2. Stocks which have very high liquidity.
The company has large equity base and
A GROUP SHARES
large public holding.
The company has a given consistent good
performance over the years.
Shares have high liquidity.
Company has equity above Rs.30 million.
B1 GROUP SHARES
Company fundamentals and financial
parameters in line with the industry.
Share with low investor interest.
Shares trade below par value (face value).
Company has equity below Rs.30million.
Company's shares are not widely held.
B2 GROUP SHARES Company has surveillance measure initiated
against it by the EXCHANGES for suspected
price manipulations.
Shares have low trading volume at the
EXCHANGES.
A tool for detecting bullish or bearish trend
in stock market. One divides the number of
traded shares which have risen in price by
those which have fallen.
A-D INDEX OR
Example:
ADVANCE-DECLINE
If 200 shares have advanced and 100
INDEX
declined on a particular day the A-D INDEX
is 2.
Number more than 1 indicates a bull trend
and less than 1 a bear trend.
A concept, which measures the inherent
volatility of share.
ALPHA FACTOR A share with alpha factor of 1.5 is slated to
rise in price by 50% in a year on its inherent
strength, such as growth in EPS, regardless
of the behavior of the market.
ANNUALIZED YEILD The calculation:
2
3. (NAV-face value + dividend paid)/(Face
value * number of years)
Profiting from differences in piece of the
same share traded on two or more stock
exchanges.
ARBITRAGE
An arbitrageur makes money by buying in
lower market and immediately thereafter
selling in the higher market, or vice versa,
thereby making a profit.
A lighthearted approach to the market
behavior which declares that if aspirin
ASPIRIN COUNT
consumption rises in the country, about a
THEORY
year later the market will fall and vice
versa.....
Term used by mutual funds and other
investment trusts, to indicate the net
tangible asset value of each share, calculated
by taking the total value of an investment
portfolio on market rates on a certain date
ASSET VALUE OR NAV
and dividing it by the number of
outstanding shares. the net asset value of a
mutual fund indicates how well or badly the
fund managers have played the stock
market.
A complete absorption of a new issue(IPO)
ASSIMILATION by the market.
i.e. with no shares unsubscribed.
A share, usually a blue chip, whose price is
taken to show the state of the share market.
BAROMETER STOCK It is a widely held, that for frequently traded
share with a stable price record, the BETA
COEFFICIENT is 1.
Average market price of a group of shares at
a given time.
BASE MARKET VALUE
Used for plotting changes in market
indexing.
3
4. .o1% of yield of a fixed interest bond.
Thus with the fluctuation of price of a bond,
BASIS POINT
if the yield increases from 14.27% to 15.31%,
there has been increase of 104 basis points.
A measure of performance of a particular
share in relation to the general movement of
the market.
If a share has a beta of 1 its rise and fall
corresponds exactly with the market. With a
BETA FACTOR
beta factor of 2 its rise and fall is double.
With beta of 0.5 the particular share will rise
only 55 if the market rises 10% and falls 5%
if the market falls by 10%.shares with
negative betas are contrarian shares.
You may have been foolish enough to buy
BIGGER FOOL THEORY an overpriced stock, but you believe that
there is an even bigger fool who will buy it
from you at higher price.
BLACK KNIGHT An unwelcome takeover bidder.
Trading large blocks of shares, usually by
mutual funds or institutional investors.
BLOCK TRADE
There are specialist brokers who carry out
the trade discreetly, without unduly
affecting the price movement of the shares.
Before a company declares a dividend or
issues bonus or rights shares, it closes its
register of members for a certain period,
BOOK CLOSURE
from 1week to 1 month, during which no
transfer of shares is registered. After book
closure shares are quoted ex-dividend, ex-
bonus or ex-rights prices.
The value at which an asset is carried on a
balance sheet. Since the asset is subjected to
BOOK VALUE depreciation, the book value is lower every
year. Cost minus accumulated depreciation
will thus show the book value of an asset.
