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Investing Terms

Abbreviations, Acronyms, and other Investing Jargon

When I started on my investing journey there were a lot of acronyms, jargon, and terms that I did not understand.

As with all businesses, investing has its own dialect. This made it frustrating always having to look up definitions (this was before the internet was as prevalent as it is now). Below is a list of terms that I was not familiar with when I started. Rather than try the impossible and make this the perfect list, I am following the axiom ‘Don’t let Perfect be the enemy of Good’ and putting this list online in a ‘good enough’ state. As I encounter jargon, I will update this list. If you come across terms as you learn about investing that are not in one of the lists, or other comments on these lists, please use the Feedback section to let us know.

Thanks,

Scott

Contents

Canadian/American equivalents

Acronyms

Financial Terms and Metrics

Terms heard in the investing world

Options terms

Miscellaneous Terms

Canadian/American equivalents

One of the first challenges I found was figuring out the Canadian and American equivalents. For example, in Canada a Quarterly Report is called a Quarterly Report. Quarterly and Annual Reports come packaged with a document called Management Discussion & Analysis (MDA). In the US, a Quarterly Report is called a 10 – Q . Who knew? In any event, here are a few common Canadian and American equivalents.

Canada USA
Quarterly Reports Financial Statement 10-Q
Annual Report Annual Report 10-K
Management Discussion & Analysis MDA Part of 10-Q or 10-K
Quarterly Financial Statements Interim financial statements/report
Annual Financial Statements Audited annual financial statements
Insider ownership & compensation Management information circular DEF14A
Disclose a material event  Material change report 8-K
Initial Public Offering (IPO)  Final long form prospectus S-1, S-1A, 424B4

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Investing Acronyms

Every industry loves its acronyms, investing is no different. When you learn the mystery of the investing acronyms, you will learn to talk the talk, even if you cannot yet walk the walk.

