Platinum Group Glossary of Investment Terms
Shares, which don't carry voting rights, but are otherwise equal to ordinary shares
Annual General Meeting
Most companies have to meet legally once a year. It's usually the only chance you'll get to give members of the board a hard time.
Alternative Investment Market
The Stock Exchange's market for minnows - young, modest companies which hope to grow into bigger fish. But because of their small size and limited track records, some of these firms can be on the risky side. Usually requires stronger nerve than an investment in a blue chip outfit. Some AIM companies have shown a fast return, though.
Deals done after the Stock Market's closed. These trades count as the first trades for the next business day.
Arbitrage is the ability to buy a stock cheap in one country and make money selling it in another place, e.g. buying a share at £1 in London and flogging it for £1.20p in Finland. Watch out for currency changes, though try to buy something cheap in one place, to make a profit selling it somewhere else. Not for beginners, really.
The lowest price at which shares will be traded at any one moment.
When buying or selling, some share-pickers ask their broker to make the deal 'at best'. This gives your dealer permission to buy or sell at a worse price than he first quotes to you. This is because prices may change as he or she speaks. Some share-pickers would die before giving their dealer such a free choice. They set a limit for the price they're willing to buy or sell.
Any stock market trade.
A trader who sells stock, hoping to buy it back at a lower price.
A market in which prices tumble.
If you think the market is about to fall, you are known as 'bearish'. If you expect it to rise, you're 'bullish'.
Bed and ISA
Selling shares and buying them straight back inside an ISA to shelter them from further tax burdens.
The price quoted when you want to buy shares.
The name for shares in highly- regarded big companies. They're usually household names with potential to make loads-a-cash. They often show healthy dividends. But they can be expensive and many have grown so far already, that it becomes harder to grow more. Blue chips make a safer haven for the more cautious share punter.
A certificate which is evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time, and to repay the loan on its maturity. May be issued by corporations or governments. If a company goes into liquidation, bondholders attain priority over shareholders.
The value of a company as written down on the balance sheet. Simply, it's the sum realised get if the firm stopped trading and everything was sold off.
Someone who'll buy and sell shares for you at a commission. Shop around for the best rates.
In general, research reports that are focussing on a company or companies will start by giving that company a rating, anywhere between Strong Sell to Strong Buy. Different terminology is used though, but the following group all relate to each other:
A rising market.
Buyouts' fall into two categories:
The right to buy a share in the future at price fixed now. You have to pay a premium for this privilege, but you don't have to exercise it should the price fall. The snag is that you can lose your premium if the share doesn't head north.
Capital Gains Tax
If you make a big profit on your shares, you'll have to pay this. The good news is that everybody gets an allowance of £7,200 a year (at present, anyway). You only have to stump up on gains above this figure. You can also use your losses to bring your profit down.
When a share is held or dealt in paper form, i.e. the holder has or deals with a share certificate. This is the opposite of nominee shares that are held by the broker on behalf of the owner of the shares.
The price of a share when the Stock Exchange closes for the day.
A commodity is the term for any item, which may be freely bought and sold.
Commodities can be shares, furniture or houses, but are typically cocoa, coffee and Soya beans (soft commodities) or precious metals (hard commodities).
Commodities are typically bought and sold in the futures markets where producers combine with manufacturers and speculators to create a liquid market.
The total sum of the shares plus stamp duty, but excluding broker commission.
This is a Corporate action, in which a company reduces the number of shares in issue, which means that you will normally have fewer shares as a result. Usually, the price of each share will also go up in proportion to the reduction in the number of shares.
Sent to you after a trade, showing how much you bought or sold a share for. You need to keep these documents to calculate your capital gains tax.
The changes that a company makes to the way in which it is owned or run.
An electronic system that settles share deals.
If you buy shares 'cum dividend', you would receive the dividend attached. On the other hand, if you sell shares in this way, you would not receive the dividend.
This is paid on many, but not all shares, and is a bit like getting interest on a sum held in a bank. Dividends are usually paid twice a year - the interim divi and the final. Theoretically, it's your share of the profits of the firm.
Dividend Reinvestment Scheme
This enables shareholders to take their dividends in new shares - if they opt to. A cheap way to increase your holding, because you don't pay a broker commission.
The main US share price index. It often influences the London Stock Exchange and other exchanges round the world. Stock-pickers should watch its movements almost as keenly as markets in their own country.
