Daba’s Investing Glossary
Common investment terms and concepts
A-Shares
Shares of a company that are traded on the mainland Chinese stock exchanges (Shanghai and Shenzhen).
AAA
Highest credit rating given to a bond or issuer by credit rating agencies, indicating the lowest risk of default.
Abnormal Return
The difference between an asset’s actual return and its expected return, adjusted for market risk.
Absolute Advantage
The ability of a country, individual, or company to produce a good or service more efficiently than competitors.
Absolute Advantage
When a person or country can produce a good or service more efficiently than others, using fewer resources.
Absolute Return
The return that an asset achieves over a period of time, independent of the benchmark.
Accounting
The process of recording, summarizing, and analyzing financial transactions of a business.
Accounting Cycle
The sequence of accounting procedures followed in recording, classifying, and summarizing business transactions.
Accounting Equation
The fundamental equation of accounting, expressed as Assets = Liabilities + Equity, showing the relationship between a company’s resources and its financial obligations.
Accounting Profit
The difference between revenues and expenses, calculated based on accounting principles.
Accounting Rate of Return (ARR)
A measure of the profitability of an investment, calculated by dividing the average annual profit by the initial investment.
Accredited Investor
An individual or entity that meets certain income or net worth requirements, allowing participation in certain investments.
Accrual Accounting
Accounting method where revenues and expenses are recorded when earned or incurred, regardless of when cash is received or paid.
Accrued Interest
Interest that has accumulated on a loan or investment but has not yet been paid or received.
Acid-Test Ratio
A financial metric that measures a company’s ability to pay its short-term liabilities with its most liquid assets, excluding inventory.
Acquisition
The process of one company purchasing most or all of another company’s shares or assets to gain control of that company.
Acquisition Premium
The amount by which the price paid for an acquisition exceeds the fair value of the identifiable net assets acquired.
Active Management
Investment strategy involving frequent buying and selling in an attempt to outperform a market benchmark.
Activist Investor
A shareholder or group of shareholders that seeks to influence the management and strategic decisions of a company.
Add-On Interest
Interest that is calculated on the full principal amount of a loan and added to the total repayment amount.
Additional Paid-In Capital
The amount of capital raised by a company from shareholders, beyond the par value of the shares.
Adjusted EBITDA
Earnings before interest, taxes, depreciation, and amortization, adjusted for certain items.
Adjusted Present Value
Valuation method used to estimate the value of a project or business by considering the impact of financing decisions.
Adverse Selection
A situation in which one party in a transaction has more information than the other, leading to potentially unfavorable outcomes for the less-informed party.
Affiliated Companies
Companies that are related to each other through ownership, either wholly or partially.
Affirmative Action
Policies and practices designed to promote equal opportunity and increase diversity by addressing past discrimination.
After-Hours Trading
The buying and selling of securities outside of the standard trading hours of stock exchanges.
After-Tax Real Rate of Return
The investment return adjusted for taxes and inflation, reflecting the true increase in purchasing power.
Aggressive Investment Strategy
An approach to investing that seeks high returns by taking on higher risks, often through investments in volatile assets.
Allowance for doubtful accounts
Provision that reduces accounts receivables to expected collectable amount. Offsets expected losses from non-payment.
Alpha
A measure of an investment’s performance relative to a benchmark, indicating the excess return generated.
Altcoin
Any cryptocurrency other than Bitcoin, often created to improve upon or offer alternatives to Bitcoin’s features.
Alternative Investment
A financial asset that does not fall into traditional categories like stocks, bonds, or cash, such as real estate, commodities, or private equity.
Amortizable Bond Premium
The amount paid above the face value of a bond, which is gradually written off over the bond’s remaining life.
Amortization
The process of gradually paying off a debt over time through scheduled, periodic payments that cover both principal and interest.
Amortization schedule
Table detailing the periodic breakdown of payments on a loan between interest expense and principal repayment over the loan term.
Amortized Loan
A loan where the principal and interest are paid down regularly over the life of the loan, typically in equal installments.
Angel Investing
Providing capital for startups in exchange for ownership equity or convertible debt, typically by affluent individuals.
Angel Investor
An affluent individual who provides capital to startups in exchange for ownership equity or convertible debt.
Annual Equivalent Rate (AER)
The interest rate on a savings account or investment product, expressed as an annual percentage, reflecting the compounding of interest.