  • 401 (k): An America only savings account, similar to Canada’s Registered Retirement Savings Plan (RRSP), but 401 (k)s are only available via employers. They cannot be opened (started) by individuals, unlike RRSPs. Please consult with an American investment professional for more information.
  • ARPU – Average Revenue Per User: also known as average revenue per unit, a sales metric often used by technology companies. It is used to express the total revenue divided by the number of users (or units, as the case may be).
  • ARR – Annual Recurring Revenue: a sales metric used by any business operating on a subscription-based model, typically software companies. It is a measure of predictable and recurring revenue within one year and provides visibility for consistent and reliable growth for cash flows.
  • AT1 bonds: a type of bond that banks issue to raise funds that have both debt and equity features. Unlike traditional bonds, AT1 bonds do not have a fixed maturity date, meaning the bank can continue to pay interest on the bond indefinitely, as long as it remains financially stable. AT1 bonds are riskier than traditional bonds because the bank can choose to defer interest payments, and the bond can be written down or converted into equity if the bank’s financial position deteriorates. On the other hand, because they are riskier, AT1 bonds typically offer higher yields than traditional bonds to compensate investors for the additional risk.
  • AUM – Assets under Management: when financial advisors or investment managers charge you a fee to manage your assets its usually a percentage of your assets under their management. The lower the percentage the better.
  • CAGR – Compound annual growth rate: the average rate of growth of an investment over a specific period, assuming the profits are reinvested every year in the original investment.
  • CAPEX – Capital Expenditures: payment for the purchase, upgrade or to extend the useful life of long term physical or fixed assets that are used in a company’s operations. These are found on the Balance Sheet.
  • CD – Certificate of Deposit: a type of account that holds your money for a set time. At the end of the period, you get your money back and interest.
  • CRA – Canada Revenue Agency: Canada’s federal tax collection agency.
  • DBNRR – Dollar-Based Net Retention Rate: used by software subscription companies to understand how more revenue from existing customers might offset revenue loss due to churn (customers leaving).
  • Death cross – When the 50-day moving average of a stock’s share price drops below the 200-day moving average of a stock’s share price. A “death cross” serves as an indication the stock’s momentum is headed downward.
  • DEI – Diversity, Equity, and Inclusion: investors look for companies that are owned or run by women or minorities. The advantage for companies that utilize DEI is they can bring to bear different views, backgrounds, and experience to build the company.
  • DJIA – Dow Jones Industrial Average: Also known as ‘the Dow,’ was first created in 1896. The DJIA is an index that is now made up of thirty of the biggest and most influential US companies. Stocks are removed and replaced in the Index regularly to reflect the US economy. The DJIA is considered one of the top indicators of the US stock market.
    Unlike the S&P 500 and NASDAQ indexes, which are market capitalization weighted, the DJIA is weighted by share price meaning companies with the highest priced stocks have the most weight. If you want to know how the DJIA determines the stock prices, please check out this link on “how does djia calculate stock price”
  • DRIP – Dividend Reinvestment Program: If a company offers a DRIP program, shareholders can use their cash dividends to purchase more stock in the company. The program is voluntary and in most cases the shares bought through a DRIP are commission free. You need to contact your direct investing broker to set up a DRIP on an entire account or on individual dividend paying companies.
  • EPS – Earnings per share: indicates how much money a company makes for each share of its stock. The EPS is found on the Income Statement. The higher this number the better. It can typically be calculated by dividing the company’s net income by the number of outstanding common shares; however, it can be more complicated than that in certain situations.
  • EFT – Electronic Funds Transfer: a digital movement of money from one bank account o another. An EFT is also known as a direct deposit.
  • ETF – Exchange Traded Funds: are an investment fund that is traded on a stock exchange. It is a bundle of different investments such as stocks, bonds, securities, and commodities that can be traded intraday.
  • ESG – Environmental, Social and Governance: in the investing world, ESG represent a strategy that pursues financial returns as well as positive environmental and social impact.
  • FAANG: a well-known investing acronym that includes a few of the most successful technology companies: Facebook, Amazon, Apple, Netflix, and Google. These highly liquid stocks generally lead the market.
    • FANAMA: a follow up to FAANG but with the addition of Microsoft and the G (for Google) was replaced with an A (for Alphabet, Google’s parent company). Facebook, Apple, Netflix, Alphabet, Microsoft, and Amazon.
    • FANGMAN: another acronym for the most successful big technology companies. The same companies that are in FANAMA with the addition of Nvidia and the A for Alphabet reverting to G for Google.
  • FDIC – Federal Deposit Insurance Corporation: an independent US government agency to maintain stability and public confidence in the American financial system.
  • FOREX – Foreign Exchange market: a global decentralized market for trading currencies and setting foreign exchange rates for every currency.
  • FRB – Federal Reserve Board: the central bank of the USA. It is responsible for the US’s monetary policy to promote effective operation of the US economy and encourage maximum employment.
  • FCF – Free Cash Flow: the amount of cash left after a company has paid its operating expenses and capital expenditures (CAPEX). The higher the better as it allows a company to expand its operations.
  • FI – Financial independence. When you have earned enough that your investments will pay for your life.
  • FIRE – Financial Independence, Retire Early: a movement that if you spend less, save more, and earn more you will develop financial independence meaning you can do what you want and retire early.
