Portfolio which is significantly different from the index (or its benchmark) and which is designed to provide above-average returns by taking above-average risks. Typically, such portfolios have a relatively high exposure to equity investments
Abbreviation for Annual General Meeting
All Ordinaries Index
A share price index measuring the market prices of the major stocks listed on the Australian Stock Exchange. The index is calculated continuously, and expressed as a number which allows overall market fluctuations to be quickly gauged (eg. if the index was at 2000 at a given point in time and the overall value of the shares concerned rose by 10%, then the index would rise to 2200). Note that not all of the companies listed on the Australian Stock Exchange make up the All Ordinaries Index. Note also that the Index is broken into a series of sub-indices including the All Resources, All Industrials, the 50 Leaders and a series of sector indices such as mining, media, transport etc.
A trained person who investigates all the facts concerning a security or industry under study and reaches a dependable conclusion about its merits that may help an investor to decide what action he or she should take.
The expression of a rate of return over periods other than a year converted to annual terms. For example, a compound return of 21% over two years would convert into an annualised return of 10% per annum, even though each annual return looked nothing like 10%. For example, if an investment earned minus 2% in year one and 23.5% in year two, the compound annual return would be 10%.
Taking advantage of countervailing prices in different markets – eg. the purchase of an asset for a low price in one market and its sale for a higher price in another.
The price at which the holder of a security is prepared to sell that security.
The apportionment of an investment portfolio among different asset classes (shares, bonds, property, cash and overseas investments) from time to time in accordance with the investment outlook of the investor or investment manager.
The value of a company’s assets standing behind its issued shares. Some companies may have a strong asset backing even if the dividends they pay on shares are relatively low.
Australian Stock Exchange
Averaging Up or Down
The practice of purchasing the same security at various price levels, thereby arriving at a higher or lower average cost.
Someone who believes the market will decline. (Opposite of Bull).
A market in which prices decline sharply against a background of widespread pessimism. The opposite of Bull Market. Bear markets are generally shorter in duration than bull markets.
The price offered for a commodity, currency or investment instrument which is desired to be purchased.
Often referred to as a quotation or quote. The bid is the highest price anyone has indicated that he or she will pay for a security at a given time, and the asked is the lowest price anyone will accept at the same time. Also known as Bid-Offer.
The highest quoted price that any prospective buyer will pay for a security at a particular point in time. The ‘bid price’ is the actual market price for a share, regardless of the price of the last sale.
The shares of a leading company which is known for excellent management and a strong financial structure. The term has become a generic on for quality securities.
An agent who handles investors’ orders to buy and sell securities, commodities, insurance policies or other property. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.
A fee charged by a broker for the execution of a transaction; or alternatively an amount per transaction or a percentage of the total value of the transaction or a percentage of the total value of the transaction. Sometimes also referred to as a commission or fee.
One who believes the market will rise. (Opposite of Bear).
An advancing market. The opposite of Bear Market.
An option which gives its holder the right but not the obligation to purchase an asset at a predetermined date (maturity date) for a predetermined price (exercise price).
The sum of the total amount of various securities issued by a corporation, multiplied by the price of those securities. Capitalisation may include bonds, debentures, preference shares and ordinary shares. Similarly, the capitalization of the share market is the sum of the value of listed shares.
A dividend paid on a security in cash or by cheque.
The graphing of market variables – particularly prices, averages and trading volume – in order to ascertain trends and to project future values.
The arithmetical process of determining the final value of an investment or series of investments when compound interest is applied ie. when interest is earned on the interest as well as on the initial principal. Investment returns are typically compounded, so two consecutive periods of 10% returns results in a compound return of 21%.
A method of interest calculation where, in each period , interest is calculated on both the principal and interest previously accrued. Henry Ford once said that compound interest was ‘the eight wonder of the world’. (Opposite of Simple Interest).
To buy and sell shares simultaneously in the same company. A broker may do this where he has orders both to buy and sell; strict exchange rules apply to the practice.
A share or unit in a unit trust which is trading such that buyers rather than sellers qualify to receive the next dividend payment, which amount is usually reflected in the price of the security in question. (Opposite of Ex-dividend).
Cutting a Loss
The decision to close out an unprofitable market position and take the loss involved before it becomes larger.
An individual who places orders to buy or sell securities.
The removal of a company’s shares from listing on the stock exchange. This may occur because the company has failed to comply with the exchange’s rules, or no longer meets listing requirements (eg. has been taken over).
A person elected by shareholders to be responsible for the management and operation of the company. Executive directors are directly involved in the operation of the business, whereas non-executive directors are not involved in the day to day operations of the company and may only be on the Board.
a) The difference between the original offering price of a security and the price to which it may fall in the ‘after offering’ market;
b) The amount by which a security sells below its asset backing. The opposite of premium;
c) The present value of a specifies sum of money to be received in a specified number of years.