Earnings Per Share
A very important clue as to how well a company is doing now. It shows how many pence a share earns. The higher the EPS the better off shareholders should be. Profits may be high but if there are an abnormally high number of shares in the firm, the EPS will give a more realistic idea of how well the firm is doing.
The dough pumped in by ordinary shareholders like you and me. We're laughing if the company prospers. But we're the last to be paid (if at all) should the firm go bottom up.
This is your chance to help towards a better world. Ethical investments are in companies that make things or supply services, which don't harm people, animals or the environment.
If a share price is marked ex-dividend, it means you've just missed the dividend and will have to wait another six months before you get one from the particular company. Often shares prices fall once a stock goes ex-dividend, but not always. It's best to know when ex-dividend day is, before you decide whether or not to sell. Keep a record of when your dividends are paid.
Execution Only Brokers
These brokers only buy or sell for you. They won't give advice - and can get a bit testy when you ask for it. The big advantage is that their bare-bones service is usually much cheaper.
The amount of a portfolio invested in a particular area. For example, if half of the value of your portfolio is invested overseas, you are said to have a 50% overseas exposure. Currency exposure is the amount of a portfolio, which is vulnerable to Exchange Rate fluctuations in a specific currency. For example if a trust is 50 % invested in the USA, and has no hedging, it is 50% exposed to the dollar. Trusts use hedging to reduce their currency exposure if they expect adverse exchange rate movements.
Extraordinary General Meeting
An EGM is a meeting called to discuss special business. This could involve voting on a proposed takeover or merger, a break up of the business into smaller parts or substantial change in the way the business is to be run. An EGM may be called by the directors of the company or by shareholders holding at least 10% of the voting rights of the company's shares. An EGM may be called to get shareholder approval for a Special Resolution. A Special Resolution needs approval from 75% of all the shareholders. Don't confuse the EGM, with the AGM.
The face value is the term used to describe the value of a bond in terms of what the company, which issued the bond, will actually repay when the loan matures. You may also come across the term being used to describe shares - in most instances the stock-market price of shares is significantly different (usually higher) than their face value.
A technical term used by the London Stock Exchange to describe a situation in which share prices are changing more rapidly than the prices, which are actually quoted on the SEAQ service by the market-makers. Such a situation means, of course, that a market-maker's price may well be out of date when you try to deal on it. Therefore, when the Exchange authorities declare a fast market, the market-makers are no longer specifically obliged to deal at their quoted price but may vary from it. The 'screen' price then becomes indicative, not a firm price.
This is the dividend paid to shareholders from the company profits at the end of the financial year. A motion to pay a final dividend must be approved at the shareholder's Annual General Meeting (AGM) - where they have the option of accepting the dividend recommended by the directors or of reducing it - they cannot vote to increase it!
The UK's most important share price index is the FTSE 100, based on the l00 biggest companies listed on the Stock Exchange. When a company drops out of the index, it can lose investors who only punt on FTSE100 members. Also known as the 'Footsie' on the Share-Crazy site.
This has legal meaning and is the price quoted by a market-maker at which he is committed to deal with a broker or other market-maker. The only occasion in which a market-maker may vary from offering a firm price is when the Stock Exchange has declared a fast market.
First Day Dealings
The day when a company makes its debut on the Stock Exchange. Anything can happen.
When a company stops being private and goes public, giving us the chance to buy shares.
Financial Services Authority
A watchdog for share buyers and others using financial products and services. If you have a complaint the FSA will ask if you have written to the company first, followed by the Ombudsman.
Contracts to buy something in the future at a price agreed upon in advance. Commodities currency and bonds are all traded on the futures market.
When the market opens above or below the previous day's close (although some prefer to use highs and lows for this purpose), the price on a bar chart will show a "gap". This may then be "closed" if the market trades at prices between the opening level and the previous day's close.
Borrowing money to buy shares. Joe Public doesn't recommend this. In fact, he says investing all your money in shares is a mug's game. Only risk what you can afford to lose.
The distribution of the investments in an investment trust's portfolio over different parts of the world, either by country or by larger area.
Securities guaranteed by the Government.
This is support and loyalty for a company from customers and suppliers and as such has a value. But it's not always taken into account, because it can be fragile. For instance if a company is on a downward path, its goodwill value may soon evaporate.