  • FOMC – The Federal Open Market Committee: a twelve-member committee that consists of the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
  • FOMO – Fear Of Missing Out: when investors buy shares in a company that has already seen its share price increase significantly because they do not want to miss the latest ‘hot’ stock. The purchase of the ‘hot’ stock is usually driven by emotion rather than adequate research and due caution.
  • GARP – growth at a reasonable price.
  • GMV – Gross Merchandise Value: also known as Gross Merchandise Volume, commonly used in the eCommerce industry to measure the total value of sales for merchandise sold over a specified period.
  • GNP – Gross National Product: the measure of the value of all goods and services produced by a country’s residents and businesses.
  • ICYMI – In Case You Missed It: when something is brought to your attention.
  • IPO – Initial Public Offering: the first sale of stock that a company makes to the public when it wants to raise capital to purchase assets, drive growth and/or to reward early investors, officers and employees who have been given ownership shares.
  • IRA – Individual Retirement Account: like a Canadian RRSP, an IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
  • IRS – Internal Revenue Agency: the USA’s national tax collection agency. Like the CRA.
  • Roth IRA – Similar to a Canadian TFSA, contributions are not tax-deductible, but the earnings may be withdrawn tax-free if IRS guidelines are met.
  • MD&A – Management’s Discussion and Analysis: a required disclosure document that provides insight to a company’s financials and management’s performance. In Canada, this document is called the MD&A and is a separate document from the quarterly and annual financial statements. In the US it is part of a company’s form 10-K annual report or form 10 – Q quarterly reports.
  • MMKT – Money Market: a special type of account offered by financial institutions for holding short term investments (up to 12 months). These investments have a fixed rate of return when held to maturity.
  • NASDAQ – National Association of Securities Dealers Automated Quotations: the world’s second largest stock and securities exchange in the world. It was the first fully computerized exchange. Many of the tech giants (for example, Microsoft, Alphabet, Amazon, and Intel) trade on NASDAQ.
  • NASDAQ – 100 Index: an index that follows the share price of the top 100 largest, nonfinancial companies, based on market capitalization, listed on NASDAQ. Companies in the index typically come from the technology sector but there are also companies from other sectors such as Healthcare and Finance. Click here for a list of the companies included in the Nasdaq 100 Index .
  • Nasdaq Composite Index: includes all of the more than 3,000 companies that trade on the Nasdaq Exchange, including the Nasdaq 100 companies. As with the Nasdaq 100, the Nasdaq Composite is market cap weighted which means the companies with the largest market capitalizations (number of shares X share price) have greater impact on the Index. On a market cap weight base, Technology is the largest sector represented, however, in terms of the number of companies in a sector, Healthcare is the largest in the Nasdaq Composite.
    Nasdaq has historically attracted more of the technology-oriented companies, big and small. For this reason, the Nasdaq is not a good representation of the entire US stock market.
    The Nasdaq Composite Index (Nasdaq) and the Nasdaq 100 Index (Nasdaq 100) are easily confused. The Nasdaq is all the stocks listed on the Nasdaq Exchange. The Nasdaq 100 is a subcategory of the Nasdaq Composite comprised of the largest 100 companies (determined by their market capitalization) on the Nasdaq Exchange. For this blog, I am referring to the Nasdaq Composite Index in the Weekly Market Review section and unless otherwise indicated.
  • NAV – Net Asset Value: typically used with mutual funds, is the value of all the assets in a fund, less the liabilities, divided by the number of outstanding shares.
  • NCIB – Normal Course Issuer Bid: a Canadian based program where a company traded on a Canadian exchange buys back its own shares in order to cancel them. Typically, a company will buy back its own shares to increase the market value per share (less shares of the same sized pie makes the remaining shares more valuable). The NCIB range from 5 – 10% of outstanding shares and must be approved by the exchanges (usually the TSX) before it can repurchase its shares. Share buy backs are considered a shareholder friendly action as it increases the shareholders percentage of earnings.
  • NRRR – Net Revenue Retention Rate: reflects a company’s ability to retain existing customers, increase their spending (land and expand) and minimize customer cancelling or downgrading their subscriptions. Total revenue is calculated as revenue from regular subscriptions plus any revenue expansion from upgrades, less any customers cancelling or reducing their spend, over a given period. Ideally this number will be higher than 100%.
  • NDA – Non-Disclosure Agreement: a binding agreement between two parties that prevents either party from revealing confidential information.
  • NYSE – New York Stock Exchange: the world’s largest stock exchange, providing a marketplace for buying and selling millions of corporate stocks and other securities daily.
  • P&L – Profit and Loss: also known as the Income Statement, is one of the three financial statements used to analyze a company’s performance and financial position. It shows the company’s ability to generate revenue and effectively manage their expenses to generate a profit.
  • P/E – the price of a company’s share X times the amount of its annual earnings per share. For example, if a company has a P/E multiple of 18, it means the price of a share of the company is 18 times the amount of its annual earnings per share.
  • PIPE – Private Investment in Public Equity: accredited investors (large investors like investment firms, mutual funds and other investors with appropriate income, net worth, and experience) buy stock directly from a public company, via private placement, usually at a discount to market price. Used to quickly raise capital for the company. These types of investments are not available to the average investor.
  • ROA – Return on assets: a measure of how efficiently the company uses the assets it owns to generate profits. ROA is equal to the Net Income divided by the company’s total assets.
  • ROCE – Return On Capital Employed: measures how effectively a company can use the capital employed in the business to generate profits.
