurement is useful to gauge the ability of a company to pay dividends or make future acquisitions.
 
Cash Flow from Financing Activities: The amount of cash used or generated through its financing activities.
Our take: Positive number indicates that a company has been tapping external source to accumulate cash (either by getting more debt or issuing more shares), while negative number indicates that the company has been paying up its debt, giving out dividends or buying back its own shares.
 
Cash Flow loan: Short-term loan used to cover day-to-day expenses.
Our take: This loan is normally taken for businesses with high-seasonal variation.
 
Cash Flow per share: Cash flow divided by the number of shares outstanding
Our take: Using the per-share basis facilitate easier comparisons since investors normally do not buy the whole company but rather they buy a portion of the company's shares.
 
Cash Investment: also referred as short-term investment. This is the purchase of an asset with a duration of 90 days or less.
Our take: Cash investment can be treated as cash since they are very liquid in nature.
 
Cash on Delivery: A type of transaction where the payment is disbursed as the product is delivered.
Our take: Cash on Delivery is normally instituted towards a new unestablished customer. As suppliers grow to trust the customer, it will eventually not require for the customer to pay at delivery.
 
Cashier's Check: A check issued by the bank in  behalf of the withdrawer's name.
Our take: Only the withdrawer whose name is on the check, can get payments on that cashier check.
 
Casino Finance: Any investment strategies that has a very high risk and thus it equates going into Casino and gamble there.
Our take: Buying stocks based on other people's tips is a casino finance.
 
Catalyst: In investing, this means that news or fundamental change in a company that will get the stock moving again.
Our take:  With catalyst, stock price will move up instead of moving sideways.
 
Category Killer: refers to a specific niche where demand exists while competitors are nowhere to be found.
Our take: Bestbuy is the category killer in home electronics, Costco is the category killer in warehouse retailing.
 
Cats and dogs: A company where its book is suspect, while past histories is non-existent.
Our take: Over the Counter stock may fit this description as they have less stringent requirement to get public.
 
Caveat Emptor: Let the buyer beware.
Our take: A different interpretation is: ' Buy at your own risk'. It is the responsibility of the buyer to be aware of the risk of buying and be vigilant to scams.
 
Central Bank: the organization with the task of overseeing the monetary system of a nation (or a group of nation) It has the power to control money supply or change interest rate.
Our take: Federal Reserve is the central bank for the US.
 
Certificate of Deposit: See CD.
 
Certified Public Accountant (CPA): A certification awarded to individuals who succeed in passing an exam made by American Institute of Certified Public Accountants.
Our take: This industry is heavily regulated to ensure the highest standard of the accounting industry.
 
Channel: A system of intermediaries between producers, suppliers and consumers.
Our take: Different channels commonly available are internet, personal selling channels and so forth.
 
Channel Check: Doing research on a company by observing the trend of its suppliers, competitors and distribution channels.
Our take: If a particular company depends heavily on Walmart for sales, then we can do a channel check on Walmart to decide how well the company in question is doing.
 
Channel Stuffing: A process of requiring distributors to receive more inventory in order for a company to report higher sales for the period.
Our take: Channel Stuffing is illegal. The main motivation for doing it is to temporarily raise the stock price of a firm.
 
Chapter 11: It is one chapter of bankruptcy code where a company can defer interest payments from debtors and restructure its debt.
Our take: Most Chapter 11 bankruptcy will result in the shareholder getting nothing out of their stocks.
 
Chapter 7: A bankruptcy procedure where a company cease operations, sell all assets, pay up all their debt and distribute the remaining (if there is any) to the shareholders.
Our take: Like it or not, shareholders normally get nothing out of the asset sales as the company has to sell their asset at a distressed price.
 
Charge Off: A debt that is written off because it has not been collected for a long time period.
Our take: Companies normally has created a provision for this and it should not affect overall operations.
 
Check: A legal note prompting a financial institution to give the bearer the right to the amount listed.
Our take: A lot of institution now pay electronically instead of issuing checks.
 
Checking account: A deposit account intended for issuing checks.
Our take: Checking account normally pay little or no interest on the balance.
 
Cherry picking: carefully selecting a list of stocks as to achieve the maximum return on investment.
Our take: While diversifying has its merit, over diversified portfolio kills. Therefore, it pays to do some cherry picking to boost your entire portfolio.
 
China Concepts stock: A company whose main operations and assets is in China.
Our take: China has been attracting a lot of foreign investment since they open their door a few decades ago.
 