4
5. The net asset value (NAV) of a company's
share. Take the total assets of a company
and deduct current liabilities, long term
liabilities, and preference shares. What
remains is shareholders fund. Divide this by
the number of shares issued. The result is
the book value of a share.
NOTE: A good company should focus on
increasing its book value (asset) year after
year.
A brand is a promise of quality, and brand
BRAND EQUITY equity is a value addition to a product or a
company.
An order to the stockbroker to buy shares
BUY ORDER either at the BEST price or within a price
limit (LIMIT ORDER).
CAPITAL EMPLOYED Net assets used in a business to make profits
Expenditure on accruing. Fixed, rather than
CAPITAL EXPENDITURE
liquid assets.
The ratio of fixed interest loan and
preference shares to the ordinary share
capital of a company.
CAPITAL GEARING LOW GEARED: More share capital than
loan.
HIGHLY GEARED: More loan than share
capital.
The issue of shares by a company, whether
CAPITAL ISSUE as a new issue or premium issue or rights
issue.
The capital of a new company consists of
issued and subscribed equity shares,
CAPITAL STRUCTURE redeemable preference shares, and secured
OF COMPANIES and unsecured loans. When the company is
making profits, that part of the profits
remaining undistributed among the
5
6. shareholders is transferred to reserves and
becomes part of the capital structure.
The difference between the nominal or face
value of the shares sold by a company to the
CAPITAL SURPLUS
public and the sum realized by selling them
as a premium issue.
Annual sales divided by paid up equity.
Studies over a period, it shows the extent to
CAPITAL TURNOVER
which a company can grow without
additional capital investment.
Conversion of free reserves of a limited
CAPITALIZATION company into capital by issuing bonus
shares.
A venture capital fund wholly owned by a
CAPTIVE FUND
larger body than individual entrepreneurs.
It is the amount earned by a company before
depreciation and other deductions which do
CASH FLOW
not require any cash outlay.
It is also called cash earnings per share.
Shares with bonus entitlement. A buyer of
such shares receive the bonus shares
CUM-BONUS
distributed by a company on registration on
their shares before the record date.
The buyer of the share is entitled to the
dividend if he buys the share before the
CUM-DIVIDEND
closure of the company's books.
These shares are sold at a slightly higher
price than the ex-dividend shares.
A system to curb excessive speculation in
the stock market, applied by the stock
exchange. When the index spurts or plunges
CIRCUIT BREAKER more than a % decided by the authorities,
then the trading is then suspended for some
time to let the market cool.
NOTE: This happened during the crash in
6
7. 2006 may...trading was suspended for 1 hr to
stop the free fall of the market.
A continued upward or downward trend,
within a narrow range, of share prices of a
CONSOLIDATION
company, or in general, indicating an
imminent breakout in the same direction.
Shares which behave in a fashion contrary to
CONTRARIAN SHARES the general stock market trend, i.e., fall in
rising market and rise in falling market.
Falsifying the financial accounts of a
company to keep the share holders happy
and to attract investors with the lure of high
profit. A high level accounting skill
COOKING THE BOOK combines with low level cunning to achieve
this end. Certain expenses are omitted,
liabilities are concealed, write-offs delayed,
valuation reserves not provided for, and
other such fraudulent practices are followed
to present a false picture.
The return that an investment could earn if
COST OF CAPITAL another, alternative investment with equal
risk, were chosen. Also called the
opportunity cost.
The ratio of current assets to current
CURRENT RATIO liabilities. If it is more than 1, the company's
operations are in a healthy state.
An order, which is only good for the day it
is placed, to a stockbroker to buy or sell
DAY ORDER particular shares. If the order is to be held
till it can be executed, its called a GOOD-
TILL-CANCELLED order.
1) The total liabilities of a company divided
by the shareholders equity.
DEBT-EQUITY RATIO 2) The total long term debt divided by
shareholders equity.
3) The total long term debt plus the par
7
8. value(face value) of preference shares
divided by the par value(face value) of the
equity shares.
*this ratio measure a company's solvency.
Opposite to inflation, it is a reduction in
national income and output, accompanied
by a general fall in prices. It can be brought
about by reduced imports, higher taxation,
DEFLATION
and high interest rates, among other
measures. During a deflation period the
stock market usually suffers from
depression.
