Investment Terms

In accounting, impairment is a permanent reduction in the value of a company asset. It may be a fixed asset or an intangible asset. When testing an asset for impairment, the total profit, cash flow, or other benefit that can be generated by the asset is periodically compared with its current book value. If the book value of the asset exceeds the future cash flow or other benefit of the asset, the...

The Breadth Thrust Indicator is a technical indicator used to ascertain market momentum. It is computed by calculating the number of advancing issues on an exchange, such as the New York Stock Exchange divided by the total number of issues (advancing + declining) on it, and generating a 10-day moving average of this percentage. The indicator signals the start of a potential new bull market when it...

A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake. A buyback allows companies to invest in them...

The Inflation Reduction Act of 2022, H.R. 5376, is designed to reduce the deficit and lower inflation while investing in domestic energy production and lowering healthcare drug costs. It passed the Senate on Aug. 7, 2022, and is awaiting approval by the House of Representatives, which would set it up to be signed into law by President Biden. In essence, the legislation is a scaled-down version of...

The Social Security Act established benefits for old-age retirees and the jobless, as well as aid for dependent mothers and children, victims of work-related accidents, people who are blind, and those who have physical disabilities. It was signed into law in 1935 during the administration of President Franklin D. Roosevelt. Previously, such benefits were not provided at all by the federal governme...

A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions. Trustees are trusted to make decisions in the beneficiary's best interests and often have a fiduciary respons...

A Treasury note is a marketable U.S. government debt security with a fixed interest rate and a maturity between two and 10 years. Treasury notes are available from the government with either a competitive or noncompetitive bid. With a competitive bid, investors specify the yield they want, at the risk that their bid may not be approved; with a noncompetitive bid, investors accept whatever yield is...

A credit card balance is the total amount of money currently owed by a cardholder to their credit card company. Balances change based on when and how they are used—they increase when purchases are made and decrease when cardholders make payments. Any remaining balance at the end of the billing cycle is carried over to the next month’s bill and incurs an interest charge. Credit card balances are im...

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unr...

Buy the dips means purchasing an asset after it has dropped in price. The belief here is that the new lower price represents a bargain as the descent is only a short-term blip and the asset, with time, is likely to bounce back and increase in value. In a repeated fashion, buying the dips refers to going long an asset or security after its price has experienced a short-term decline. Become a suppor...

A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and a...

A financial_advisor is often responsible for more than just executing trades in the market on behalf of their clients. Advisors use their knowledge and expertise to construct personalized financial plans that aim to achieve the financial goals of clients. These plans include not only investments but also savings, budget, insurance, and tax strategies. Advisors further check in with their clients o...

The term probate refers to a legal process in which the validity and authenticity of a will are determined. Probate also refers to the general administration of a deceased person's will or the estate of a deceased person without a will. After an asset-holder dies, the court appoints an executor named in the will or an administrator (if there is no will) to administer the process of probate. This i...

Earnings season refers to the months of the year during which most quarterly corporate earnings are released to the public. Earnings season generally occurs in the month immediately following the end of each fiscal quarter. This means that earnings seasons typically fall in January, April, July, and October, because firms need time after each quarterly accounting period ends to put together their...

Parity price refers to a price level that sets two assets or securities equal in value to one another. It is a concept that is used in several markets, including fixed income, equities, commodities, and convertible bonds. For convertible bonds, the parity price concept is used to determine when it is financially beneficial to convert a bond into shares of common stock. Investors often have to make...

A specific performance clause is a specialized type of contractual equitable relief that may require the defendant to complete the terms of a contract when the court believes no other remedy such as money will adequately compensate the injured party. Parties to an agreement may insert a specific performance clause into the contract to protect their interests in the event of a breach of contract by...

A Ninja loan is a slang term for a loan extended to a borrower with little or no attempt by the lender to verify the applicant's ability to repay. It stands for no income, no job, and no assets. Whereas most lenders require loan applicants to provide evidence of a stable stream of income or sufficient collateral, a ninja loan ignores that verification process. Ninja loans were more common prior to...

An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms. A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms. There is no precise upper limit to the number of firms in an oligopoly, bu...

An offset involves assuming an opposite position in relation to an original opening position in the securities markets. An offsetting position can also be generated through hedging instruments, such as futures or options. In the derivatives markets, to offset a futures position a trader enters an equivalent but an opposite transaction that eliminates the delivery obligation of the physical underly...

Key performance indicators (KPIs) measure a company's success versus a set of targets, objectives, or industry peers. KPIs can be financial, including net profit (or the bottom line, gross profit margin), revenues minus certain expenses, or the current ratio (liquidity and cash availability). Customer-focused KPIs generally centre on per-customer efficiency, customer satisfaction, and customer ret...

A hurdle rate is the minimum rate of return on a project or investment required by a manager or investor. It allows companies to make important decisions on whether or not to pursue a specific project. The hurdle rate describes the appropriate compensation for the level of risk present—riskier projects generally have higher hurdle rates than those with less risk. In order to determine the rate, th...

After-hours trading starts at 4 p.m. U.S. Eastern Time after the major U.S. stock exchanges close. The after-hours trading session can run as late as 8 p.m., though volume typically thins out much earlier in the session. Trading in the after-hours is conducted through electronic communication networks. After-hours trading is something traders or investors can use if news breaks after the close of...

Free on Board is a shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. FOB shipping point or FOB origin means the buyer is at risk once the seller ships the product. The purchaser pays the shipping cost from the factory and is responsible if the goods are damaged while in transit. FOB destination means the seller retains...

An endowment is a donation of money or property to a nonprofit organization, which uses the resulting investment income for a specific purpose. An endowment can also refer to the total of a nonprofit institution’s investable assets, also known as its principal or corpus, which is used for operations that are consistent with the wishes of the donor. Most endowments are designed to keep the principa...

Break-even analysis shows how many sales it takes to pay for the cost of doing business. Analyzing different price levels relating to various levels of demand, the break-even analysis determines what level of sales is necessary to cover the company's total fixed costs. Break-even analysis is useful in determining the level of production or a targeted desired sales mix. The study is for a company's...