Doublespeak in Investese
- Sunday, May 07, 2000
Have you ever been reading through a financial magazine or newspaper and found yourself reaching for the dictionary? For those of you who answered no, is it because you would never admit to being that pedantic or is it because you know that Webster's may not have the right definition for that word in the language of Investese?
In the investment world, there is a certain prestige that accompanies carrying on a conversation with words that can only be understood by fellow members of the investment world's cabal (admit it -- you need to look that one up . . .) It's as though the best barrier for entry into financial realms is concocting a new language which at first glance, appears to be familiar but definitely is not.
Below is a guide to some of the most confusing words in Investese, including their intuitive non-definitions, and their real, keep-you-out-of the-club meanings.
IS NOT: A baseball hat that would fit someone with a big head.
IS: A company with a capitalization over $1 billion as calculated by market price multiplied by the number of outstanding shares -- (although the CEO's of some large cap companies probably have egos that require big hats.)
IS NOT: The part of a mountain upon which skiers descend quickly, propelled by gravity.
IS: The risk involved when a stock is falling in price, as opposed to the risk (or in conventional wisdom, the lack thereof) involved on the upside when a stock price is rising.
IS NOT: A really, really long marathon.
IS: A retirement plan offered by a corporation for their employees. The good news is that you can set aside tax-deferred income for retirement purposes, the bad news is that by entering a 401(k) you won't get a shirt.
IS NOT: One of the elementary commands mastered by graduates of dog obedience classes.
IS: Reinvesting funds received from a maturing security (such as a bond or a 401(k)) in a new issue of the same or a similar security (such as another bond or another retirement fund.)
IS NOT: The action of having viewed something that's already happened.
IS: A prediction for a future occurrence "Stocks are seen opening up this morning," -- A common novice response is "but the market hasn't even opened yet."
IS NOT: Trading that you do from a cell phone while driving on the freeway.
IS: The strategy of buying high and selling higher, or investing in things which exhibit a steep trend, riding the big wave quickly and getting out near the top.
IS NOT: The White House's special wine collection.
IS: The central bank of the United States which serves to conduct the nation's monetary policy and maintain the stability of the financial system (since money doesn't age as well as wine, they also recycle bills and create funky looking 20's.)
IS NOT: The practice of weeding out potential pledges during fraternity or sorority rush.
IS: Eliminating certain companies from your portfolio due to their violation of your personal values, includes the practices of socially responsible investing (screens for issues such as environment, labor, and military) and Values-based Investing (culturally conservative screens implemented by Crosswalk.com'sMy Investigator.)
IS NOT: The amount of time spent in physical education courses vs. the amount of time you were actually exercising.
IS: The most common measure of how expensive a stock is, calculated by dividing a stock's capitalization by its after-tax earnings over a 12-month period.
IS NOT: The feeling of safety you feel when riding in a convertible that has a roll bar.
IS: A security which can be exchanged for a specified amount of another, related security (such as exchanging a corporate bond for the company's stock) at the option of the issuer and/or the holder. If enough of your shares convert to a rising stock, you just might be able to afford that convertible.
IS NOT: The extra number of strokes it took you to sink all 18 golf balls.
IS: The nominal dollar amount assigned to a security by the issuer -- for an equity security, par is usually a very small amount that bears no relationship to its market price, (and who cares what par is as long as you have a good time on the course, right?)
IS NOT: The attractive young woman who models cosmetics for Max Factor.
IS: A way of breaking down the components that influence a security's rate of return into common and firm-specific influences.
IS NOT: A common bonding ritual among teenage girls who swap jeans with each other.
IS: A strategy in which, for every stock you buy, you sell another similar stock against it (buy Gap, sell Levi Strauss.)
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