Gains before deduction of tax.
Gross Redemption Yield
Return on a fixed interest security or any investment with a known life expressed as an annual percentage. Redemption yield measures the capital as well as income return on investments with a fixed life.
Dividends before income tax.
Guaranteed Income Bond
A single premium insurance bond, which pays a fixed amount of income annually and returns the original sum invested at the end of a specified period.
The process of cutting the currency exposure of a trust portfolio, and hence reducing the effect of exchange rate fluctuation on the portfolio's value. Hedging is used to reduce the risk of loss through adverse movements in interest rates, equity markets, share prices or currency rates.
A firm which has shares in other companies in the same group. There are accounting advantages to this arrangement too complex to go into here.
Independent Investment Trust
A trust, which has its own team of managers, rather than hiring the services of an outside management group.
When someone uses secret information to buy or sell shares in a company. This obviously gives an unfair advantage over those of us who can only use info already in the public arena. Insider trading is illegal in Britain.
The big boys of share dealing. Pension funds or insurance companies which buy large blocks of shares with their members' money.
An organisation which holds in shares in other companies. Buy shares in a set-up like this and you may be able to spread your risk. But look at this list of companies in their collection with care - you may not approve of some.
Individual Savings Account
Successor to PEP's. This type of tax haven was introduced in l999 and runs for at least 10 years. Shares held in an ISA are free of capital gains tax if they rise and you don't have to pay income tax on dividends. The snag is that any losses can't be used to cut your tax bill. So extra care is needed before buying shares within an ISA. Share pickers will prefer a self-select ISA, otherwise the managers will choose the shares for you which isn't so much fun. Currently you can spend £7,000 per year on shares in an ISA.
A person with access to privileged information about a company, which may affect a decision to buy or sell shares in that company.
The price at which shares are first offered to investors when a company floats for the first time on the stock market.
Old fashioned name for a market-maker (who sets the price of shares).
This is a market which specialises in futures and options. These are related to shares, but riskier to trade. However as usual with more adventurous investments, the rewards can be greater - and faster.
When buying shares, the broker will ask you if you want to set a limit on the amount you want to pay. In a volatile market, the price may rise after the broker has given a quote, so it's wise to set a limit.
This takes place when a company is wound up. Everything is sold to pay off creditors, like the taxman and institutions which loaned money. What's left (if anything) is handed out to ordinary shareowners.
The amount of and availability of shares traded in a particular company.
One whose shares are traded on the Stock Exchange or are on the official lists of other official exchanges around the world.
A way of valuing a company. You multiply the number of shares in issue by their current value, i.e. 5m shares at £10 each give a market capitalisation of £ 50m.
Members of the Stock Exchange who quotes buy and sell prices for shares, usually depending on demand or lack of it.
There are two prices quoted by dealers to stockbrokers: the higher or offer price at which they will sell you shares and the lower or bid price at which they will buy your shares. The difference between the two is known as the 'spread'. Within the spread will be found the 'mid-market price', between the offer and bid price at which shares are bought and sold. The 'mid-market price' is used to calculate investment trust performance statistics. It is also the price seen in most well known newspaper share tables.
When two companies join to form one.
There are two prices involved in buying shares - the selling price and the buying price. The selling price is lower than the buying price. When you check the share price on the Internet, teletext or in the press, the price given falls in the middle of these two points. This is the middle price.
Net Asset Value
This is the value of a company worked out in pence per share. This isn't the same as the current share price which depends on many other factors than the company's present worth. But it's a useful indicator of how healthy your investment is or isn't.
Shares which are being newly-issued by a company coming to the market for the first time.
The nominal value of a loan stock is the face value, or value at which it will eventually be redeemed. The nominal value of a share is shown in a company's Memorandum of Association.
These enable your broker, or other third party, to hold your shares for you. The Crest system which settles deals without the need for certificates has made nominee accounts more popular. It saves on dealing costs and paperwork, but many investors still prefer to hold their own certificates.
A market for shares in smaller companies. Good profits can be made from these shares, but it's riskier than more regulated markets.
The price at which you can buy a share, i.e. the price at which a market-maker will sell it.
The main type of equity capital, and the main sort of investment trust share, which is of interest to the private investor.
If a share is said to be overbought, it means the price is probably too high. Oversold means the opposite. Be careful, as it's easy to confuse both expressions.
