DAX: the top German index consisting of 30 stocks.
Our take: DAX is one of the most commonly watched
index for the european market.
DCA: Dollar Cost averaging: an investing technique to
purchase stocks at the same amount regularly.
Our take: The reasoning behind this is that when the
stock falls, investors can buy more shares of it and bring their average
cost down.
DCF: Discounted Cash Flow; an investing valuation
method used by analyzing the future amount of cash flow generated from the
specific investment.
Our take: DCF is a powerful method but as cash flow is
discounted further into the future, the valuation method becomes less
accurate.
DDM: Dividend Discount Model: A valuation method used
by estimating the future value of dividends that are obtained by holding the
common stocks over a period of time.
Our take: This method has similar weakness to DCF
model and it does not work for companies that pay no dividend.
DECS: Debt Exchangeable for Common Stock; it is a debt
issued by corporations which can be converted into common stock.
Our take: This is similar to convertible bond
offering.
DJIA: Dow Jones Industrial Average; a price weighted
30 stocks traded on the US market.
Our take: DJIA is founded back in 1896 by Charles Dow.
It is a proxy for the overall US market indices.
DJTA: Dow Jones Transportation Average: a collection
of 20 transportation stocks that are traded in the US stock market.
Our take: DJTA consists of railway, airlines, trucks
and shipping companies.
DJUA: Dow Jones Utility Average: a collection of
15 utility companies traded in the US market.
Our take: Utility companies normally pay most of their
profits as dividends since they are a fairly regulated industries. There is
less incentive to use that profit to expand.
DPO (Days Payable Outstanding) : the average period of
a company's account payable being outstanding.
Our take: It measures how long it takes for a company
to pay its bill.
DPO= (Accts. Payable x Number of
Days)/ Cost of Sales
Data Mining: the use of large collection of data base
to analyze pattern of consumers
Our take: The infamous club cards introduced by
national grocery chains is one example of data mining.
Day Order: A trade order that will expire at the end
of the day if not executed.
Our take: If a limit or a stop loss order
specification is not met, the order will be cancelled by the close of the
trading day.
Day traders: A stock investors that trade in and out
of stocks on the same day.
Our take: A day trader will take small profits (5 to
50 cents) and then make the trade over and over again. The key here is the
swiftness of the trade. The faster the trade is, the more trade they make.
Days Payable Outstanding: the average period of a
company's account payable being outstanding.
Our take: It measures how long it takes for a company
to pay its bill.
DPO= (Accts. Payable x Number of
Days)/ Cost of Sales
Day Sales Outstanding: The average collection period
of a company's accounts receivable.
Our take:
The lower the day sales outstanding is, the better the
cash flow production is. It signals a strong and efficient bill collection
method.
Days to Cover: The length of time it takes for all the
short position in a stock to be covered.
Our take: For example if a stock A has a short
interest of 5 million shares and the average daily volume for A is 1 million
shares, the days to cover for stock A is 5 days.
Dead Cat Bounce: refers to a stock price that is
rising temporarily after a long sell-off.
Our take: The stock price of a Dead Cat Bounce will
then decline further
Dead weight loss: The cost borne to society as a
result of inefficiency
Our take: High labor cost due to labor union is a dead
weight loss since a company will need to raise price to make a decent
profit.
Dealer's market: A market where a dealer is assigned a
specific security. Every transactions for this security has to go through
this particular dealer.
Our take: The benefit of this is that buyers and
sellers can have immediate access to the security because the dealer
assigned normally carry an inventory of the specific security on hand.
Death Benefit: The amount of money from life insurance
policy or pension disbursed to the beneficiary when the annuitant passed
away.
Our take: The amount the beneficiary gets is dependent
upon the types of policy that the annuitant enrolled in.
Debenture: Debt that is not backed by collaterals.
Our take: Debenture can only be given to borrowers who
has solid credit history or for those borrowers willing to pay high interest
rates.
Debit: An entry system in accounting that decreases
liabilities or inreases assets.
Our take: The opposite of debit is credit.
Debt: Amount of money borrowed from other individuals
or organizations.
Our take: Bonds, Loans are example of debt.
Debt Bomb: term used when large debt issuers default
on its financial obligation.
Our take: Debt Bomb causes ripple in the financial
systems as a lot of entities will be affected by it. The largest borrowers
in the country is big financial institutions such as banks.
Debt financing: It is when organization/s is raising
money by issuing debt to other individuals/organizations.