Annual general meeting
Yearly shareholder meeting of a public company to approve accounts and make key decisions.
Annual General Meeting (AGM)
A yearly meeting where a company’s shareholders discuss the company’s performance and vote on important issues.
Annual Percentage Rate (APR)
The annual rate charged for borrowing or earned through an investment, including fees and other costs.
Annual Percentage Rate (APR)
The yearly cost of borrowing money, including interest and fees, expressed as a percentage to help consumers compare different loan options.
Annual Percentage Yield (APY)
The annual rate of return on an investment, taking into account the effect of compounding interest.
Annual Report
A comprehensive report on a company’s activities and financial performance throughout the preceding year.
Arbitrage
The practice of buying and selling assets in different markets to profit from price differences, ensuring a risk-free gain.
Arbitrageur
Investor who profits from arbitrage – exploiting temporary price discrepancies between different markets.
Asset
Item of economic value owned by an individual or company. Financial assets like stocks have market values.
Asset allocation
Division of investment portfolio across major asset classes based on goals and risk tolerance.
Beta
Measure of an asset’s volatility in relation to the overall market. Beta above 1 amplifies market moves.
Bond
Fixed income security issued by a corporation or government that pays interest.
Bond market
Marketplace where debt securities like government and corporate bonds are issued and traded.
Brokerage fee
Commission paid to a broker for executing buy and sell orders on an exchange.
Bullish
Optimistic outlook for a security or market indicating expectations of price gains.
Buyout
The acquisition of a company’s controlling interest, typically by purchasing its outstanding shares or assets.
Call option
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.
Capital
Amount of owner’s initial investment of cash or assets when starting a business.
Capital gain
Profit realized from the sale of securities, real estate, or other assets at a price higher than the purchase price.
Capital reduction
Corporate action decreasing a company’s share capital by reducing the par value of shares or number of shares outstanding.
Cash flow
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.
Collateral
Asset pledged by a borrower to secure a loan in case of default. Provides security to the lender.
Common stock
Equity security representing ownership in a corporation. Provides voting rights and a share of profits through dividends.
Compound interest
Interest calculated on initial principal and accumulated interest from preceding periods. Results in exponential growth over time.
Consensus estimate
Average of analysts’ earnings per share forecasts for a given company.
Convertible Debt
A type of loan that can be converted into equity shares of the issuing company at a later date.
Convertible security
Bond or preferred share that can be exchanged for a fixed number of common shares under specified conditions.
Correction
Temporary limited decline in asset prices following a sustained uptrend.
Correlation coefficient
Statistical measure of linear relationship between two variables ranging from -1 to +1.
Cost basis
Original dollar amount paid to acquire an asset, used to determine capital gains for tax purposes upon sale.
Credit quality
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.
Current yield
Annual income from an investment divided by its current market price. Measures income relative to price paid.
Day trader
Individual investor who makes multiple trades daily aiming to profit from short-term price moves.
Decline
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.
Derivative
Financial contract deriving value from an underlying asset like a commodity, currency, stock or market index.
Dividend
Distribution of a portion of a company’s net profits to shareholders, paid in cash or additional shares.
Dividend yield
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.
Equity market
Stock market where shares of publicly listed companies are issued and traded between investors.
Equity Ownership
Holding shares or a stake in a company, giving the owner a portion of the company’s profits and losses.
Exchange-traded fund (ETF)
Basket of securities that trades on an exchange like a stock. Offers diversified, low-cost access to markets.
Financial asset
Asset in the form of a tradable financial instrument such as a stock, bond, or derivative contract. Its value is tied to market prices.
Fixed income
Category of investments paying fixed or variable interest to investors including bonds, money market instruments, preferred stock.
Fund manager
Professional responsible for investment decisions in a mutual fund or hedge fund.
Fundamental analysis
Evaluating a stock using economic and financial factors related to the underlying company. Assesses intrinsic value.
High-Net-Worth Individual (HNWI)
An individual with a significant amount of liquid assets, typically over $1 million.
Income statement
Financial statement summarizing a company’s revenues, expenses, and net income over an accounting period.
Income tax
Annual tax imposed on personal income from wages, investments, business activities and capital gains.
Index fund
Passively managed mutual fund that replicates the composition and returns of a target market index.
Inflation
Sustained rise in the general price level across an economy over time. Erodes purchasing power of a currency.
