A,B Flashcards
Absolute advantage
A barrier to entry that helps deter
companies from entering an industry.
Absolute valuation model
A valuation model that outputs a point
estimate or precise value for the intrinsic
value of a stock, based on a set of forecast
company fundamentals
Accrual floating-rate loan
The final component of the equity forward
monetization is the loan contract. The bank
provides a loan to the shareholder against
the equity forward contract. In an accrual
floating-rate loan, the shareholder gets a
loan advance equal to 95% of the initial
price times the number of shares.
Accrued interest
Interest on a debt security that has accrued
since the last coupon payment date, but has
not yet been paid.
Active investment strategy
An investment strategy that uses expectations about individual securities and the overall investment environment to build a portfolio that will take advantage of those expectations. See also Bottom-up analysis, Investment strategy, Passive investment strategy, and Top-down analysis.
Active listening
Assessing the significance of a message by
listening for the “core” meaning, and relate
it to other information about the client
before deciding on its significance and an
appropriate response.
Actively managed fund
A managed product whose manager makes
investment decisions based on his or her
outlook for the markets and securities in
which he or she invests. See also Passively
managed fund.
Ad hoc approach
An approach to strategic asset allocation
that is based on an IA’s opinion or
“gut feel.”
Adjusted Cost Base (ACB)
A fund or trust’s new average unit cost after
the original cost of the units is reduced by
the amount of the distribution
Age approach
An approach to strategic asset allocation
that recommends an allocation to debt
securities equal to the client’s age
Allocation return
The return on the portfolio based on the
decision to shift the portfolio’s weights from
the strategic asset allocation.
Alternative investments
Asset classes that are different from the
traditional three broad asset classes of
equities, bonds and cash.
Alternative Trading System (ATS)
An off-exchange private electronic network
that discretely and directly matches buyers
and sellers using a computer program.
There are no middlemen. Large orders can
be executed with little or no market impact.
Alpha
The degree to which a fund’s manager has
added value relative to the fund’s
benchmark index, given the portfolio’s
systematic risk (as measured by its beta)
relative to the index. See also Beta and
Risk-adjusted return.
American Depositary Receipt
ADR
A certificate representing ownership of the
securities of a foreign company. See also
American Depositary Share (ADS).
American Depositary Share (ADS)
A security issued by a U.S. depositary (usually a trust company), and traded on a U.S. exchange, representing ownership interest in the securities of a foreign company. See also American Depositary Receipt (ADR).
Amortization schedule
The regular or semi-regular repayment of a
debt security’s principal over the life of the
security. See also Principal.
Ascending triangle
A triangle with a horizontal resistance line
and a positively sloped trend line acting as
support. See also Descending triangle,
Symmetrical triangle, and Triangle.
Asset allocation
The process used to determine the
appropriate proportions of an investor’s
portfolio to invest in different asset classes.
See also Asset class, Strategic asset
allocation, and Tactical asset allocation.
Asset class
A specific category of assets or investments,
such as cash, stocks, bonds, real estate and
international securities. Assets within the
same class generally exhibit similar characteristics and, most importantly,
behave in a somewhat similar manner in
the marketplace.
Asset location
The allocation of assets between registered
and non-registered accounts. See also
Non-registered account and Registered
account.
Asset-backed security (ABS)
Asset-backed security (ABS)
Attending
Conveying to clients that the advisor
respects their needs and are interested in
helping them with their individual
objectives.
Attitudinal question
A question that seeks an investor’s attitude
about one or more aspects of investing
Authorized participants
Institutional investors, specialists, or
market- makers that have signed an
agreement with and paid fees to a particular
ETF sponsor. Becoming an authorized
participant allows institutions to carry out
direct in-kind transactions with the fund.
After purchasing a creation unit, the
authorized participant can split up and sell
the individual shares of the unit on the
open market.
Bankers’ acceptance (BA)
A commercial draft (i.e., a written instruction to make payment) drawn by a borrower for payment on a specified date. A BA is guaranteed at maturity by the borrower’s bank.
Bar chart
A type of chart that plots price on the
vertical axis and time on the horizontal axis.