Our take: In exchange lenders will receive regular
payments from the borrowers and the principal amount on maturity date.
Debt overhang: term used to describe when a debt of a
country is bigger than its ability to repay it.
Our take: This occurs when a country is overleveraged
at the same time the general economic health of the country deteriorates.
Debt ratio: sometimes referred to as debt/asset ratio.
It is the proportion of the company's debt to its assets.
Our take: Higher debt ratio is an indicate of a more
risky investment.
Debt Restructuring: used by companies with financial
trouble to change the debt agreements with lenders.
Our take: Lenders normally get favorable treatments in
exchange for the change of debt agreement in a debt restructuring.
Debt Service: Cash needed to pay interest payments and
principals due for a given period.
Our take: A simple example of debt service is our
monthly mortgage payments. We need certain amount of money every month to
cover interest as well as the principal of our mortgage loan.
Debt Service Coverage Ratio:
the amount of cash flow
needed to pay interest and principal payments of a loan.
Our take: When this ratio is less than one, the cash
flow generated is not enough to cover the necessary obligation.
Debt to GDP ratio: A comparison of a country's debt
with the amount of GDP it generates.
Our take: High ratio means that a country is highly
leveraged and its ability to pay back those debt is limited.
Debt to Equity ratio: the ratio of a company's long
term debt and its book value.
Our take: It measures the financial leverage of a
company and how the overall capital structure is financed.
Debtor: An entity who owes money to its lenders.
Our take: Debtor normally pays interest rate to
lenders in exchange for the loan.
Debtor In Possession: A company that operates after
declaring Chapter 11 bankruptcy.
Our take: Chapter 11 gives a company a breathing room
to operate without the burden of debt.
Decimalization: The change of the way securities are
traded from fractions into decimals.
Our take: Decimalization reduces spread cost and
confusion among traders on which price is better.
Declaration Date: The date on which the next dividend
payment is announced by the board of directors.
Our take: Dividend declaration is generally announced
one or two months before the actual dividend payment.
Declining Balance Method: One method of depreciation
where the asset is depreciated the most during the first year. Depreciation
gradually decreases during subsequent years.
Our take: This method of depreciation understates
assets and overstates expense which is the conservative ways of financial reportings.
Declining Industry: an industry where the demand for
its product is shrinking.
Our take: An example of such industry is VCR
industries.
Deductible: An expense that can be subtracted from
your adjusted gross income and thus, reduce the amount of taxable income.
Our take: Mortgage payment is one example of
deductible
Deep in the Money: An option with strike price a lot
lower than the current stock price (for call) and strike price of a lot
higher than the current stock price (for put)
Our take: Deep in the Money option tends to be less
volatile than Out of the Money option.
Deep-Discount bond: Bond that sells a significant
discount to its par value.
Our take: Deep-Discount Bond is perceived to have a
high chance of defaulting.
Default: Failing to promptly pay interest rate on a
bond or loan.
Our take: The lower a bond rating, the higher the risk
of default is.
Default premium: The additional amount of money a
borrower must pay to take into accounts the default risk.
Our take: Default premium includes paying higher
interest rate or putting additional collateral to the lenders.
Default risk: The risk of borrowers being unable to
make prompt payments on its debt obligation.
Our take: To compensate for default risk, lenders
generally demand higher interest rate or collateral from the borrowers.
Defensive Stock: Stock that historically rise in value during the overall
market decline.
Our take: Example include health care , consumer
durable stocks.
Deferred Income Tax: A liability that is created when
net income is already recognized while the income tax has not been realized.
Our take:
Sooner or later, income tax has to be paid.
Deferred Revenue: Money that has been received but has
not been recognized as revenue.
Our take: Sooner or
later, the corresponding goods or services need to be performed. Otherwise,
customers may start demanding their money back.
Deficit:A circumstance in which expense exceeds
income or import exceed export.
Our take: the opposite of deficit is a surplus.
Deflation: A situation where price of goods keep
falling due to the reduction of money supply.
Our take: The opposite of deflation is inflation.
Delinquent: failure to satisfy your obligation on
time.
Our take: Delinquent account will be charged late
fees.
Delisting: A company that is removed from the stock
exchange.
Our take: A company that fails to meet listing
requirements will be delisted from an exchange.
Delta: This ratio compares the movement of a stock
price with the corresponding change in the price of the option.
Our take: Delta of 0.9 for a call option means that
for a $1 rise in stock price, the option price will increase by $0.90.