The amount of a company’s after-tax earning which it pays to shareholders.
A tax rule under which tax paid at the company level is credited to individual shareholders on the total amount of the dividend and the imputation credit, and then allowing them to claim a tax rebate equal to the imputation credit. Dividend imputation affects the valuation of the sharemarket for taxable investors.
Dow Jones Index
A share price index measuring the market prices of 30 representative industrial companies on the New York Stock Exchange. The United States equivalent of the Australian 50 Leaders Index. There are broader measures of the United States sharemarket, notably the S&P500, which more closely corresponds to Australia’s All Ordinaries Index.
A hedge constructed to limit the adverse impact on the value of an investment of a negative movement in market or security prices.
Earning Per Share (EPS)
A measure of a company’s performance, calculated by dividing the company’s net operating profit after tax divided by the number of shares on issue. What the investor actually receives in the hand is known as Dividends Per Share, which is the proportion of earnings actually paid to shareholders.
Clock A model for depicting the normal sequence of events for share and property market cycles. After interest rates fall, the share market rises, followed by commodities, inflation and then property. Interest rates then rise to curb inflation and the cycle goes into decline.
a) A synonym for a share (as distinct from fixed interest) investment;
b) The interest or value which an owner has in an asset over and above the debt against it.
A term meaning ‘without dividend’: denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (Opposite of Cum dividend).
Execute on Order
To fulfil an order to buy or sell. When an execution is referred to as ‘good’, it generally means that both the broker and the customer are satisfied that the price obtained is fair.
An expert trained to advise on the risk and return characteristics of investments and on the management of investment portfolios.
Firming of the Market
A period when security prices tend to rise from a depressed condition or to stabilize at current levels.
a) In relation to currencies, the exposure of the currency to fluctuations in market forces rather than having a fixed value set by government;
b) In relation to companies, the decision to put a company’s shares on offer to the public.
Dividends on shares with imputation credits attached. A company is able to declare that a percentage (up to 100%) of dividend is franked depending on the amount of tax the company has already paid. If a company pays the full company tax rate, the dividends are fully franked.
Analysis of share values based on factors such as sales, earning and assets that are ‘fundamental’ to the enterprise of the company in question. These factors are considered in light of current share prices to ascertain any mispricing of the shares.
Where a company acquires another company which is operating in the same market.
Initial Public Offering (IPO)
The first sale of shares of a company to the public.
The illegal practice of trading in securities on the basis of ‘inside’ or secret information which is not available to the public at large.
An organization whose primary purpose in investment markets is to invest its own assets or those held in trust by it for others. Includes superannuation funds, life companies, universities, banks, etc. Institutional investing has an ever increasing impact on securities trading.
a) A synonym for gearing (eg. using derivative investments to over-invest a portfolio); or
b) The use of an asset as security for a borrowing.
In relation to foreign exchange and share market trading, an ownership position in which the trader has brought more of a particular security than he or she has sold.
A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimum level to cover an adverse movement in price in the futures market.
A form of corporate restructuring in which two companies combine into one. Unlike takeovers, mergers are usually negotiated by the management of the two companies concerned.
Net Asset Backing
Total shareholders’ funds in a company (ie. total assets less total liabilities) dividend by the number of shares on issue.
NTA (Net Tangible Asset backing)
A company's assets minus its liabilities and intangible assets, divided by the number of ordinary shares outstanding.
The price at which a person is willing to sell. (Also known as Ask).
An agreement which conveys the right to the holder to buy (receive) or sell (deliver) a specific security at a stipulated price and within a stated period of time. If the option is not exercised during that time, the money paid for it (but no more than that amount) is forfeited.
A profit still existing in a security which has not yet been sold, and is therefore unrealized.
Part A Statement
A written statement, disclosing matters prescribed by the Corporations Law, provided by a takeover bidder to the target company shareholders for the purpose of assisting them to decide whether to accept the takeover offer.
Part B Statement
A written statement, disclosing matters prescribed by the Corporations Law, provided by the Directors of the target company shareholders for the purpose of assisting them to decide whether to accept the takeover offer.
The mix and composition of an investor’s holdings among different classes of securities, such as bonds, property, shares and cash, or if in a single asset class, between different sectors and stocks.
a) The opposite of discount;
b) The amount paid at the time of purchase (eg. of an option); or
c) payments on an insurance policy.
Price-Earnings Ratio (PE Ratio)
A stock’s market price divided by its current or estimated future earnings per share. A fundamental measure of the attractiveness of a particular security versus all other securities as determined by the investing public. The lower the ratio relative to the average of the sharemarket, the lower the (market’s) profit growth expectations. Also called earnings multiple.