  • ROE – Return on Equity: measures how well a company is using shareholder’s money to generate income.
  • ROI – Return on Investment: a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of several different investments.
  • ROIC – Return on Invested Capital: provides insight on how efficiently companies are allocating their capital to generate profits.
  • RONA – Return on net assets: commonly used for capital-intensive companies, it measures how well a company’s fixed assets and net working capital can generate income.
  • RRIF – Registered Retirement Income Fund: if you have one or more RRSPs, when you reach 71 you will have to either withdraw all funds from the RRSPs (and be fully taxed by the CRA) or convert your RRSPs to a RRIF, which is registered with the Canadian government. The assets in a RRIF continue to grow tax-free and amounts paid out of a RRIF are taxable on receipt. Each year there is a minimum amount you must withdraw which is taxable.
  • RRSP – Registered Retirement Savings Plan: a Canadian savings plan, registered with the Canadian government, that you can contribute to each year, up to the age of 71, to build up long term savings, usually for retirement. Contributions to your RRSP are exempt from being taxed in the year you make the contribution, and those contributions grow tax free. There is a maximum amount you can contribute each year. However, when you withdraw cash or assets you will have to pay taxes at your then current tax rate.
  • REIT – Real Estate Investment Trust: REITs (pronounced REET) provide a way for investors to gain exposure to the real estate market. It is a company that owns, operates, or finances income-producing real estate. Individual REITS focus on distinct types of real estate, including housing, office buildings, warehouses, hospitals, shopping centers and other specialties. REITS typically provide a monthly dividend so can be used as a source cash generation. There are differences between Canadian and American REITs so if you are interested in investing in REITS please consult with a financial advisor.
  • RPO – Remaining Performance Obligations: the remaining commitment to provide a “distinct” good or service to a customer.
  • SEDAR – System for Electronic Document Analysis and Retrieval: The Canadian electronic filing system for the disclosure documents of public companies and mutual funds in Canada.
  • S&P – Standard & Poor’s: A global ratings company that provides market analysis and independent credit ratings on companies. It is also responsible for the S&P 500 Index.
  • S&P 500: Originally known as the Standard and Poor’s 500, the S&P tracks approximately 500 of the largest (by market capitalization, which is share price times number of shares outstanding) US listed companies. The larger the company, the more influence it has on the movement of the Index. The companies that make up the S&P can be listed on either the New York Stock Exchange or the Nasdaq Stock Exchange. Due to the broad range of industries in the S&P index, the S&P 500 Index is the best measure of how well the stock market is performing overall. Companies are added or removed from the index based on a number of factors including market capitalization and volume of trading of their stock. The S&P 500 is often used as a benchmark against which fund managers and investors can compare their results to assess their success.
  • S&P/TSX – S&P/TSX Composite Index: Canada’s answer to the S&P 500. It replaced the TSE 300 Index in 2002. It tracks approximately 250 Canadian companies and provides a snapshot of how Canada’s biggest companies are performing. As with the S&P 500, it is a market capitalization-weighted index so the largest companies, by market cap, carry a larger weight in terms of the index.
  • SEC – Securities Exchange Commission: an independent USA federal regulatory agency charged with protecting investors and capital, maintaining fair, orderly, and efficient markets; and facilitating capital formation.
  • SPAC – Special Purpose Acquisition Company: a publicly listed shell company set up with the sole purpose of eventually acquiring another company.
  • TAM – Total Addressable Market: describes the revenue opportunity for the company’s products and services.
  • TINA – There Is No Alternative: in the investing world, when the stock market seems overvalued and bond interest rates are extremely low, many people felt there was no alternative but to invest in stocks, where stocks are the best choice of bad options.
  • TPV – Total payment volume: The total dollar value of transactions, less payment reversals, executed by a company’s payment gateway or platform. Companies that facilitate financial transactions take a tiny piece of every transaction it handles. For these companies to improve their revenues, its vital that they constantly improving total volume. PayPal and Nuvei are examples of companies that use this metric.
  • TSA – Tax-Sheltered Annuity: also known as 403 (b) plan, is a US retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.
  • TSFA – Tax Free Savings Account: for anyone 18 or older to tax shelter their money. A TFSA can hold stocks, bonds, mutual funds, and other investment assets. You do not get a tax deduction when you contribute to a TFSA, but your investments grow tax free, you do not have to pay capital gains taxes and money can be withdrawn tax-free. There is a maximum annual contribution so check with a financial planner or tax specialist before depositing cash or other investments into a TFSA.
  • TSX – Toronto Stock Exchange: the largest stock exchange in Canada, third largest in North America, and the eleventh largest int the world. The TSX lists over 1,600 companies. All transactions are in Canadian dollars. It is the only exchange in Canada for Canada’s largest companies. It is Canada’s version of the New York Stock Exchange.
  • TSXV – TSX Venture Exchange: primarily for small capitalization companies. The TSXV provides these smaller companies with access to the public venture capital marketplace.
  • WC – Working capital: the money available to the company to fund the cost of day-to-day operations and meet short term (less than 1 year) obligations.
  • YOLO – You Only Live Once: a style of trading where an investor takes an unreasonable amount of risk on trades that are likely to fail.
  • YTM – Yield To Maturity: the total expected return from a bond when it is held until maturity – including all interest, coupon payments, and premium or discount adjustments.