A share which is less than 100p (or thereabouts). Some investors prefer them because the chance for growth is greater. But of course they can fall just as quickly.
A tax haven, now overtaken by ISA's. But many share fans still hold PEPs because though you can't add to them, they still serve to protect shares bought in past years from capital gains and income tax. You can still buy and sell shares within a self-select PEP, but unlike ISA's, you can't inject extra cash into a new PEP each year. They're now closed.
A public limited company.
A posh way of describing your personal stash of shares, e.g. 'I say, Bloggs, which companies exactly do you have in your portfolio?'
Price Earnings Ratio (P/E)
Also known as the P/E ratio. You get it by dividing the share price by earnings per share. Complicated stuff, but generally a low P/E ratio is better value for investors. Yet a high P/E often shows the future prospects of the company are valued highly by the City.
Price/earnings to growth ratio is a rule of thumb measure to consider basic value while also taking into account earnings growth. To get the 'PEG', divide the stock's p/e by it's annual earnings per share growth rate. The lower the PEG the better, because it means the stock is cheap relative to it's earnings growth potential.
Share capital, which receives a fixed rate of return, and comes ahead of ordinary shares in order of priority in a winding up.
When a firm wants to go public it issues a long document called a prospectus. It should tell you all you need to know about the company before you decide to risk your cash.
Buying shares for a hopeful quick return as opposed to the 'buy' and 'hold' strategy. As in ' Black Bin Liners Ltd are worth a punt'.
These have an official listing on one of the world's recognised stock markets. Also known as listed investments.
A rapid rise in the value of a share, usually after a nasty fall.
A financial expert called in to discover if a beleaguered firm still has hope.
These are organisations of middle men/ women who look after shares for a company. They administer rights issues (see below), re-issue lost certificates and so on. They can be very helpful when you want to check just how many shares you have in an undertaking or inquire about a share's history. The registrar's name and address can be found on the share certificate, but rather annoyingly, not always their telephone number.
Retail Price Index
Inflation, the term used to describe the tendency of prices to rise and keep on rising is measured in the U.K. by the 'Retail Price Index (RPI). This official measure is calculated each month by taking a sample of goods and services, which the typical household might buy. Included are such items as food, heating, housing, household goods, bus fares and petrol. There are three primary measures of inflation; The headline rate, known by economists as RPI, - the most prominent measure. The underlying rate, which excludes mortgage interest costs, the one favoured by the Treasury (known as RPIX) A more pure version of the underlying rate, which excludes not only mortgage costs but also taxation (known as RPIY). The Bank of England favours this.
When a company wants to expand it often needs more cash. A rights issue is a popular way of raising it. New shares are issued and offered to existing stockholders. They're offered for less than you'd pay in the market, so sound like a good idea. But the value of shares can fall with the announcement of a rights issue, so they may not be a good proposition for long Therefore it's usually best to wait till the last minute before buying your new shares.
This is when your company issues more shares free of charge. But don't get excited. If it gives one new share for each old one, say, you won't be better off. You'll probably find the price of your shares drops by 50%, leaving your holding with exactly the same value.
Yet Another word for stocks, shares or equities.
Stands for the Stock Exchange Electronic Trading Service (SETS). It's a giant electronic order book for the London Stock Exchange.
The day on which transactions must be settled, i.e. purchases must be paid for and sale proceeds will be paid to the seller. For deals in UK equities, this is usually five business days after your deal is carried out.
This is a legal document which can be used as proof of ownership of a shareholding. Today it is more common for share certificates to be held by a nominee company, given the sharp increase in private share ownership and the corresponding number of transactions. Even so private investors who are attached to share certificates still keep them and deal by using them, although this could turn out to be an expensive pursuit if stockbrokers charge them more for processing paper. When you sell shares, you may also find the stockbroker keen to see the certificate because Stock Exchange penalties for false trades are getting worse. In summary share certificates are not quite extinct, but they almost certainly will be one day.