Churn rate: the rate of defection of customers as expressed in percentage term.
Our take: For a magazine-publishing firm to grow its sales, one of the thing it need to do is to increase subscribers rate faster than the churn rate.
 
Class Action: One lawsuit directed towards a corporation where an individual can represent a group in court.
Our take: A judgment imposed on one individual can then apply to other members of the group.
 
Clean Balance sheet: a company with lots of cash and little debt in its balance sheet.
Our take: In other word, it is less leveraged relative to other companies. A company with clean balance sheet can withstand economic hiccups and product failures.
 
Clone Fund: A fund mimicking the performance of other fund
Our take: The most commonly known clone fund is an index fund. Index fund mirrors the performance of a specified major market indice.
 
Close period: The time between the closing of an accounting period and the announcement of the result for that accounting period.
Our take: During close period, insiders are prohibited to buy or sell shares due to inside information.
 
Close position: getting out at a particular investment whether it is making money or not.
Our take: In a panic, everyone is trying to close their position as fast as they can.
 
Closing Bell: the bell that rings to mark the end of a trading day.
Our take: On a regular day, the closing bell sounds at 4 PM EST.
 
Closing tick: The last movement of a stock prior to the market closing time.
Our take: Not so much useful for a long term investing.
 
Coattail Investing: An investment strategy used by mimicking what other famed investors buy or sell.
Our take: Successful investors such as Warren Buffet or Carl Icahn often draw coattail investors who want to follow the success of these investors.
 
Cockroach theory: An investment theory that concludes that bad news are always released together in a relatively short period of time.
Our take: This is similar to the fact that good news tend to be announced in bunch too.
 
Cold Calling: a sales method used by making unsolicited calls to customers.
Our take: In investment, the brokers will call potential list of customers based on what other sources gave.
 
Collateral: An asset that is pledged to the lender in return for debt.
Our take: When a borrower defaults, the collateral will be confiscated by lender.
 
Commerce: buying and selling of goods
Our take: The medium of exchange can be money, or other goods.
 
Commercial bank: A financial institution giving loan while attracting deposits from savers
Our take: In recent days, commercial bank has branched into other areas of finance such as offering personalized retirement plan and act as an underwriter for companies to go public.
 
Commercial Grain Stock: A term used for grain stored in the US border.
Our take: This includes all grain held by foreigners within the US territory.
 
Commercial Mortgage Backed Securities: A mortgage loan that use a commercial property as collateral.
Our take: Commercial property is harder to value and therefore the loan is more complicated to conduct.
 
Commercial Paper: A short-term loan issued by a corporation without any collateral.
Our take: Corporation with strong balance sheet is able to issue commercial paper with low interest rate.
 
Commercial Real Estate: Real estate that is used for business purposes.
Our take: Gas Stations, grocery stores, office buildings are considered Commercial Real Estate
 
Commission: A certain amount of fee paid to the broker for executing trades.
Our take: With discount brokers, commission fee can get to be as low as $7 per trade.
 
Commodities Exchange: A market place for commodities to be traded.
Our take: Corn, Oil or wheat are traded in commodity exchanges.
 
Commodity: Any bulk good traded in the exchange market
Our take: Corn, Oil, Natural Gas, Pork Belly, lumber and wheat are commodities.
 
Common Stock: A security that represent a slice in ownership.
Our take: Common stock can be bought or sold in the stock exchange. Common stock investors can elect the board members which in turn hire management to run the operation of the company.
 
Comparative Advantage: a country that produces certain goods or services with a lower opportunity cost than competing countries.
Our take: Basically, country that excels in producing widget should do so while country that excels in producing oil should consider concentrating in oil production.
 
Compound Annual Growth Rate (CAGR): the rate of appreciation of an investment at an annual rate.
Our take: CAGR of 10% means that an investment will appreciate 10% in value year after year. A $1000  investment that gives a 10% CAGR, will appreciate to $2,593 after ten years.
 
Comprehensive Income: Net income minus all special charges on the period.
Our take: Losses or gains in foreign currency can be considered special charges.
 
Comp: also refers to as same-store sales.
Our take: It is a gauge of retailers' health. Higher comp means that existing stores continue attracting new customers.
 
Condominium: A large housing complex that can be bought or sold per individual units.
Our take: Day-to-day maintenance such as lawn care is taken care of by the property management.