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Date: Tuesday 13th 2008f May 2008 09:13:08 AM

Glossary
 

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LIBOR:  London Interbank Offer Rate; The interest rate at which bank charges when giving out short-term loan to other banks.

Our take: This is the most widely watched rate for short-term interest. To be honest, we
 

LIFO: Last In First Out; An inventory accounting method that says that products sold will be deducted from the inventory of products are most recently produced.

Our take: During inflationary environment, LIFO understates net income and taxes because the goods that are produced last are normally more expensive than goods that are produced six months ago.
 

Labor Intensive: A business activity that requires a lot of individuals to operate.

Our take: Any activity that cannot be automated are bound to be labor intensive. For example: waiting table cannot be substituted with human robots. (at least for now)
 

Laddering: The promotion of a pre IPO shares in order to raise the price of the IPO later on.

Our take: When the price of the IPO is pushed up, the underwriter will gain as their underwriting fee (commission) is based on the amount of money it can raise in an IPO.
 
Law of Diminishing Marginal Return: As the number of employees increase, the marginal service produce by one additional employee will become less and less. (at some point)
Our take: This law applies to profit margin as well. As additional product is produced, the marginal return for this product will be less at certain point.
 
Law of Supply: As the price for a particular goods or services rise, eventually the supply for these goods or services will rise too
Our take: The goal of every producer is to maximize profit. Therefore, they try to increase their supply by such so that the price of the products does not drop while the quantity of products manufactured increase.
 
Layoff: The term used when a company terminate employments on its employee regardless of their performance.
Our take: During economic downturn, layoff will occur more as more companies are trying to stay afloat by cutting costs.
 
Leadtime: The time needed to process an order. It starts from the order being received until a particular good or service has been delivered.
Our take: When a client pays an invoice of a particular order, is not necessarily included in the lead time. Some clients pay 6 to 12 months after a good has been delivered. Some producer may also
 
Lease: An agreement where one party secures a long term usage of an asset while the other gain a long term periodic cash flow payment.
Our take: Lease ensures certainty for both party which is really important in the business world.
 
Lemon: An investment that don't perform according to expectation.
Our take: A thorough due diligence is needed to avoid lemon in our investment portfolio. Lemon got the name due to its sour taste.
 
Lender of Last Resort: A government institution that offers rescue package (a.k.a loan) to big banks that will impact a country's economy if it were allowed to collapse.
Our take: The lender of last resort is normally the central bank of a country. Its role is to prevent panic in the banking systems and to provide liquidity into the economy if needed to.
 
Lessee: A person or organization that rents a long-term asset from the lessor.
Our take: Another nickname for Lesse is simply the tenant.
 
Lessor: A person or organization who lends his long-term asset for a period of time to a lessee.
Our take: Another nickname for Lessor is the landlord.
 
Let Your Profits Run: A phrase to reminds investors to not to take profits too early.
Our take: Often times, fearing a profitable investment will turn south, investors will sell too quickly and miss the big run-up that occurs on an investment.
 
Letter of Comfort: A letter of approval from a parent company for a loan taken by its subsidiary company.
Our take: This allows the lender to be more confident in giving financing to the subsidiary as the parent company generally is a stronger entity.
 
Letter of Credit: A letter from a Bank guaranteeing that a buyer's order will be paid to the seller in full and on time.
Our take: Letter of Credit is normally needed in an international trade as both parties do not know each other that well. Often times, they do not meet face to face to conduct a transaction. A guarantor such as the bank will provide the guarantee of payments in the form of letter of credit.
 
Letter of Intent: A letter specifying the intention of a corporation to make a particular act.
Our take: Letter of Intent is usually made when a company is trying to buy out other firms.
 
Leverage: The use of other people's money to increase future return on investment.
Our take: Examples of leverage would be to add long term debt and  issuing more shares.
 
Leveraged Buyout: Using borrowed money to acquire other firms.
Our take: The firm is using the acquired assets as collateral in the hope that future cash inflow will be more than adequate to pay off the debt.
 
Levy: To collect money from other sources whenever it is due.
Our take: An example include: how much tax government decides to impose on individuals or corporation.
 
Liability: An obligation that has to be satisfied sometime in the future.
Our take: For example: Taking on debt is a liability for us because we are obliged to return the loan back to the lender in some point of time.
 
Limit Order: A buy or sell order that is executed at a certain predetermined shares and price.
Our take: Limit Order is very useful if investors are not willing to buy higher than certain price level or sell lower than certain price level. It is pretty handy for investing in volatile stocks. Generally stock brokers charge higher commission for limit order compared to market order.
 
Limited Liability: A liability that does not allow it to exceed more than the money invested in a person.
Our take: For example a stock investor who is long, has a maximum liability of 100% of his investment. He won't incur $ 300 in loss if he only invest in $ 100 in stocks.
 
