Investment Terms

A wasting asset is an item that has a limited life span and irreversibly declines in value over time. Examples include depreciating fixed assets such as vehicles and machinery and securities with time decay such as options, which continually lose time value after purchase. Any asset that decreases in value over time is a wasting asset. For example, a truck used for business purposes will decrease...

A writer sometimes referred to as a grantor is the seller of an option who opens a position to collect a premium payment from the buyer. Writers can sell call or put options that are covered or uncovered. An uncovered position is also referred to as a naked option. For example, the owner of 100 shares of stock can sell a call option on those shares to collect a premium from the buyer of the option...

A Bowie bond was a unique type of asset-backed security which used as collateral for the royalty streams from current (at the time) and future album sales and live performances by musician David Bowie. Bowie bonds are also sometimes known as Pullman bonds after David Pullman, the banker who created and sold the first Bowie bonds. Bowie bonds were first issued in 1997 when David Bowie partnered wit...

A suicide pill is an aggressive defensive strategy utilized by a target company to prevent attempts at a hostile takeover. The prey, as a last resort, engages in self-destructive measures to put off its suitor, favoring potential bankruptcy over the prospect of a merger occurring. A suicide pill can also be referred to as the "Jonestown Defense," in reference to the cult that committed mass suicid...

A smurf is a colloquial term for a money launderer who seeks to evade scrutiny from government agencies by breaking up large transactions into a set of smaller transactions that are each below the reporting threshold. Smurfing is an illegal activity that can have serious consequences. Current bank regulations require banks or other financial institutions to report cash transactions exceeding $10,0...

A helicopter drop refers to a term first coined by Milton Friedman as a rhetorical device intended to abstract away the effects of any monetary policy transmission mechanisms in a thought experiment regarding the addition of cash to the bank accounts of all citizens—as if dropped from a helicopter overnight. This term has come to refer to a figurative application of Friedman's metaphor, as a...

A zombie bank is an insolvent financial institution that is able to continue operating thanks to explicit or implicit support from the government. A zombie bank is an insolvent financial institution that is able to continue operating thanks to explicit or implicit support from the government. Zombie banks are kept afloat to prevent panic from spreading to healthier banks. The term zombie bank was...

Voodoo economics is a derogatory phrase used by George H.W. Bush in reference to President Ronald Reagan's economic policies, which came to be known as "Reaganomics." Voodoo economics is a derogatory phrase used by George H.W. Bush in reference to President Ronald Reagan's economic policies, known as "Reaganomics." In 1980, before being appointed as Reagan's vice president, Bush Sr....

UTXO refers to the amount of digital currency someone has left remaining after executing a cryptocurrency transaction such as bitcoin. The letters stand for unspent transaction output. Each bitcoin transaction begins with coins used to balance the ledger. UTXOs are processed continuously and are responsible for beginning and ending each transaction. Although confirmation of transaction results in...

Underwriting income is the profit generated by an insurer's underwriting activity over a period of time. Underwriting income is the difference between premiums collected on insurance policies by the insurer and expenses incurred and claims paid out. Huge claims and disproportionate expenses may result in an underwriting loss, rather than income, for the insurer. The level of underwriting inco...

A strangle is an options strategy in which the investor holds a position in both a call and a put option with different strike prices, but with the same expiration date and underlying asset. A strangle is a good strategy if you think the underlying security will experience a large price movement in the near future but are unsure of the direction. However, it is profitable mainly if the asset does...

A straddle is a neutral options strategy that involves simultaneously buying both a put option and a call option for the underlying security with the same strike price and the same expiration date. A trader will profit from a long straddle when the price of the security rises or falls from the strike price by an amount more than the total cost of the premium paid. The profit potential is virtually...

A shadow banking system is a group of financial intermediaries facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions. Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives, and other unlisted i...

A mad hatter is a chief executive officer whose ability to lead a company is highly suspect. Mad Hatter CEOs are often characterized by misconduct or impulsive and puzzling decisions that employees, board members, and shareholders may question. They often act spontaneously with little regard for viable alternatives or consequences. The term Mad Hatter refers to a leader or CEO of a company who is...

A wage assignment is an act of taking money directly from an employee's paycheck in order to pay back a debt obligation. Wage assignments may be either voluntary or involuntary, depending on the situation. Such an automatic withholding plan may be used to pay back a variety of debt obligations, including back taxes, defaulted student loan debt, and both child and spousal support payments. A w...

An X-mark signature is made by a person in lieu of an actual signature. Due to illiteracy or disability, a person may be unable to append a full signature in name to a document as an attestation that its content has been reviewed and approved. In order to be legally valid, the X-mark signature must be witnessed. X-mark signatures are so named because historically the person signing the document si...

The term shark watcher refers to a professional or firm that specializes in the early detection of hostile takeovers. Shark watchers are hired by firms that are concerned about the possibility of being targeted by larger corporations. They monitor aspects of a firm's trading activity on the market that could indicate a possible takeover, such as who is accumulating shares and the number of sh...

A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Pegging a currency stabilizes the exchange rate between countries. Doing so provides long-term predictability of exchange rates for business planning. However, a currency peg can be challenging to maintain and distort markets if it is too...

The term Chinese wall, as it is used in the business world, describes a virtual barrier intended to block the exchange of information between departments if it might result in business activities that are ethically or legally questionable. In the United States, corporations, brokerage firms, investment banks, and retail banks have used Chinese walls to describe situations where there is a need to...

A candlestick is a type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period. It originated from Japanese rice merchants and traders to track market prices and daily momentum for hundreds of years before becoming popularized in the United States. The wide part of the candlestick is called the real body and tells investo...

Lame-duck is an out-of-use British term used with reference to a trader who had defaulted on their obligations or gone bankrupt due to an inability to cover trading losses. Lame-duck was a British term used to describe members of the London Stock Exchange who were unable to meet their claims on settlement day. The phrase lame duck can be traced to the London Stock Exchange. A member who was unable...

A Lady Macbeth strategy is a corporate takeover scheme in which a third party poses as a white knight to gain trust, only to then turn around and join forces with the unfriendly party in a hostile takeover bid. Behind the scenes, the hostile bidder and supposed white knight to the target company will collude to achieve their aim of acquiring a company that is trying to resist the attempt. This par...

The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service (IRS) uses 183 days as a threshold in the substantial presence test, which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation. The 183rd day of the year marks a m...

The 2,000 Investor Limit is a stipulation required by the Securities & Exchange Commission that mandates a company that exceeds 2,000 individual investors. With more than $10 million in combined assets, it must file its financials with the commission.1 According to SEC rules, a company that meets these criteria has 120 days to file following its fiscal year's end. The 2,000 investor limit or...

The receivables turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its accounts receivable, or the money owed by customers or clients. This ratio measures how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. A firm that is efficient at collecting on its payments due wi...