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Financial Terms and Metrics

Balance Sheet: One of the three financial statements, along with the Income Statement and Balance Sheet, used to analyze a company’s financial health. The Balance sheet provides a snapshot of a company’s financial position at a point in time. It consists of Assets (what it owns), Liabilities (what it owes) and Shareholders Equity (retained earnings). Assets must always equal Liabilities plus Shareholders Equity.

Basis Points: Also referred to as bps, the term is a measurement used to indicate a change in a financial rate, such as an interest rate. A basis point is equal to .01%, or 1/100th of 1%. For example, if a company improves its gross margin by 720 basis points, it is the same as saying it improved gross margin by 7.2% (720 x 0.01 = 7.2).

Capital Gains: Profit seen after the sale of an asset or investment.

Capital Gains Tax: The amount of tax owed after an asset realizes capital gains.

Cash Flow Statement: One of the three financial statements, along with the Income Statement and Balance Sheet, used to analyze a company’s financial health. The Cash Flow statement shows cash inflows from operations and external sources (Loans, investments, etc.) and cash outflows (how the cash is being used) over a given period.

Free Cash Flow: The actual amount of cash at a company’s disposal after paying its operating expenses and capital expenditures. The greater free cash flow a company has the more its able to: expand the business, pay down debt, or paying dividends to investors.

Gross profit margin: Measures a company’s ability to generate income relative to revenue. It is calculated as:

100 * (revenue from sales – the cost of goods sold) / revenue from sales

Gross Profit: Typically, this reflects revenue less cost of goods sold but in cases where there is no physical product sold it can mean revenue less cost to generate that revenue.

Growth Rate: The rate of increase, or decrease, in the value of a metric such as revenue, profit, earnings or in the value of an asset, an investment or your portfolio.

Income Statement: One of the three financial statements, along with the Balance Sheet and Cash Flow Statement, used to analyze a company’s financial health. It provides a summary of a company’s revenues, expenses, and profits/losses over a given period.

Inverted yield curve: When the return on two-year, short-term government bonds is higher than on 10-year, long-term government debt. The inversion is considered a warning sign for the markets and the economy and has forecast five of the past six downturns.

Margin account: A brokerage account that lets investors borrow money from their brokerage to buy securities, allowing them to make investments with less of their own money. As with any loan, there is interest on the amount borrowed and it must be paid off at some point. While investors can make substantial gains using margin accounts, they are also responsible for repaying the loan, even if their investments crash. Margin accounts should only be used by experienced investors.

Margins: In investing there are three margins most investors are concerned with. Gross Profit Margin, Operating Margin and Net Income Margin,

Margin Direction: are the individual margins (Gross Profit, Operating and Net Income) increasing (good) or decreasing (bad).

Net Income: Operating Income, less depreciation and amortization, interest, and taxes

Net Income margin: Net Income measured against total revenues.

Operating Leverage: the percent of a company’s fixed costs compared to their total costs to determine how well the company is using its fixed costs to create profit. If the company has s high operating leverage ratio, the company will generate additional profit from each additional sale. On the other hand, a company with low operating leverage has a greater proportion of variable costs than fixed costs and generates a smaller profit from each additional sale.

Operating income: Gross Profit, less operating expenses, such as labor, rent and utilities.

Operating Margin: Operating Income measured against the total revenue.

Principle: the initial amount of money you put into your investment.

R&D: Research and development expenses consist primarily of employee-related expenses for product development and product design, product management, contractor fees, software subscriptions, as well as corporate overhead allocations. Employee-related expenses include salaries and benefits as well as share-based payments.

Reinvestment Opportunities: when income distributions, or dividends, received from an investment are invested back into that asset instead of receiving the cash. This process can be automated by Dividend Reinvestment Programs, also known as DRIPs. This is a very good way to get the magic of compounding working for you.

