Daba’s Investing Glossary
Common investment terms and concepts
Allowance for doubtful accounts
Provision that reduces accounts receivables to expected collectable amount. Offsets expected losses from non-payment.
Gradual repayment of a loan liability through periodic installments.
Table detailing the periodic breakdown of payments on a loan between interest expense and principal repayment over the loan term.
Annual general meeting
Yearly shareholder meeting of a public company to approve accounts and make key decisions.
Investor who profits from arbitrage - exploiting temporary price discrepancies between different markets.
Item of economic value owned by an individual or company. Financial assets like stocks have market values.
Division of investment portfolio across major asset classes based on goals and risk tolerance.
Measure of an asset's volatility in relation to the overall market. Beta above 1 amplifies market moves.
Fixed income security issued by a corporation or government that pays interest.
Marketplace where debt securities like government and corporate bonds are issued and traded.
Commission paid to a broker for executing buy and sell orders on an exchange.
Optimistic outlook for a security or market indicating expectations of price gains.
Financial contract giving the option holder the right but not obligation to buy the underlying asset at a specified price on or before a specified date.
Amount of owner's initial investment of cash or assets when starting a business.
Profit realized from the sale of securities, real estate, or other assets at a price higher than the purchase price.
Corporate action decreasing a company's share capital by reducing the par value of shares or number of shares outstanding.
Net amount of cash generated by a company's business operations during a period.
Certificate of deposit (CD)
Short-term bank deposit paying fixed interest rate with fixed maturity date up to 5 years.
Asset pledged by a borrower to secure a loan in case of default. Provides security to the lender.
Equity security representing ownership in a corporation. Provides voting rights and a share of profits through dividends.
Interest calculated on initial principal and accumulated interest from preceding periods. Results in exponential growth over time.
Average of analysts' earnings per share forecasts for a given company.
Bond or preferred share that can be exchanged for a fixed number of common shares under specified conditions.
Temporary limited decline in asset prices following a sustained uptrend.
Statistical measure of linear relationship between two variables ranging from -1 to +1.
Original dollar amount paid to acquire an asset, used to determine capital gains for tax purposes upon sale.
Assessment of the creditworthiness of a borrower or bond issuer based on their expected ability to fulfill debt obligations.
Credit rating agency
Private company that evaluates the creditworthiness of debt security issuers. Main ones are Standard & Poor's, Moody's, Fitch.
Annual income from an investment divided by its current market price. Measures income relative to price paid.
Individual investor who makes multiple trades daily aiming to profit from short-term price moves.
Fall in the price of a financial asset.
Defined contribution plan
Employer-sponsored retirement plan where employees allocate contributions among various investment options. Payout depends on account balance.
Financial contract deriving value from an underlying asset like a commodity, currency, stock or market index.
Distribution of a portion of a company's net profits to shareholders, paid in cash or additional shares.
Annual dividend per share divided by share price. Measures income paid to stockholders relative to share price.
Earnings per share
Net income attributable to each outstanding share of common stock.
Stock market where shares of publicly listed companies are issued and traded between investors.
Exchange-traded fund (ETF)
Basket of securities that trades on an exchange like a stock. Offers diversified, low-cost access to markets.
Asset in the form of a tradable financial instrument such as a stock, bond, or derivative contract. Its value is tied to market prices.
Category of investments paying fixed or variable interest to investors including bonds, money market instruments, preferred stock.
Professional responsible for investment decisions in a mutual fund or hedge fund.
Evaluating a stock using economic and financial factors related to the underlying company. Assesses intrinsic value.
Financial statement summarizing a company's revenues, expenses, and net income over an accounting period.
Annual tax imposed on personal income from wages, investments, business activities and capital gains.
Passively managed mutual fund that replicates the composition and returns of a target market index.
Sustained rise in the general price level across an economy over time. Erodes purchasing power of a currency.
Situation where some parties have more information resulting in an imbalance of power in transactions.
Interest rate spread
Difference between two interest rates, often between rate where bank lends and borrows money.
Total amount originally invested by an investor into a given investment.
Asset purchased or deposited with the expectation of generating future income or appreciation.
Closed-end fund that invests in other securities like stocks and bonds. Trades on a stock exchange at market price.