Replacing fixed interest loan by issuing
DEGEARING equity shares of a comparable value. This is
done to lower the company's capital gearing
or leverage.
DELTA STOCKS The least liquid shares of a stock exchange.
Inflation caused by the increase in demand
DEMAND -PULL
in excess of the industry's capacity to
INFLATION
supply.
The net book value of an asset after
DEPRECIATED COST accumulated depreciation has been
deducted from the original cost.
DISCOUNTED CASH Evaluation of discounted future cash flow in
FLOW terms of their present value.
Payment made to shareholders, usually once
or twice a year out of a company's profit
after tax. Dividend payments do not
distribute the entire net profit of a company.
DIVIDEND
Part or substantial part of which is held back
as reserves for the company's expansion.
Dividend is declared on the face value of a
share, and not on its market price.
Dividend per share divided by its market
DIVIDEND YIELD
price, multiplied by 100.
8
9. For example, 50% dividend on a share of
230, face value Rs.10 is (5/230) *100=2.17%
Rather than buying a large number of shares
all at once, at one price, the strategy of
dividing the investment amount into a
DOLLAR COST number of equal parts and buying at
AVERAGING different intervals, to take advantage of
lower prices. Useful strategy during bear
phase when the lowest price of a share
cannot be known.
Profit after tax minus dividend on
preference shares divided by equity share
EARNINGS TO EQUITY capital plus reserves, and the sum
RATIO multiplied by a hundred.
This ratio indicates how profitable the
company is making use of its capital.
A theory of recognition of market trend
which postulates that the market follows a
ELLIOTT WAVE THEORY pattern of five waves up and three waves
down to form a cycle of eight waves and
that moves in short and long cycles.
One of the most wildly used indicators of
EARNINGS PER SHARE the worth of a share.
EPS = PAT/no of shares.
Interest calculated on 365 days a year, as
EXACT INTEREST
against 360 days of ordinary interest.
EXTRAORDINARY Any general meeting other than the annual
GENERAL MEETING general meeting, called to obtain
shareholders consent to urgent decisions.
An order to a stockbroker to buy or sell a
FILL OR KILL ORDER particular share immediately. If the order is
not executed at once, it should be treated as
cancelled.
FINANCIAL Distinguished from capital structure of a
STRUCTURE company which includes only long term
9
10. debt and equity, the financial structure is
influenced by the growth and stability of
sales, market competition, the quantum of
profits, the attitude of short-term lenders,
and the efficiency of the company's
management.
The financial structure helps take leverage
decisions.
The number of shares of a company that is
traded on the stock exchange; usually a
FLOATING STOCK
fraction of the total number issued and
outstanding.
Raising the necessary capital for a new
company by an open offer to the public to
subscribe shares or through private
placement.
Where the company is already in existence
FLOTATION
as a private company, but wishes to expand
and go public, flotation is the process by
which it goes to a merchant bank or any
financial institution which then offers shares
to the public.
Cash.
Also shares of a company available to the
FREE CAPITAL public, i.e. shares not held by the controlling
share holders, those on firm allotment or
issued to institutions.
EPS after accounting for all rights, bonuses,
FULLY DILUTED EPS and issue of convertible debentures during a
period.
Share capital whose full value has been
FULLY PAID SHARE
realized from the investors, as against partly
CAPITAL
paid up share capital where investors have
yet to pay one or more calls.
FULLY VALUED A share which has attained a price that has
taken into full consideration the
10
11. fundamental strength of the company.
If the price further increases the share will
become overvalued; if it decreases the share
will be undervalued.
Shares of small companies which are traded
GAMMA STOCKS
infrequently.
GDP Gross Domestic Product.
Government securities and bonds, usually
with an unattractive interest rate, these are
GILT-EDGED nevertheless very safe assets to hold, as the
government is responsible for the payment
of interest and refund originally such
certificates were edged with gold.
GOLDEN SHARE A share that controls 51% or more of the
voting rights of a company.