Returns on Capital: measures how well a company turns capital into profits.

Revenue backlog: total revenue expected to be recognized in the future, related to performance obligations that are unfulfilled or partially filled at the end of a given period.

Revenue Quality: to what degree is revenue consistent and predictable. High quality revenue is recurring revenue both in the short term and long term from numerous customers, whereas low quality is one time revenue. Software as a Service companies are considered high quality as they receive monthly revenue from many clients and the clients annually renew their contracts.

Sales Growth: Indicates the increase in sales, or revenues, over a period of time. This should be a positive number, the higher, the better, indicating a growing demand for a company’s products or services.

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Terms heard in the investing world

Active Management: When funds or portfolio actively managed, they tend to trade more often and are monitored more closely. Of course, this higher management leads to higher fees.

Bear Market: A market where the prices of stocks have fallen more than 20% and continue to fall, lasting from a few months to a few years. Fear or uncertainty, such as the Covid-19 pandemic, by investors is the most frequent cause of a bear market.

Benchmark: The standard that investors, mutual funds, and ETFs are measured against.

Benchmark interest rate: This rate is typically set by a country’s central bank and serves as a reference point for other interest rates in that country’s economy. It is the interest rate at which banks lend money to each other overnight. The benchmark rates help governments and central banks manage the overall economy by influencing the cost of money that people and businesses borrow. This is also known as the ‘overnight’ or ‘base’ rate.

Board of Directors or “Board”: The board of directors of a company is a legal requirement and is elected by shareholders. The Board is legally bound to act in the best interest of the shareholders. The Board provides strategic governance to ensure the company is moving towards its goals, oversees management to ensure they act in the best interest of shareholders, and sets the compensation levels for the company’s executive management.

Bond: A loan to a company, government or municipality that pays back a fixed rate of return. Considered safer than stocks, but still has risk. You become a lender, hoping to get your money back, rather than an owner in a growing business, with any luck.

Bull Market: A market where the prices of stocks or a market are continually rising, usually over an extended period. No matter how high stock prices get, investors can make money because prices continue to rise. Bull markets usually appear when the overall economy is improving, or already strong and investor confidence is high.

CEO: Chief Executive Officer. Although the CEO is the person with the most authority in the company, the CEO must still report to the Board of Directors, which the CEO is a member of. The CEO is responsible for managing the company, including the strategic direction, mergers and acquisitions, increasing revenues and profitability, and in many cases, serves as the face of the company.

CFO: Chief Financial Officer. The executive officer responsible for the financial activities of the company. They are responsible for ensuring the company meets all legal and regulatory requirements. The CFO reports to the CEO.

Chips: Formally known as semiconductors or integrated circuits, are small pieces of semiconducting material, usually silicon, with millions or billions of microscopic transistors carved into each one. They are used in vehicles, jets, smartphones, ‘smart’ devices, medical devices, computers. Some form of chip can be found in almost any new product.

Common Shares: Typically, a public corporation has two types of shares, common and preferred. The common shares, also known as common stock, are bought and sold on the various stock markets; usually entitle the shareholders to one vote per share at shareholders meetings; they may provide a dividend. If a company goes bankrupt, common shareholders are usually the last to share in any assets.

Company Culture: What its like to work at a company. The work environment, both physical, mentally, and emotionally; the leadership style; and are current employees proud to work for the company. Typically, the better the company culture, the easier it is to attract and retain top talent and the better the talent the better the company will perform.

Consumer Price Index: Commonly referred to as CPI, it consists of a collection goods and services  commonly purchased by urban consumers. It is used to track the change in a country’s cost of living. It is also used by analysts to measure the rate of inflation. Canada and the USA each have their CPI, but it the American CPI that is most commonly referenced due to the US being the world’s largest economy.

Contribution: An amount of money you deposit into an account that adds to a larger amount.

Core CPI: The Consumer Price Index (CPI) without the volatile food and energy components. Policymakers will look at these numbers because the CPI can provide misleading information thanks to the volatility of food and energy prices.

Current Valuation: Provides investors an approximate value of a company, or an asset based on which it could be sold or bought in the near future.

