Investment Lingo Flashcards
ASAs
Advanced Subscription Agreement (typically convertible into equity)
SAFEs
Simple agreements for future equity (typically convertible into equity)
What analysis helped establish portfolio theory?
Mean-variance analysis, developed 50 years ago, established the value of diversification for reducing risk.
Most institutions and charitable groups seek long-term operations, so their goal is . . .?
Assuming risks that minimize impacts to the long-term viability of their portfolio or the world.
What is the “Equity Premium Puzzle?”
Inability to adequately explain the premiums delivered by a well-diversified equity portfolio over the long term, which can range from .3 to 19%, depending upon time period.
List several of the types of sectors in the market?
Consumer Staples Consumer Discretionary Financials Energy Health Care Industrial Information Tech Materials Telco Utilities Real Estate
What are the potential risks in a portfolio?
Liquidity Sector Industry Market Cap Geographic Region Factors themselves
What are “factors?”
Factors are ways (heuristics) that some investors compare company and stock performance. They use in-depth analysis and collect data to develop their factors, which include things like:
1) Value (comparing P/E, P/S (Sales), Price to Cash Flow)
2) Momentum (growth of returns over 3 months, 6 months, etc.)
3) Earnings Growth (ROIC, EPS, etc.)
4) Financial Strength (Amount of debt, change in debt)
5) Earnings Quality (Depreciation, Capital Expenditures, Operating Assets, etc.)
6) Shareholder Yield (Buybacks, Dividends, etc.)
What are factors used for?
To avoid companies with bad indicators and to select companies with good indicators.
How do you build a portfolio?
Choices of stock selection (what to own) and portfolio construction (how much of each, aka weighting).