A client's order to buy or sell shares, usually
GOOD-TILL- at a specific price, which remains valid till
CANCELLED ORDER executed.
(GTC) Different from a day order or a fill or kill
order.
A provision in an agreement with the
underwriters of an issue which states that in
GREEN SHOE OPTION
event of exceptional investor interest the
issuer will authorize additional share for
distribution.
Value of a company's fixed assets before
depreciation, the gross assets of a company
GROSS BLOCK
include land, buildings, machinery and
office equipment.
The total value in money of all finished
goods and services produced in an economy
GROSS NATIONAL in one full year, and all net properly income
PRODUCT from abroad.
The GNP growth rate is one of the most
important economic indicators of a country's
11
12. health.
Net sales minus the cost of production, but
GROSS PROFIT
without deduction of interest, depreciation,
and taxes.
Total sales at the full value of a commodity,
GROSS SALES
before commissions and discounts are
deducted.
The growth rate is measured by the
GROWTH RATE increased earning of a company over its
previous achievement, expressed in
percentage.
HAIRCUT The difference between the buying price and
selling price of a market maker.
A pattern in a share price chart with two
short bulges on either side and a large one
in the middle, resembling the head and
HEAD AND SHOULDER shoulder of a person. as the price moves
down from the head to the right shoulder,
we see this as a signal for a further fall in
prices and vice versa.
Protecting one's savings from loss of value
through inflation by investing in such items
HEDGING AGAINST whose price rises with the general rise in
INFLATION prices.
Historically, the stock market has always
kept pace with inflation.
Funds held by a company but not disclosed
in the balance sheet.
HIDDEN RESERVES
This may be done by not disclosing an asset
or deliberately undervaluing it to reduce
taxation.
A loan instrument graded triple A or double
HIGH GRADE BOND
A by CRISIL.
Swiftly rising prices at the rate of 50% or
HYPERINFLATION
more a month.
12
13. Pledging assets against a loan.
The ownership of the asset or the income
from the asset is not transferred; expect that
HYPOTHECATION in default of repayment of the loan the asset
may be sold to realize its value. Brokers will
accept shares as collateral for loans to
finance purchase of shares or to cover short
sales.
Shares with low P/E and low price. Gives
good dividend, sometimes equaling or
INCOME SHARES
excelling the rate from fixed deposit. The
companies follow a policy of high payouts.
The various opportunities for gaining
rebates are now curtailed.
Under section 80L interest and dividend
income up to Rs.7000 is exempted from
income.
INCOME TAX REBATE
Under section 80 investments in Govt.
approved schemes like the NSS, NSC, PFF,
LIC schemes, etc. will qualify for a 20%
rebate on the gross tax up to a savings limit
of Rs.60000.
Mutual fund whose portfolio of shares is
identical to a well known Index, such as
Sensex or Nifty.
INDEX FUND Such an investment policy reflects the brief
that trying to beat the market index over the
long term is futile, and it is best to keep up
with the market.
The practice of relating economic variables
such as wages, taxes, annuities, dearness
allowances, and pensions to changes in the
INDEXATION
general price level, which offers some relief
against inflation, but leaves savers and
lenders worse off.
INFLATION Supplementing traditional financial
13
14. ACCOUNTING statements by showing the effects of
inflation on the items contained in them,
and adjusting profit and loss accordingly.
Under the pressure of varying rates of
INFLATION AND THE
inflation, the value of a rupee against
RUPEE
today's purchasing power is worked out.
An asset whose market price keeps ahead of
INFLATION HEDGE the rate of inflation, so that the owner of the
asset suffers no loss of purchasing power.
An illegal activity in which persons in a
company having confidential information,
such as expansion plans, financial results,
INSIDER TRADING
takeover bids, etc., take advantage of such
information to make a profit on the stock
exchange by buying or selling shares.
If a company is unable to pay its creditors
because it doesn't have liquid funds, it is
technically insolvent.
If a creditor presses for payment and the
company cannot pay within a short period,
INSOLVENCY the creditor can sue the company and it may
have to sell off some assets to meet the
obligation.
