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ABC
Stands for the motto "Always Be
Closing," from David Mamet´s
Glengarry Glen Ross, a bible of bad behavior for the boiler room
set.
Arbitrage
The simultaneous
buying and selling of a
security at two different
prices in two different
markets, resulting in
profits without
risk. Perfectly
efficient markets present no arbitrage opportunities.
Perfectly
efficient markets seldom exist, but, arbitrage opportunities
are often precluded because of
transactions
costs.
Boiler room*
Used to describe place or operation in which unscrupulous
salespeople call and try to sell people speculative, even
fraudulent
securities.
Capital gain
When a
stock is sold for a
profit, the capital gain is the difference between the
net sales price of the
securities and their
net
cost, or original
basis. If a stock is sold below cost, the difference is a
capital loss.
Clayton Act
The
Clayton Act
regulates general practices that potentially may be detrimental
to fair competition. Some of these general practices regulated
by the Clayton Act are:
price discrimination;
exclusive or tying agreements,
mergers and
acquisitions in violation of concentration ratios; and
predatory pricing.
Cold Call
A sales
call to a customer who does not know you or your product; the
initial pitch to reel the customer in.
Cover
The act of purchasing securities in order to close an open
short position. This is done by buying the same type and number
of securities that were sold short. Most often, traders cover
their shorts whenever they speculate that the securities will
rise. In order to make a profit, a short seller must cover the
shorts by purchasing the security below the original selling
price
Diversification
Different securities
perform differently at any point in time, so with a mix of asset
types, your entire portfolio does not suffer the impact of a
decline of any one security.
Dividend
A portion of a
company's
profit paid to
common and
preferred shareholders. A
stock selling for $20 a share
with an annual dividend of $1 a
share
yields the
investor 5%.
Fraud*
Intentional deception resulting
in injury to another, as when a person makes false statements
knowingly, without believing it to be true, or carelessly
stated, without regard for the truth. Fraud consists of
intention, actual misrepresentation or nondisclosure of pertinent
facts, and intent to profit.
Fundamental Analysis
The analytical method by which stock market activity may be
predicted by looking at the relative sales, data and earnings of
a stock as well as the management of the company in question.
Golden parachute
Compensation paid to top-level
management by a
target
firm if a
takeover occurs.
Greenmail
The holding of a large
block of
stock of a
target company by an unfriendly company, with the object of
forcing the
target company to
repurchase the stock at a substantial
premium to prevent a
takeover.
Growth Investment
A style of investing which emphasizes long term capital
gains from increases in the values of a company's stock based on
an increase in the real asset value of the corporation.
Hostile takeover
A
takeover of a
company (usually made by an open
tender offer to shareholders) against the wishes of the
current
management and the
Board of Directors by an
acquiring company or raider.
In Play
Often used in risk arbitrage. Company that has become the
target of a
takeover, and whose
stock has now become a
speculative
issue.
Initial
Public Offering
IPO; a company´s first offering of stock to the
public, often followed by a rapid rise in price in the case of a
"hot" stock.
Insider Information
Material information about a company that has not yet been
made
public. It is illegal for
holders of this information to make
trades based on it, however received.
Insider Trading
Trading by officers,
directors, major
stockholders, or others who
hold private
inside information allowing them to benefit from buying or
selling
stock. Insider trading consists
of having pertinent information, acting on that information, and
profiting from the act.
Insider Trading
Sanctions Act of 1984
Act imposing civil and criminal penalties for
insider trading violations.
Insider Trading & Securities Fraud Enforcement Act of 1988 (ITSFEA)
Federal legislation that greatly increased the penalties for
trading on material inside information.
Investor
The owner of a
asset who intends to hold the asset for the long run with
the expectation of dividends.
Leverage
The use of
debt financing, or property of rising or falling at a
proportionally greater amount than comparable
investments. For example, an
option is said to have high leverage compared to the
underlying
stock because a given price change in the stock may result
in a greater increase or decrease in the value of the
option.
NASD
The
National Association of Securities Dealers, the
self-regulation body of the securities industry, which develops
trading rules and conducts reviews of members´ activities.
Opener
Usually a junior broker or
trainee who "opens" the customer with a cold call, before a
senior broker comes in for the hard-sell close.
Option
Gives the buyer the right, but not the
obligation, to
buy or sell an
asset at a set
price on or before a given date.
Investors, not
companies,
issue options. Buyers of
call options bet that a
stock will be worth more than the price set by the
option (the
strike price), plus the price they pay for the option
itself. Buyers of
put options bet that the stock's price will
drop below the price set by the option. An option is part of
a
class of
securities called
derivatives, which means these securities derive their value
from the worth of an
underlying investment.