Dead cat bounce: A colloquial investing term that refers to a temporary and short-lived recovery in the price of a declining investment, followed by a subsequent decline. These ‘bounces’ can occur for various reasons, such as market sentiment, or short covering by traders. They can be challenging to predict and can trap new investors who interpret the temporary bounce as a sign of a genuine recovery, leading them to make investment decisions based on false signals.

Distribution: When a company makes money, it can either reinvest the profit in itself (as most growth companies do) and/or return a portion of cash to its shareholders (as more mature companies do). The return of cash or stock by the company is known as a distribution.

Dividend: Some companies share their profits with their shareholders in the form of a regular or special cash payment.

Dividend Aristocrat: A company that has increased its dividends for at least 25 years.

Dividend King: A company that has increased their dividend for 50+ years.

Diversification: A wide mix of investments to reduce risk because some investments will do better at certain times when others do not.

Dollar cost averaging: Regularly purchasing the same dollar amount of an equity each month, such as mutual funds or stocks. When the fund price is high, you will receive less units, when the fund price is low, you will receive more units. This helps to even out the purchases over time and removes the challenge of deciding when to invest.

FatFIRE: People who want to live an extravagant life when they retire, such as flying first class, having expensive cars, staying at luxury hotels, having the finer things in life.

Fiduciary: A financial advisor or company required to act in your best interests.

“Generals”: The mega cap companies that make up a major portion of the S&P 500 Index and the Nasdaq Index. The “generals” can almost singlehandedly move the Indexes up or down. When the stock market is falling, the “generals” tend to hold up much better than other smaller stocks and are typically the last stocks to fall. A common term heard in declining markets, such as in 2022, is a market can not form a bottom until it “shoots” the generals. The “generals” include the Apple, Microsoft, Amazon, Alphabet (Google) and Meta (Facebook).

Globally systemic banks: Also known as global systemically important banks (G-SIBs), are banks that are critical to the global financial system due to their size, interconnectedness, complexity, and potential impact on the economy if they were to fail.

Goldilocks scenario: an ideal economic condition when the economy is not too hot (overheating with high inflation) and not too cold (stagnant or in a recession) but instead, it is just right, experiencing moderate and balanced growth with stable inflation.

Greater Fool Theory: Investors get swept up in market momentum without stopping to think about what they are buying, assuming there is a greater fool out there who will take the investment off them before prices come crashing down. Its OK to be a Fool, but do not be the greater fool. Do not buy into an investment just because everyone else is doing so. Do your own research, and think hard about what that investment’s worth, as opposed to the price tag the market has attached to it. Think housing bubble in the late aughts.

Independent Directors: A member of the Board of Directors who is not part of the company’s executive management nor involved in the daily operations of the company. They do not have a material relationship with the company in order to provide unbiased decisions.

Inside Ownership: Shares of a company held by founders, senior executives (officers), directors, or any investor holding more than 5% of the outstanding shares. This includes family members and relatives, associated entities, and trusts.

Investing Rule of 20: when a new bull market starts in the US, the trailing price to earnings (PE) ratio of the S&P 500 plus the inflation rate will equal a number less than 20. The rule has a perfect record as the US market has never hit a sustainable bottom when the inflation rate and P/E ratio are greater than 20.

Land-and-Expand: A sales strategy defined by obtaining clients through the sale of a limited product set, and then selling them additional products over time, thereby providing them with more value and increasing their revenue contribution to the Company.

LeanFIRE: People who want to live a ‘lean’ life, often on $30,000 – $40,000 per year.

Liquidity: Liquid assets and investments are those you can quickly convert to available cash such as savings accounts and most stocks. The more liquid an investment, the faster it can be sold for fair value or current market value. If you will be needing cash in the short term you will want your investments to be highly liquid and as safe as possible.

Market Cap: Also known as market capitalization, is the total value of all a company’s shares (total outstanding shares X share price). Depending on a company’s market capitalization, they can be described as belonging to one of five market caps:

  1. Micro Cap: a company’s total market value ranges from $50 million to $300 million.
  2. Small cap: a company’s total market value ranges from $300 million to $2 billion.
  3. Mid cap: a company’s total market value ranges from $2 billion to $10 billion.
  4. Large cap: a company’s total market value ranges from $10 billion to $200 billion.
  5. Mega cap: a company’s total market value is greater than $200 billion.

Mission Statement: Typically, single sentence that defines the fundamental purpose of the business and why the company exists. A good mission statement should be short, simple, inspiring, and easy to find on the company’s website.