If the company's assets fall below its
liabilities, it is insolvent in the sense of
bankruptcy.
Unseen and non-physical assets of a
company which are of value to it and also
INTANGIBLE ASSETS perhaps a cash value. These increase the
value of a company in the market. Such
assets are trademarks, copyright, franchise,
permits, etc.
The ratio of a company's earnings to interest
due.
INTEREST COVER
The interest is for the loan capital of the
company.
14
15. With rise and fall of interest rates,
announced by the RBI from time to time, the
fortunes of the bond and stock markets are
closely tied.
INTEREST RATE RISK
Highly leveraged companies suffer if the
interest rate rises, as they have to pay more
for their borrowing. This reduces their
profitability.
An advance installment of the dividend
finally declared. More often one, but
sometimes two such payments are made.
The final dividend is often at least equal,
INTERIM DIVIDEND
and sometimes more.
The interim dividend is a fair indication of a
company's profitability, during the working
year.
The intrinsic value of a share, as against its
market driven prices, is its fundamental
strength and potential measured by data
INTRINSIC VALUE
like sales, operating profit, book value, debt
structure, market share, future potential,
etc..
Annual sales divided by the average cost of
the inventory gives the ratio of inventory
INVENTORY
turnover.
TURNOVER
Higher the ratio, the more prosperous the
company.
The amount of authorized capital issued by
a company. A part of the authorized capital
ISSUES CAPITAL
may be withheld for subsequent issue, at
par or at a premium.
Collaboration, usually both collaborators
JOINT VENTURE
have equity stakes in the company.
Selling off unsubscribed portions of a rights
LAY OFF offer by the issuer to the underwriter at the
offer price.
15
16. An arrangement under which a company, in
order to raise cash, sells a piece of
LEASE –BACK equipment, land, or building on condition
that the buyer will lease it back to the seller
for an agreed rental, for a fixed term.
Taking over a company, using borrowed
LEVERAGED BUYOUT
funds.
A company with borrowed funds in its
capital structure. If the debt component is
LEVERAGED COMPANY
more than a third of the capitalization, it is
called a highly leveraged company.
The winding up of the business of a
company, either through bankruptcy or
LIQUIDATION through a resolution passed by the
shareholders when the purpose of the
company has been fulfilled.
Additional charge to cover expenses,
usually administrative. This is usually
LOAD
deducted from the NAV of a mutual fund
unit at the time of repurchase by the fund.
The difference in prices at which a jobber
MARGIN
will buy and sell. Also called a HAIRCUT
An account with a brokerage firm which
will allow the client to buy shares with
MARGIN ACCOUNT
money borrowed from the broker. Margin
requirements can be met with a deposit in
cash or shares.
The total market value, at the current stock
MARKET
exchange list price, of the total number of
CAPITALIZATION
equity shares issued by a company.
The percentage of an individual company's
MARKET SHARE
sale of a product in relation to the total sales
of that product by all companies.
MINIMUM LENDING The rate of interest charged by the central
RATE bank of a country to a discount approved
16
17. bills of exchange or make short-term loans.
It is the rate which determines the domestic
interest rates charged by banks.
Memorandum of Understanding - Setting
MOU out terms of a contract, for technical
collaboration.
OPERATING PROFIT OR Profit or loss arising out of the principal
LOSS business of a company.
These measure a company's operating
efficiency by comparing various income and
expenditure figures from the balance sheet
and profit and loss account.
Some of these ratios are sales to cost of
OPERATING RATIOS
goods sold, operating income to operating
expense, net profit to gross income, net
income to net worth.
These are compared with the company's
previous results, and the industry averages
Capital acquired by selling shares to
investors, as distinguished from capital
PAID UP CAPITAL
accumulated from earnings or from secured
or unsecured loans.
This is dividend per share divided by
earnings per share and the sum multiplied
by 100.
If the payout ratio is 40%,it means that 40%
of the company's profits after tax have been
PAYOUT RATIO
distributed as dividend and 60% transferred
to reserves.
