Business II Flashcards
Sell off
The rapid selling of securities, such as stocks, bonds and commodities.
The increase in supply leads to a decline in the value of the security.
A sell off means people are “bearish” on a security (disillusioned with it). This is the “distribution” phase, as all the shares of the security bought up in the “accumulation” phase are flooded (“distributed”) back into the market.
As the shares become more and more abundant, the security share price loses it’s worth, because there is so much of it (it is no longer a rare commodity).
A stock can suddenly drop in price because someone sold (dumped) 100,00 shares. Suddenly, there is an influx of product. It becomes a cheap commodity because it’s so abundant.
Sell offs can occur for many reasons (example: if a company issues a disappointing earnings report, it can spark a sell off of that company’s stock).
Rally
When a stock hits “accumulation” mode.
Investors become bullish (excited) about a certain security and rapidly start buying up (“accumulating”) all the shares.
This action drives up the stock price because, as people buy up all the available shares (there is a finite amount) the shares become more and more scarce.
There is always someone selling the shares being bought. So, if there are only 5 shares left, and there are 5,000 people looking to buy, the price will go through the roof, because those people buying are all competing and willing to pay more than each other.
And, like baseball cards where two exist, the more scarce they are, the more they are worth (share price goes up).
What type of oil is in highest demand?
Why?
Light/sweet crude.
It contains fewer impurities (sweet) so it takes less time for refineries to process into fuel.
What type of oil is becoming harder to obtain?
What is the result?
Light/sweet crude.
It is highly sought after as it can be extracted easily using vertical drilling.
As the supply dwindles, the price climbs and companies focus on extracting more unconventional, sour oil by fracking and directional drilling.
What type of oil is widely available?
Heavy/sour crude.
As oil gets thicker, or “heavier”, it contains more impurities and requires more processing to refine into fuel.
The price is lower as it takes a higher capital investment to process lower-quality oil.
This investment is possible since refiners can purchase poorer-quality crude at a lower price so they can get their return on investment.
How does a change in interest rate affect bond value?
If you are getting a 10% return on a $100 bond and interest rates rise, you will getting the same dividend payments (it’s a fixed return so it won’t change) but now if someone else invests $100, because of the rise, they may get a 20% return. Suddenly, your bond is worth less (because you could go out and invest the same amount of money and get a better return).
On the flip side, if interest rates fall, your 10% return suddenly is worth more because everyone else will only get a 5% return (so you can sell your bond for a profit because it has risen in value).
Unfortunately, if this happens and suddenly you are making a huge profit the issuer of the bond has the right to call away the bond.
Only treasuries are uncall able.
Why is the Federal Reserve trying to raise interest rates right now if the economy is not doing amazingly good?
Because interest rates are very low right now and the one necessary thing the Fed has to do during a recession is to lower interest rates to offer loans to people at cheap rates to increase liquidity.
They are trying to prepare for the inevitable recession (they are a fact of life). And interest rates are so low right now that if we had a recession there would be no place to lower them to.
What is the current US national debt?
Around 18 trillion dollars.
GAAP
“Generally accepted accounting principles”
The common set of accounting standards and procedures that companies use to compile their financial statement.
Revenue
a.k.a. REVs
The total amount (gross amount) a company receives during a certain period, from which deductions are made to determine net income.
Gross
a.k.a. (gross profit, gross margin, sales profit, gross income)
Total revenue (total sales) minus the cost of goods sold. Gross profit is the profit a company makes after deducting the cost associated with making and selling its products.
Collusion
An illegal, non-competitive agreement between business rivals in an attempt to upset market equilibrium.
They may collectively restrict the supply or raise the price (all in an attempt to control the market and make more money).
Stock traders who share tips are also engaging in collusion.
YOY
Year Over Year
A method of evaluating two or more measured events to compare the results at one time period with those from another time period on an annualized basis.
(Any measurable events that recur annually can be compared on a year over year basis - from annual performance to quarterly performance to daily performance).
A business may report that it’s revenues have increased for the third quarter on a year over year basis for the last 3 years. (this means that revenues at that company in the third quarter of year three were higher than revenues in the third quarter in year two, which were higher than revenues in the third quarter of year one).
Underwriting
In investment banking it is the process by which investment banks represent corporate and govt entities in the initial public offering of their stock.
The investment bankers have the task of selling the stock to the public. They guarantee that they will sell the shares to the public for no less than a specific minimum price.
If the investment bankers can’t sell them for that price they suffer a loss, but if they can sell them for more, they make a profit.
Remuneration
Payment for services or employment.