Piker
A coward, a chicken, a spoil
sport - in the boiler room, it refers to a customer who commits
to a buy but then doesn´t send a
check.
Poison pill
Anti-takeover
device that gives a prospective
acquiree's
shareholders the right to
buy
shares of the
firm or shares of anyone who acquires the firm at a deep
discount to their fair
market value. Named after the cyanide pill that secret
government
agents are said to be instructed to swallow if capture is
imminent.
Proxy
Authorization, whether written or electronic, that
shareholders' votes may be cast by others. Shareholders can
and often do give
management their proxies, delegating the right and
responsibility to vote their
shares as specified.
Proxy fight
Often used in
risk arbitrage. Technique used by an
acquiring
company to attempt to gain
control of a
takeover target. The acquirer tries to persuade the
shareholders of the
target company that the present
management of the firm should be ousted n favor of a slate
of
directors favorable to the acquirer, thus enabling the
acquiring company to gain control of the company without paying
a
premium price. Competition of outside group with
management for
stockholders'
proxies in order to
accumulate votes to elect a new
board of directors.
Qualitative
Analysis
Part of fundamental
analysis for investment purposes; some
qualitative factors
affecting the value of a company are its management,
business
model,
industry and
brand name
Quantitative
Analysis
Part of fundamental
analysis for investment purposes; when a company is evaluated on it's financial statements and balance sheet. In
other words, a company should be worth all of its assets and future profits
added together.
Raider
Individual or corporate
investor who intends to take
control of a company (often ostensibly for
greenmail) by
buying a
controlling interest in its
stock and installing new
management. Raiders who accumulate 5% or more of the
outstanding
shares in the
target company must
report their purchases to the
SEC, the exchange of
listing, and the target itself. See:
takeover.
Rip
The broker´s commission for making a stock trade.
Rule
13-d
Often used in
risk arbitrage. Requirement under Section 13-d of the
Securities Act of 1934 that a form must be filed with the
SEC within ten business days of
acquiring direct or
beneficial ownership of 5% or more of any
class of
equity
securities in a
publicly held
corporation. The
purchaser of such
stock must also file a 13-d with the
stock exchange on which the
shares are listed (if any) and the company itself. Required
information includes the way the shares were acquired, the
purchaser's background, and future plans regarding the
target company. The law is designed to protect against
insidious
takeover attempts and to keep the investing
public aware of information that could affect the price of
their stock. See:
Williams Act.
Securities and Exchange Commission
SEC, federal agency that regulates the
securities industry.
Series 7
A standardized
course of study that certifies a person to become a
stockbroker.
Sherman Act
The
Sherman Antitrust Act is a
Federal law prohibiting any contract, trust, or conspiracy in
restraint of interstate or foreign trade. The Sherman Act also
provides that no person shall monopolize, attempt to monopolize
or conspire with another to monopolize interstate or foreign
trade or commerce.
Short Selling
The selling of a security that the seller does not own, or
any sale that is completed by the delivery of a security
borrowed by the seller. Short sellers assume that they will be
able to buy the
stock at a lower amount than the price at which they sold
short.
Speculator
One who attempts to anticipate price changes and, through
buying and selling
contracts, aims to make
profits through capital gains. A
speculator does not use the
market in connection with the production, processing,
marketing, or handling of a product. See:
Trader.
Standstill agreement
Contract by which the
bidding firm in a
takeover attempt agrees to limit its holdings of another
firm.
Takeover
General term referring to
transfer of
control of a
firm from one group of
shareholders to another group of shareholders. Change in the
controlling interest of a
corporation, either through a friendly
acquisition or an unfriendly,
hostile,
bid. A hostile
takeover (with the aim of replacing current existing
management) is usually attempted through a
public
tender offer.
Technical Analysis
A form of market analysis that studies demand and supply for
securities and commodities based on trading volume and price
studies. Using charts and modeling techniques, technicians
attempt to identify price trends of a stock in the market.
Tender offer
General
offer made
publicly and directly to a
firm's
shareholders to
buy their
stock at a price well above the current value
market price.
Value Investing
A style of investing which emphasizes the long term
accumulation of consistent annual dividends from owning shares
in a profitable corporation.
Whale
A customer with a large
net income who invests a substantial amount in the market.
White knight
A friendly potential
acquirer sought out by a
target firm that is threatened by a less welcome suitor.
Wood
A cold call that gets no
results for the senior broker.
Definitions from
http://www.duke.edu/~charvey/Classes/wpg/glossary.htm.
Copyright © 2003,
Campbell R. Harvey. All Worldwide Rights Reserved.
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