Demand: A desired or willingness by consumers towards
a specific goods.
Our take: Demand will change depending on people's
needs or other substitutes.
Depletion: An accounting method used to depreciate
natural resources over its life span.
Our take: Depletion is used to deduct expenses for
natural resources while depreciation is used to deduce expense for aging
equipments and properties.
Depository Receipt: A financial instrument used to
represent foreign companies trading as publicly traded securities.
Our take: The Depository Receipt in the US is called
American Depository Receipt (ADR). Foreign multinational companies listed
abroad is traded in ADR such as Nokia Corp. (NOK) and Toyota Motor Corp (TM)
Depreciation: An expense deducted to take into
accounts the aging of equipment and properties.
Our take: If a company bought a machinery that is
expected to last five years, then the cost needs to be depreciated over the
five years time span.
Depressed: A situation where a market or a security is
priced really low due to weak demand and low interest.
Our take: Some stronger firms may take advantage of
depressed price to buy out weaker competitors.
Depression: A severe recession accompanied by high
unemployment, low productivity and falling price.
Our take: During depression, consumer confidence is
low, spending decreases, factory output decreases which in turn increases
layoff and causes further deterioration of consumer confidence.
Deregulation: The reduction or elimination of
government intervention in a particular industry.
Our take: Deregulation normally will create
competitors and it will force existing firms to be more efficient.
Derivative: A security such as an option or future,
whose values depends on the performance of the underlying assets or
securities.
Our take: A basic type of derivative is stock option
whose performance depends on the value of the underlying stock price.
Devaluation: A deliberate depreciation of a country's
currency with other major currencies.
Our take: Devaluation decreases the purchasing power
of a country. As a result, it will make its products more competitively
priced abroad while discouraging imports.
Diluted EPS: It is Earning Per Share (EPS) for a
corporation if all existing stock derivatives such as options and warrants
are exercised.
Our take: Diluted EPS is a more accurate reporting of
a company's earnings since sooner or later, all the option outstanding will
be exercised.
Dilution: A reduction in Earning per Share due to the
issuance of additional shares or the exercise of stock option.
Our take: Adding more shares to the existing shares
outstanding will reduce the value of current stcokholders.
Dilutive Acquisitions: An acquisition financed with a
company's stock that will dilute existing shareholders.
Our take: The acquiring firm will earn less EPS due to
the issuance of shares and as a result, stock price normally will decline.
Direct Cost: A cost that can be traced into producing
specific goods or services.
Our take: Example includes: raw material, labor used
to produce one unit of goods and so forth.
Direct Repurchase: Occurs
when a company repurchase its own share at the open market.
Our take: Direct
Repurchase reduces the number of shares outstanding and therefore increases
the value of the remaining shares.
Direct tax: tax that
cannot be shifted onto other entitites.
Our take: Example
include: property and income tax.
Discount Bond: Bond that
traded significantly less than its par value.
Our take: It means that
investors perceive the bond to be unsafe or interest rate environment has
risen since the bond was issued to the public.
Discretionary Income:
Money that can be spent after basic economic needs such as food, shelter and
clothing.
Our take: Companies that
operate in a discretionary industry will always find revenue regardless of
economic condition.
Diseconomies of Scale: An
economic situation where economies of scale no longer apply for a firm. In
this situation, marginal cost rise faster than the marginal increase in
output.
Our take: As capacity
approaches 100%, diseconomies of scale might occur due to the stretching of
resources at other parts of productions.
Disinflation: A condition
whereby the rate of price increase slows down.
Our take: This happens
during economic slowdown where demand is weak and producers are unable to
pass the price increase to consumers.
Disinvestment: The action of entities to sell or
liquidate part of their assets.
Our take: This action is normally taken when an
organization wants to focus on their core competencies and hence sells off
non-core assets.
Disposable income: After-tax income that is available
to be either spent or saved.
Our take: For retirees, their main source of
disposable income is normally from their savings or social security benefit.
Disposition: The process of getting rid of assets
through various methods.
Our take: another word for disposition is simply
'sell'
Distressed sale: A sale of an asset at a price that is
less than the market value.
Our take: Sellers usually needs the money urgently and
as a result, the sell price is seldom the best price around.
Distressed Securities: refers to securities trading at
a low price due to the negative perception surrounding it.
Our take: For example: A lot of tobacco companies can
be distressed securities due to the uncertainty regarding numerous lawsuits.