Information asymmetry
Situation where some parties have more information resulting in an imbalance of power in transactions.
Initial Public Offering (IPO)
The process by which a private company offers its shares to the public for the first time to raise capital.
Interest rate spread
Difference between two interest rates, often between rate where bank lends and borrows money.
Invested capital
Total amount originally invested by an investor into a given investment.
Investing
The act of allocating resources, usually money, into assets or ventures with the expectation of generating income or profit.
Investment
Asset purchased or deposited with the expectation of generating future income or appreciation.
Investment trust
Closed-end fund that invests in other securities like stocks and bonds. Trades on a stock exchange at market price.
Issuer
Entity that develops, registers and sells securities for financing purposes.
Junk bond
High-yield, high-risk bond rated below investment grade by credit rating agencies due to higher chances of default.
Leverage
Use of debt to amplify returns but also increases an investment’s overall risk exposure.
Liquidity
Degree to which an asset is readily tradable in the market without impacting its price. Cash is highly liquid.
Market capitalization
Total market value of a company’s outstanding shares trading on the stock market. Share price multiplied by number of shares outstanding.
Maturity
Date on which the principal amount of a debt security becomes due and payable to bondholders.
Merger
Combining of two companies into one new entity or absorbing one company into another.
Monetary policy
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.
Net income
Remaining income after all expenses, depreciation, interest and taxes have been deducted.
New issue
First time public issuance and sale of securities by a private company or government entity.
Observation period
Pre-set time period over which a fund’s performance is measured and compared to its benchmark index.
Open-ended fund
Mutual fund that can issue and redeem shares on an ongoing basis. Holdings expand and contract based on flows.
Par value
Stated face value printed on a debt security. The amount repaid at maturity date.
Paying agent
Financial institution responsible for disbursing coupon payments to bondholders on behalf of the issuer.
Portfolio
Collection of financial assets like stocks, bonds, cash equivalents held by an investor.
Position
Stake in a financial asset created by purchasing or short selling shares.
Premium
Amount by which the purchase price of a security exceeds the face value when bought above par.
Price bubble
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.
Prospectus
Formal legal document filed by a company detailing required information for potential investors prior to issuing securities.
Public company
Corporation whose shares trade on a stock exchange. Also called publicly traded company.
Rate cut
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.
Redemption
Repurchase of outstanding fund shares or units directly from investors by open-end funds and unit investment trusts.
Retained earnings
Portion of net income not paid out as dividends but retained and reinvested into the company. Part of shareholders’ equity.
Risk factor
Variable with potential to increase the overall risk exposure of an investment portfolio.
Risk premium
Extra return above the risk-free rate demanded by investors for bearing additional risk.
S&P 500
Leading U.S. stock market index based on market capitalization of 500 large publicly traded American companies.
Securities account
A brokerage account holding investments in various financial assets.
Sell
Trade a financial asset by accepting payment in exchange for transfer of ownership rights.
Share repurchase
Transaction in which a company buys back its own outstanding shares from shareholders. Aims to consolidate ownership.
Sharpe ratio
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.
Speculation
Trading aimed solely at short-term profit with disregard for underlying asset quality. Illegal and punishable practice.
Spread
Difference between two rates, often between the rate at which a bank lends and borrows money.
Startup
A newly established business, often in the technology sector, aiming for rapid growth and innovation.
Stock exchange
Organized securities marketplace where stocks and bonds are bought and sold.
Stock option
Derivative contract giving holder the right to buy or sell an underlying stock at a pre-set fixed price on or before expiration.
Stock warrant
Security giving the holder the right to purchase shares of stock at a specified price during a preset timeframe.
Swap
Derivative contract between two parties to exchange cash flows or liabilities. Used to hedge risk exposures.
Systemic risk
Risk of collapse of an entire financial system or market caused by the failure of a single entity or group.
Tangible asset
Physical asset that has material existence like real estate, machinery, equipment. Contrasts intangible assets.
Technical analysis
Studying price charts to identify trends and trading opportunities. Useful for timing entry and exit points.
Trade volume
Number of units of a security traded during a specified time period. Measures liquidity and investor interest.
Trader
Market participant who trades securities or commodities for his own account, aiming to generate profits through price fluctuations.
Transaction
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.
Venture Capitalist
An investor who provides capital to startups and small businesses with high growth potential in exchange for equity.
Yield
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.