The action in each period (which can be a
minute, hour, day, week, month, etc.) is
represented on a vertical bar, with the top
of the bar representing the highest price for
that period and the bottom representing the
lowest price. In most cases, the opening and
closing prices are also represented: a short
horizontal line to the left of the vertical bar
represents the opening price while a line to
the right represents the closing price.
Barbell portfolio
A debt securities portfolio invested in of
one or more bonds with short durations
combined with one or more bonds with
long durations. See also Bullet portfolio
Barrier to entry
An obstacle that prevents or a company from profitably producing a product or service. See also Absolute advantage, Product differentiation, and Economies of scale
Basic earnings per share
A company’s earnings per share based only on the weighted average number of common shares outstanding. See also Earnings per share and Fully diluted earnings per share.
Bearer bond
A type of debt security represented by an
actual certificate with detachable coupons
and a residual principal payment. Most
debt securities are now issued in a
book-based format rather than a bearer
bond format. See also Book-based format
Behavioural finance
The study of how human psychology affects
an individual’s investment decision-making
process. See also Biased expectations,
Mental accounting, Risk seeking, and
Traditional finance.
Behavioural Finance Micro (BFMI)
The study of the behavioural biases (that is,
irrational behaviours) of individual
investors. It compares irrational investors to
rational investors envisioned in classical
economic theory, known as Homo
economicus or “rational economic
individual”.
Behavioural Finance Macro
BFMA
The study of “anomalies” or irregularities
in the overall market that contradict
the efficient market hypothesis.
Behavioural question
A question that seeks to model actual client
actions in different circumstances, along
the lines of “if this happened, what would
you do?”
Benchmark creep
The upward tendency in longer run
cumulative median manager returns due to
survivorship bias.
Benchmark index
An index against which the performance of
a portfolio is measured.
Benchmark portfolio
A realistic, attainable standard used to
measure the performance of a portfolio.
Benchmark risk
The variation in portfolio returns by
holding securities outside the benchmark
universe. Any performance deviation will
not come from security selection or market
timing within the universe, but from style
shifts.
Beta
A measure of the relative or systematic risk
of a security or portfolio of securities
compared to the overall market. Security
betas are usually estimated using simple
regression analysis.
Bias
A preference or an inclination (especially
one that inhibits impartial judgement) or
an unfair act or policy stemming from
prejudice.
Biased expectations
Investors have biased expectations if they
gather and act on information in an
inefficient or biased way. Biased
expectations are a key tenet of behavioural
finance. See also Behavioural finance and
Rational expectations.
Bid-Ask Spread
The amount by which the asking price
exceeds the bid price; usually interpreted as
an indicator of the liquidity risk for an
investment.
Blind pool
An investment fund where investors are
presented with general information about
the type of securities that the pool
management intends to invest in. However,
the exact specifications of the investments
are unknown and unavailable at the time
that the investor commits funds.
Bollinger bands
Price bands that are plotted at a certain number of standard deviations above and below a moving average of prices. See also Moving average envelopes and Price bands.
Bond
A debt security secured by physical assets
Book-based format
A system in which debt securities are not
represented by physical certificates but are
maintained in computerized records. See
also Bearer bond.
Bottom-up analysis
An active approach to equity investing that
begins with a focus on individual stocks.
Investors look at the characteristics of
individual stocks and build portfolios of the
best stocks in terms of forecasted risk-return
characteristics. See also Active investment
approach and Top-down analysis.
Bought deal
A method of issuing equity or debt
securities whereby one or a group of
investment dealers takes on the liability of
buying the entire issue and then selling or
distributing it to investors. See also
Marketed deal.
Break
A term used to describe a situation where
the price crosses above or below a trendline.
See Trendline
Brownfield development
The redevelopment of an abandoned or
underused commercial or industrial
property, generally in an urban community
Bullet portfolio
A debt securities portfolio invested in one
or more bonds with roughly equal
durations. See also Barbell portfolio.
Buy-and-hold
A passive investment strategy in which a
group of securities or managed products is
purchased and then held until they are
needed to be to meet a client’s goals. See
also Passive investment strategy.
