10 Investment Terms Explained

10 Investment Terms Explained

Here's an interesting post from our partners at InvestingAnswers:

Financial types definitely like their strange investment terms: They're an effective way of keeping the circle closed to outsiders, or creating a secret club that only a select few can be enter.

Plus, creating language barriers adds a layer of opacity that makes a translator seem more necessary than it really is. Those translators make a good living!

So you study up and try to gain a fluency in this unusual pidgin tongue. But just when you think you have Wall Street's army of acronyms memorized and feel conversant with its stock and bond terminology, you'll inevitably hear some wacky phrase or saying that leaves you baffled.


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We've collected a few of these. You'll be surprised how often you hear them.

1. Dead Cat Bounce

Sometimes the market will manage a gain after a long decline. This charming explanation refers to the fact that anything will bounce if you drop it from high enough, even if there is no fundamental reason to power the advance. [Read more about dead cat bounce in the InvestingAnswers Dictionary.]


2. No One Ever Went Broke Taking A Profit

"Taking a profit" means you've inked a capital gain by selling a stock for more than you bought it for. It's the principal goal of most investors. But sometimes, sooner or later, we all realize that we sold our shares too soon and missed out on a bigger gain that we could have had. This little adage is a consolation for anyone who sold too soon.

3. Cash Is King

A portfolio of stocks hard-hit by a serious bear market always brings out this declaration. "Cash is king" simply means that being out of the market and in cash protects you from losses. (No one ever says cash is king when the market is moving up, except those nay-saying contrarians who always think the sky is about to fall.)

4. Sell Down To The Sleeping Point

This is about risk allocation. If you're a conservative investor who has all of the sudden invested your life savings in commodities, you might find yourself up at night wondering what asset-destroying calamity could wipe out the value of your pork bellies. After a few such restless nights, it's time to reallocate your portfolio to assets you're comfortable with.

5. Catch A Falling Knife

You'll hear this from an analyst or investor who's not interested in shares of a company with a declining stock price until it hits the bottom. Like a falling knife, this company is safe to pick up only after it has hit the floor.

6. Don't Marry Your Stocks

Investors sometimes will latch onto to any reason to keep from selling a stock. The bottom line is that they don't want to admit that they made a bad call. When an investor holding such a dud begins to remonstrate about what a great investment it really could be, some wiseacre will offer this snide remark.

The point is good, though. Emotional attachments cloud investment decisions every day, and that's a recipe for disaster. Wise investors seek a dispassionate view of their holdings. A loss is a loss. All investors run into them sooner or later.

7. A Rising Tide Lifts All Boats

Can't catch a break? Stocks in the tank? Take heart: Sooner or later, a broad market rally will come along, and even the sorriest losers in your portfolio will likely see gains.

8. Don't Fight The Tape

The consolidated tape reports the latest price and volume data for exchange-listed stocks. It reports what is going on in the market, and this bit of wisdom warns you against trying to buy in falling markets or sell in rising markets. "The trend is your friend" expresses the same sentiment.

9. He Who Sells What Isn't His'n Buys It Back Or Goes To Prison

This is an old saw about short selling. Short sellers borrow shares, sell them and then re-purchase them when the price has fallen. That's buying low and selling high, just in reverse order. The downside to shorting is that the price could go up and you'll have to buy it back at a loss, the prospect of which typically will initiate someone uttering this phrase in your direction.

10. Nobody Rings A Bell At The Market Bottom

A bell rings at the market's opening, and again at the close of trading each day at 4 p.m. in New York. This ceremony is usually a photo op for executives of an exchange-listed company. But those are the only two signals you're going to get.

If you see a market in decline, pick your lowest price and buy when it hits there. Don't continue to think stocks will fall forever, though. Sooner or later, the market will turn -- and it can turn on a dime -- eliminating attractive prices, sometimes for good. That means, horror of horrors, that someone else made your gain.

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