The act of selling securities which have appreciated in value to translate a paper profit into a realized gain. Often used to partly explain a market decline after a noticeable run-up in prices.
A legal document lodged and/or registered with the Australian Securities Commission setting forth the complete history and current status of a security issue or fund, and which must be made available to all interested investors in advance of their investment, when an offer is made to the public.
An option giving its purchaser the right, without the obligation, to sell an asset at a specified price (the exercise price) at any time between the purchase of the option and its expiry date.
A brisk rise following a decline in the general price level of the market or an individual share.
Rate of Return
The income yield earned in relation to a capital amount invested.
A significant slowdown in the economy, but not of the same severity or duration as a Depression. The term recession is sometimes used in a more technical sense to refer to a period in which a nation’s GDP declines over two consecutive quarters.
Reserve Bank of Australia (RBA)
Australia’s central bank; came into being in 1959 when the central banking activities of the Commonwealth Bank of Australia were transferred to the new entity. The RBA’s role combines that of guardian of the financial system and confidant to the Federal Government. It has responsibility for the banking system and authorized dealers, as well as overseeing the activities of
Australia’s financial markets.
An offer made to holder of an existing security to purchase new securities issued by the same company at a discount to the existing market, and able to be exercised within a relatively short (30-60 days) time span.
In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must promise higher expected yields if investors are to be attracted to them. Risk can take many forms, but a major one is Valuation Risk – paying too much for an asset.
The tendency to require a relatively high return in order to compensate for risk, or uncertainty, in the result. Risk averse investors will tend to settle for a relatively low-risk portfolio, where the return is more predictable.
Another term for Venture Capital, or, alternatively, capital which an investor is prepared to lose if an investment fails.
The assignment of percentage weightings to different forms of investments, reflecting their greater or lesser risks, for the purposes of calculating the capital adequacy standard to be observed by banks – eg. the risk weighting for residential lending is currently set at 50%, while for commercial lending it is 100%.
Trading of securities via a computer network rather than by open cry on the floor of the exchange.
Abbreviation for subscription, or a certificate denoting entitlement to a parcel of shares. Synonymous with share certificate.
Abbreviation for Stock Exchange Automate Trading System. The screen-trading system adopted by the Australian Stock Exchange.
A condition of the market in which there is a scarcity of goods available, and hence, sellers can obtain better conditions for sale or higher prices. Opposite of buyer’s market.
A certificate of ownership; a contract between the issuing company and the owner of the share which gives the latter an interest in the management of the corporation, the right to participate in profits and, if the company is dissolved, a claim upon assets remaining when all debts have been paid.
Share Price Index
An index measuring movements in the prices of shares, but not of their dividends (as opposed to an Accumulation Index, which measures movements in both price and dividend income).
An excess of sales over purchases of a relevant commodity, currency or investment instrument. (Opposite of Long Position).
The sale of a security that is not yet owned, in the expectation that its price will fall so that it can be bought back later at a profit.
One who is willing to assume a relatively large and generally undiversified risk in the hope of extraordinary gain. Speculators do, in fact, help give depth to securities markets.
An investor in the share market who aims for quick gains by subscribing to new share issues and then selling once the shares commence trading on the exchange.
A professional person who buys and sell securities on behalf of others in return for a commission (or brokerage).
The acquisition of shares by one company in another so as to gain a controlling interest. Takeovers of Australian companies are regulated by the Corporations Law.
The company subject to a takeover.
A market in which there are comparatively few bids to buy, or offers to sell, or both. The phrase may apply to a single security or to the entire stock market. In a thin market, price fluctuation between transactions are usually larger than when the market is more active. A thin market in a particular share may reflect lack of interest in that issue or a limited supply of stock in the market.
A person who actively buys and sells securities for his or her own account, usually with relatively short time horizons.
A persistent and pervasive direction, upwards or downwards, of commodities, prices, earning, etc. over a period of time.
A broker or bank which arranges the sale of an issue of securities on behalf of a client and, if it does not sell all stock to other institutions or investors, itself undertakes to purchase the unsold securities. By using an underwriter, the client is therefore assured of raising the full amount of money it is seeking.
Share dividends paid by companies which are not subject to Australian tax (or paid by Australian companies, but before the introduction of dividends imputation in 1986). Recipients of unfranked dividends are subject to tax at their normal marginal rate.
One who seeks to buy shares when they are underpriced and to take profits when they appear overvalued. The Price/Earnings Ratio is a key valuation measure.
The extent of fluctuation in share prices, exchange rates, interest rates, etc. The higher the volatility, the less certain an investor is of return, and hence volatility is one measure of risk.
The location of New York’s financial district; most often used to refer to major participants in the United States sharemarket generally.
These terms have been supplied from the Country Natwest Dictionary of Investment Terms (third edition).