The world's stock markets are the biggest second-hand business you will ever come across! Stock markets exist to allow companies to raise capital through the issue of new shares to fund business investment. The success of such fund raising activities depends very much on the liquidity of the market that is how easily the players in the market find it to put up the money for the company's equity or shares. The only important measure of liquidity is the second-hand market - how easy is it to sell shares once you have bought them. Nobody really wants to be stuck without the ability to realize their cash once more. There has been sharp increase in the number of new issues, i.e. companies coming to the stock market in the last two decades. The current 'dot com' frenzy has contributed enormously to this, but even taking these issues into consideration, the buying and selling of 'second-hand' shares is a much larger part of day-to-day market activity. You may buy shares in the hope of receiving a regular income from them in the form of dividend payments or you may be hoping that the share price will rise in value to give you some capital gain. Most people invest in shares or equities looking for a mixture of the two, some income and some capital gain.
Some investment trust fund managers offer a share exchange service whereby a parcel of shares can be converted into investment trust shares which provide a broad spread of investment for just a few hundred pounds.
A loose term you hear a lot. It seems to mean 'investors who're in the know.' So if someone says 'All the smart money is going into the Black Treacle Corporation,' then it's being vaunted as a hot tip. Such expressions can usually be taken with a pinch of salt.
If a share is quoted at £2 to sell and £2.05p to buy, then the spread is 5p.
To apply for shares in company going public for the first time, then sell as soon as they hit the market - for profit (hopefully).
This is a tax when you make some transactions. It most commonly associated with buying houses. But it also applies to buying shares - currently at 0.5%. You'll be pleased to know that there's no stamp duty to pay when you sell.
Stock Exchange Automated Quotation System
The Stock Exchange Automated Quotation System) A system which provides electronic price displays for securities. Market makers put their buying and selling prices onto an electronic screen. Broking firms read these screens and deals are done.
Stop Buy Order
A term meaning an order to buy a stock when the price rises to a certain level.
This is the amount you're prepared to loose on a share, before you sell to cut your losses. Some share fans set a buffer of !0% - but 15% is more common. You need to be strict with yourself to operate a stop loss system, because there's a big temptation to hang on in the hope the share's fortunes will turn round. But if you do obey stop losses, you'll keep your losses down - and that's half the battle.
Take A Position
Buy some shares.
When a company makes an offer to buy another. A hostile take-over is when a company makes a buy-out offer which isn't welcome by the targets' directors.
This is the process of assessing how a share will perform by looking at its history and other factors which have little to do with the balance sheet. Technical analysts are also concerned with group instincts.
A company's total sales during the year. Not to be confused with profits. A big turnover and a small profit aren't usually a good thing.
If new shares are listed, the company attaches a price to each. For a fee, a bank, or similar organisation, will guarantee to buy any unwanted shares at that price. If you're thinking of buying new shares, check to see if the offer is underwritten. This helps to stop the price dropping after you buy. Though sometimes a new share can take off, even if it's not underwritten. The need to underwrite isn't so strong if the share's likely to be popular.
A collective investment vehicle, they offer you a straightforward and inexpensive way to benefit from professional investment management. They can also help you to diversify your investments and spread risks.
Investments in companies which aren't listed on a stock market.
The business of making high risk investments in small and young companies, often with a high technology bias, which may already be trading or may be at the planning stage.
A share which rises and falls a lot in comparison to other shares is said to have a high volatility. This type of share can offer better opportunities for share fans who like to dive in and out the market, rather than hold a stock for many years. But of course a high volatility can suddenly disappear. The market can also show a high volatility, when it starts jumping about all over the place. Some experts think this is a bad sign.
This figure, sometimes shown in the press, is the number of shares bought and sold in one company on the stock market on one day. It shows you how interesting a share is to the City.
Most ordinary shares carry one vote each. It gives the chance to put your oar in at annual general meetings and the like.
Some companies issue these. They can raise a bit more capital (though sometimes they're given free as a bit of encouragement). They're not shares, but they give you the right to buy shares at a fixed price in future years. You can still trade warrants in the same way as shares, but they tend to rattle up or down in value faster than shares in the same company. This makes them riskier. In fact, your brokers will ask you to sign a form acknowledging that you're aware of this fact, before you're allowed to deal in them.
This letter indicates something that is without something. E.g. an x next to a share in a press listing means it's now ex-dividend, meaning that if you buy now, you'll miss the current dividend.
This is important to people who rely on income from their shares. It shows the amount you can expect in dividends in relation to how much you sink into a company. The yield is worked out by dividing the share price now by the total dividend per year. The yield is shown near the share price in the posher newspapers.