Limited Liability Company (LLC): A company's legal structure where the shareholders have a limited liability to the company's actions.
Our take: Many have said that LLC is a hybrid between partnership and a corporation. Unlike corporation, LLC do not have to conduct annual meeting and install board of directors. However, unlike partnership, LLC investors will not lose more than 100% of the money invested.
 
Limited Risk: An investment that has predetermined risk before the investment is made.
Our take: For example buying option contract has predetermined risk because the amount of money that can be lost is maximized at the cost of the contract.
 
Line of Credit: An arrangement between a lender and a borrower to establish the maximum loan that can be granted
Our take: The main advantage of line of credit is that borrower does not pay interest on loans that he doesn't use. Furthermore, when the need arises, borrower does not have to go through the whole procedure of obtaining a loan.
 
Liquid Market: A market with plenty of market participants conducting trades. This results in low spread and low volatility.
Our take: In a liquid market, it is harder for one organization/individual to move the market.
 
Liquidation: It occurs when a business discontinues its operation and sell off its asset to pay the creditors. 
Our take: During liquidation, sellers do not have much power in deciding how much an asset is worth. Normally, buyers will buy the asset below its appraised value.
 
Liquidity: The amount of trading occurring in a particular market.
Our take: High Liquidity reduces market inefficiency as volatility is low and spread is hardly exist.
 
Liquidity risk: Investment risk due to the nature of the liquidity in the investment.
Our take: When liquidity risk is high, it means that the investment cannot be bought or sold fast enough to minimize loss.
 
Liquidity Trap: A circumstance where interest rate is low and saving rate is high.
Our take: At this point, the expectation is for future interest rate to rise. Therefore, individuals are not willing to invest in the savings account even when interest rate is fairly low.
 
Loan: Money that a lender gave to a borrower for a predetermined time period. The borrower agrees to return the money back with interest in the future.
Our take: A few examples of loan include: car loan, mortgage loan or personal loan.
 
Loan Loss Provision: Money that is set aside for future expectation of bad loan.
Our take: Bad loan normally rises during economic downturn.
 
Loan Sharking: It is a circumstance where a borrower is charged interest rate that is significantly higher than the established legal rate.
Our take: Loan Shark provides loan to individuals that have a difficulty obtaining loan from banks.
 
Local Tax: Tax levied by the local government on top of the federal and state taxes.
Our take: Some examples of the state tax is garbage tax or parking tax.
 
Lockdown: A specific time frame where insiders are not allowed to trade shares of their companies.
Our take: This might be due to expected earning release or crucial merger announcement.
 
Logistics: The ability of management to move resources around when they are needed.
Our take: Since management needs to maximize return with limited resources, logistical skill is very crucial in business operations.
 
London Stock Exchange: The primary stock exchange in the UK, founded in 1773.
Our take: London Stock Exchange is widely popular stock exchange in Europe.
 
Long position: The purchase of a security in the hope that it will go up in the future.
Our take: The other side of the spectrum is short position where investors expect the security to go down in price to make profits.
 
Long Run: In terms of investing horizon, it is the period of longer than 2 years.
Our take: That's how we define investing in the long run here at Novice investing.
 
Long Term: Holding an Asset for a period longer than 2 years.
Our take: For example, holding a stock of General Electric (GE) for 2 years can be considered long term.
 
Long Term Asset: Asset that cannot be easily converted into cash . Normally, it is assets that will be held for at least a year.
Our take: Some Long Term Asset can be sold quickly such as land, or even machinery. The price generally is not favorable to the sellers if that's the case.
 
Long Term Debt: Liability that will not come due for at least one year.
Our take: On the contrary, short term debt is liability that will have to be paid within a year.
 
Long Term Debt Capitalization: The ratio of long term debt with the total amount of capital funded.
Our take: Higher long term debt capitalization ratio signifies greater leverage which entails greater risk.
 
Losing Your Shirt: Term used to describe an investment that turns sour and it causes the investor to lose all of his investment.
Our take: For investor using margin, he might have to find other ways to repay his debt, including selling his 'shirt'.
 
Loss Carry Forward: An accounting technique where loss for the year is applied to next year's operating profit in order to save taxes.
Our take: GAAP rule states that the losses for the current year can be applied to any of the following seven years after the loss. 
 
Loss Leader Strategy: A marketing strategy of offering one product line at an absolutely low price in order to profit from selling  other product lines.
Our take: This is a common strategy for a new entrant to the market.
 
Love Money: Initial funding funded by family, friends to start a business venture.
Our take: The rationale is that any family members or acquaintances that helps you getting started, must have loved you.
 
Low Ball: An offer to buy an asset with a price that is significantly lower than the appraised value.
Our take: This low ball issue occurs when a seller needs to dispose an asset immediately.
 
Lump Sump Distribution: A one time payments for a huge sum of money, as opposed to small payments over a long period of time.
Our take: Pension checks or Lottery winning can be a lump sump distribution.
 
 

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