A very high payout may not be healthy, as it
will slow down the building up of an
adequate reserve.
Price-dividend ratio; price/last dividend.
P/D RATIO
Measures the value of an investment.
PSU Public Sector Undertaking - Run by
17
18. government.
Offering shares to the investing public, as
PUBLIC OFFERING distinguished from rights offering to
existing shareholders.
These are liquid or near-liquid assets, such
QUICK ASSETS
as cash, money in bank, gold, etc.
Total annual sales divided by the average
RATE OF TURNOVER inventory shows the speed with which stock
has been turned over.
Net income of a company as a percentage of
RETURN ON EQUITY
its equity capital.
These are expenses incurred; income earned;
in the course of, carrying on a business, and
REVENUE ITEMS
are shown in the income statement of a
company as revenue account.
Issue of shares at par or at a premium by an
existing company to its share holders in a
RIGHTS ISSUE certain proportion to their holdings, as a
matter of their right to receive preferential
treatment.
A most useful formula for calculating the
number of years an investment will take at a
compound rate of interest to double.
Divide 72 by the compound rate of interest
RULE OF 72
and you get the period of time. or again, if
you know the period of time it takes an
investment to double, divide 72 by the
number of years and you will get the
compound interest rate.
A reward sometimes offered to the
SHARE OPTION employees of a company to buy shares at a
favorable price or on a preferential basis.
A chart pattern in technical analysis which
V -FORMATION forms a V, which indicates that the share
price has bottomed out and is on an upward
18
19. course, a reverse V will indicate the opposite
trend.
A chart pattern, forming a W, showing that
W-FORMATION
a share's price has hit the support level
twice, and is now likely to move up.
Dividend divided by market price
YIELD
multiplied by 100.
19
21. o Intelligent Investor
o How To Pick Stocks Like Warren Buffet
o The Real Warren Buffet
o Beating The Street
o One Up On Wall Street
o Warren Buffet Speaks
o Warren Buffet Way
o How To Read Annual Reports And Balance Sheets – Raghu R Palat
21
23. 1. We accumulate trading information - buying books, going to
seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more
knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear
starts setting in.
8. We start to listen to 'outside news' & other traders.
9. We go back into the market and continue to donate.
10. We switch commodities again.
11. We search for more trading information.
12. We go back into the market and continue to donate.
13. We get 'overconfident' & market humbles us.
14. We start to understand that trading success fully is going to take
more time and more knowledge then we anticipated.
23
24. Many Traders Will Give up at this Point as they Realize Work is
Involved….. But do go on…..
24
25. 15. We get serious and start concentrating on learning a 'real'
methodology.
16. We trade our methodology with some success, but realize that
something is missing.
17. We begin to understand the need for having rules to apply our
methodology.
18. We take a sabbatical from trading to develop and research our
trading rules.
19. We start trading again, this time with rules and find some success,
but overall we still hesitate when it comes time to execute. We start
trading again, this time with rules and find some success, but overall
we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more
proficient with our rules.
21. We go back into the market and continue to donate. We go back into
the market and continue to donate.
22. We start to take responsibility for our trading results as we
understand that our success is in us, not the trade methodology.
23. We continue to trade and become more proficient with our
methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our
results are erratic.
25. We know we are close.
25
26. 26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market
and trade.
28. Our trading results are getting better, but we are still hesitating in
executing our rules.
29. We now see the importance of following our rules as we see the
results of our trades when we don't follow them.
30. We begin to see that our lack of success is within us (a lack of
discipline in following the rules because of some kind of fear) and
we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more
about ourselves.
32. We master our methodology and trading rules.
33. We begin to consistently make money. We begin to consistently
make money.
34. We get a little overconfident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading
becomes boring, but successful) and our trading account continues
to grow as we increase our contract size.
37. We are making more money then we ever dreamed to be possible.
38. We go on with our lives and accomplish many of the goals we had
always dreamed of.
26
27. I do not know the original compiler of this document. I have only edited
(spelling corrections, etc) and pdf-ed the same. While thanking the
anonymous compiler, please go ahead and profit it!
27
