Glossary (1)

Glossary 

Absolute-performance orientation—the tendency to evaluate investment results by measuring one’s investment performance against an absolute standard such as the risk-free rate of return 

Annuity—a stream of cash in perpetuity 

Arbitrage— the practice of investing in risk-free transactions to take advantage of pricing discrepancies between markets (see risk arbitrage) 

Arbitrageur—investor in risk-arbitrage transactions 

Asked price (offer)—the price at which a security is offered for sale (see bid price) 

Asset—something owned by a business or individual 

Average down—to buy more of a security for less than one’s earlier purchase price(s), resulting in a reduction of the average cost 

Balance sheet— accounting statement of a company’s assets, liabilities, and net worth 

Bankruptcy—a legal state wherein a debtor (borrower) is temporarily protected from creditors (lenders); under Chapter 11 of the federal bankruptcy code, companies may continue to operate 

Bear market—an environment characterized by generally declining share prices (see bull market) 

Beta—a statistical measure used by some academics and market professionals to quantify investment risk by comparing a security’s or portfolio’s historical price performance with that of the market as a whole 

Bid price—the price a potential buyer is willing to pay for a security (see asked price) 

Blocking position—the ownership of a sufficient percentage of a class of securities to prevent undesirable actions from occurring (a creditor owning one-third or more of a class of bankrupt debt securities is able to “block” approval of a plan of reorganization not to his or her liking) 

Bond—a security representing a loan to a business or government entity 

Book value—the historical accounting of shareholders’ equity; this is, in effect, the residual after liabilities are subtracted from assets 

Bottom—up investing-strategy involving the identification of specific undervalued investment opportunities one at a time through fundamental analysis 

Breakup value—the expected proceeds if the assets of a company were sold to the highest bidder, whether as a going concern or not (see liquidation value) 

Bull market—an environment characterized by generally rising share prices (see bear market) 

Callable bond—a bond that may be retired by the issuer at a specified price prior to its contractual maturity (see puttable bond) 

Call option—a contract enabling the owner to purchase a security at a fixed price on a particular date (see put option) 

Cash flow—the cash gain or loss experienced by a business during a particular period of operations 

Cash-pay securities—securities required to make interest or dividend payments in cash (see non-cash-pay securities)