Diversification: Buying a wide variety of investments
in one's portfolio for the purpose of reducing risk.
Our take: Too much diversification can be detrimental
to your overall portfolio return.
Dividend: The distribution of profits to stockholders
Our take: Some companies may decide to pay dividend, some may decide not to
pay at all. Dividend-paying companies are considered safe because it needs
to be marginally profitable to pay out dividend year after year.
Dividend payout ratio: The ratio of dividend paid to
the stockholder and the net income of a company.
Our take: This ratio gives an idea on how safe the
dividend payments are. If net income of a firm declines, it can still
continue giving out dividends if the dividend payout ratio is still low.
Dividend Policy: The policy set by the Board of
Director regarding dividend payments.
Our take: Some companies use dividend payout ratio of
20% as dividend policy. This means that the company is required to pay out
20% of its net profit to the shareholders in the form of dividend.
Dividend Reinvestment Plan (DRIP): A plan offered by
corporations to reinvest the company's dividends by buying the company's
shares
Our take: Most companies
that have DRIP plan is commission-free.
Dividend Yield: It is the annual income generated by
the dividends payments with respect to the stock prcie.
Our take: A stock trading at $25 while giving out
dividends of $1 is having a dividend yield of 4%
Diworsification: A term used to describe excessive
diversification which in turns lower portfolio performance.
Our take: A lot of investors do this by investing in
similar companies at similar industries, or by buying different mutual funds
of the same industries.
Dog of the Dow: An investment method used by buying
the 10 stocks in DJIA with the highest dividend yield and reevaluating the
position once in a year.
Our take: This method has proven to be successful for
a number of years and become more popular with the book "Beating the Dow"
written by Michael O' Higgins.
Dollar Cost Averaging - DCA : an investing technique to
purchase stocks at the same amount regularly.
Our take: The reasoning behind this is that when the
stock falls, investors can buy more shares of it and bring their average
cost down.
Dow Jones Industrial Average (DJIA): a price weighted
30 stocks traded on the US market.
Our take: DJIA is founded back in 1896 by Charles Dow.
It is a proxy for the overall US market indices.
Dow Jones Transportation Average (DJTA): a collection
of 20 transportation stocks that are traded in the US stock market.
Our take: DJTA consists of railway, airlines, trucks
and shipping companies.
Dow Jones Utility Average (DJUA) : a collection of
15 utility companies traded in the US market.
Our take: Utility companies normally pay most of their
profits as dividends since they are a fairly regulated industries. There is
less incentive to use that profit to expand.
Dow Theory: A theory where it says that market is in a
bull mode if one of the average (DJIA or DJTA) advances above previous high
and accompanied by the advance of another index as well.
Our take: Similarly, if both index fall below previous
low, it is an indication of a bear market.
Downside: The potential loss of an investment.
Our take: Technically, all investment in stocks and
options has a potential loss of 100%, unless it is bought on margin.
Downsize: It means
reducing the number of employees in a company by eliminating divisions or
reducing the number of employees in a division.
Our take: Layoff is
another word for it.
Downturn: Refers to
downturn in the economy which means it is the time period when the economy
is not growing or even contracting.
Our take: Recession and
depression are examples of economic downturn.
Dragon Bond: Asian bond
that is denominated in US dollars.
Our take: US dollar is
used because the currency is more stable than some Asian currencies.
Dual Listing: Company
that are listed in two stock exchanges.
Our take: Many large
corporations do this, for example: Research in Motion, the maker of popular
blackberry devices are listed in the Canadian as well as the US stock
exchange.
Due Diligence (DD): A
thorough investigation for a possible investment. The purpose is to ensure
that investors know all the risks involving the investment before making the
purchase.
Our take: For investing
in common stock, the first step to due diligence is to read the company's 10
K.
Dumping: The trade
practice of one country where it significantly lowers the price of one
export good compared to what it sells in the domestic market.
Our take: The purpose of
this trade practice is to gain market overseas by offering a competitive
pricing.
Duopoly: An industry
where the total market is controlled by two companies..
Our take: A good example
would be The cola market which is controlled by Coca Cola and Pepsi Cola.
Durable goods: Goods that
is not perishable, meaning: goods that will last for quite some time if not
consumed.
Our take: This include:
furniture, vehicle, television sets, washing machine and so forth.
Dutch action: An auction
where the price of an item is lowered until it gets its first bid and then
it is sold at that price.
Our take: Google and
Overstock.com use Dutch auction to determine the price of its IPO