Entity that develops, registers and sells securities for financing purposes.
High-yield, high-risk bond rated below investment grade by credit rating agencies due to higher chances of default.
Use of debt to amplify returns but also increases an investment's overall risk exposure.
Degree to which an asset is readily tradable in the market without impacting its price. Cash is highly liquid.
Total market value of a company's outstanding shares trading on the stock market. Share price multiplied by number of shares outstanding.
Date on which the principal amount of a debt security becomes due and payable to bondholders.
Combining of two companies into one new entity or absorbing one company into another.
Central bank actions relating to money supply, interest rates, inflation targeting to achieve economic goals.
Money market fund
Low risk mutual fund that invests in liquid short term fixed income securities like cash, Treasury bills, commercial paper.
Remaining income after all expenses, depreciation, interest and taxes have been deducted.
First time public issuance and sale of securities by a private company or government entity.
Pre-set time period over which a fund's performance is measured and compared to its benchmark index.
Mutual fund that can issue and redeem shares on an ongoing basis. Holdings expand and contract based on flows.
Stated face value printed on a debt security. The amount repaid at maturity date.
Financial institution responsible for disbursing coupon payments to bondholders on behalf of the issuer.
Collection of financial assets like stocks, bonds, cash equivalents held by an investor.
Stake in a financial asset created by purchasing or short selling shares.
Amount by which the purchase price of a security exceeds the face value when bought above par.
Unsustainable surge in asset prices fueled by speculation disregarding fundamentals.
Price-to-earnings (PE) ratio
Valuation ratio comparing a company's current share price to its per-share earnings. Higher P/E suggests overvaluation.
Formal legal document filed by a company detailing required information for potential investors prior to issuing securities.
Corporation whose shares trade on a stock exchange. Also called publicly traded company.
Lowering of interest rates by the central bank to stimulate borrowing and economic growth.
Real estate investment trust (REIT)
Company owning and managing income-producing real estate assets. Shares trade on major exchanges.
Repurchase of outstanding fund shares or units directly from investors by open-end funds and unit investment trusts.
Portion of net income not paid out as dividends but retained and reinvested into the company. Part of shareholders' equity.
Variable with potential to increase the overall risk exposure of an investment portfolio.
Extra return above the risk-free rate demanded by investors for bearing additional risk.
Leading U.S. stock market index based on market capitalization of 500 large publicly traded American companies.
A brokerage account holding investments in various financial assets.
Trade a financial asset by accepting payment in exchange for transfer of ownership rights.
Transaction in which a company buys back its own outstanding shares from shareholders. Aims to consolidate ownership.
Measure of risk-adjusted return relative to a risk-free asset. Higher Sharpe ratio indicates better historical risk-adjusted performance.
Socially responsible investing (SRI)
Investment strategy incorporating environmental, social and corporate governance (ESG) considerations.
Trading aimed solely at short-term profit with disregard for underlying asset quality. Illegal and punishable practice.
Difference between two rates, often between the rate at which a bank lends and borrows money.
Organized securities marketplace where stocks and bonds are bought and sold.
Derivative contract giving holder the right to buy or sell an underlying stock at a pre-set fixed price on or before expiration.
Security giving the holder the right to purchase shares of stock at a specified price during a preset timeframe.
Derivative contract between two parties to exchange cash flows or liabilities. Used to hedge risk exposures.
Risk of collapse of an entire financial system or market caused by the failure of a single entity or group.
Physical asset that has material existence like real estate, machinery, equipment. Contrasts intangible assets.
Studying price charts to identify trends and trading opportunities. Useful for timing entry and exit points.
Number of units of a security traded during a specified time period. Measures liquidity and investor interest.
Market participant who trades securities or commodities for his own account, aiming to generate profits through price fluctuations.
Buying or selling of a security or financial contract between buyer and seller.
Variable interest rate
Interest rate on a security or loan that periodically resets based on an underlying benchmark rate like Prime or LIBOR.
Annual income generated by a security expressed as a percentage of its current market price or face value. Represents return on investment.
Yield to maturity
Total annual return anticipated holding a bond until maturity date, assuming reinvestment of all interest payments at the same rate.