Moat: In a business sense, a moat is an economic advantage a company maintains to protect its long-term profits and market share from competing firms. Different types of economic modes include: network effects (the value of the product or services grow the more people that use it); high switching costs (too expensive or troublesome to stop using a company’s products); cost advantage (a structural cost advantage that undercuts competitors on price); or an intangible advantage (e.g. patents, brand recognition, regulatory licenses, visionary leadership).

Oligopoly: markets dominated by a small number of companies. They are found in many countries and in various industries. Sometimes oligopoly markets are competitive, sometimes not so much. Many countries have government authorities to watch over companies in oligopolies to ensure they act in the consumers best interests rather than their own.

Optionality: When a company can generate revenue from many sources. The more options available to a company to generate revenue, the greater its chances of success.

Passive Income: Income that requires little to none of your time. Collecting dividends are a good example.

Passive Management: Funds or portfolios that do less trading and require less monitoring and therefore less management. This type of fund is typically designed to mirror a market segment or index.

Personal Consumption Expenditures (PCE) price index: A measure of the prices paid by households for the goods and services they purchase, including food, housing, medical care, and transportation. It is considered a more comprehensive measure of inflation than other measures, such as the CPI, because it takes into account changes in consumer spending patterns and adjusts for quality changes in goods and services over time. The PCE is the Fed’s favourite gauge of underlying inflation and a key data point for deciding the rate of the US benchmark interest rate.

Preferred Shares: Typically, a public corporation has two types of shares, common and preferred. Like common shares, preferred shares represent ownership in a company. They can appreciate plus they pay a fixed dividend, with a yield higher than the dividend of Common shares. Unlike Common shares, they do not have voting rights. In the event the company goes bankrupt, preferred shareholders have a greater claim on corporate assets than common shareholders.

Portfolio: In the investing sense, a collection of investments, including stocks, bonds, mutual funds, real estate, art, and cash. A portfolio can include many types of assets or concentrated in one particular type of asset.

Pricing Power: A company has pricing power when it can increase the price of its product or services without decreasing sales. The ability to increase prices in response to higher costs is key to the ongoing success of a company.

Primary market: Where securities are created and issued (sold) to the public for the first time.

Producer Price Index: Also known by it acronym PPI, it measures the average change over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. As with the Consumer Price Index, Canada and the USA each have their PPI, however, it the American PPI that is most commonly referenced.

Rate of Return: The amount an investment has changed in value over a period of time, expressed as a percentage of your original investment.

RE: Retire Early. Aimed at those under 50, who plan to retire in their 30’s or 40’s.

Registered account: An investing account registered with the Canadian government (or US government for US based accounts) that helps minimize the taxes you pay either when you deposit money in the account or when you withdraw money. Examples in Canada include RRSP, RIF, and TFSA accounts.

Risk: The chance you might lose some or all the money you have invested. Generally, the higher the potential rate of return, the higher the level of risk.

Risk tolerance: One’s comfort with risk depends on one’s willingness to accept fluctuations in the value of their investments, and their ability to endure any potential for monetary loss.

Risk-off: when global economic conditions are uncertain or negative, investors become risk averse and tend to flee riskier assets for safer assets. Investors were risk-off in 2022.

Risk-on: when the global economic conditions look good, investors are said to be risk-on because they are willing to take on more risk in order to maximize their returns. Investors were risk-on in 2021.

Rule of 72: A quick and simple rule to help estimate how many years it will take for an investment to double in value. To determine how many years until your investment doubles in value, divide 72 by the compound annual interest rate (or desired growth rate).

Number of years to double investment = 72 / annual interest rate

S&P fund: An index or mutual fund that tries to match the performance of the S&P 500 Index. The S&P 500 is a collection of the 500 largest publicly traded US companies, based on their market capitalization.

Secondary market: Where securities are traded after their original sale on the primary market. Assets are bought and sold among all types of investors (institutional and private investors).

Security: Any type of financial instrument that can be traded and holds some type of monetary value, including shares in stocks and bonds.

Short a Stock: There is significant risk to ‘shorting a stock’ if you do not know what you are doing so it should only be used by experienced and knowledgeable investors. If you believe the price of a stock is going to go down, you can ‘borrow’ shares of a stock and sell them and then buying them back once the share price has gone down to return the ‘borrowed’ shares and make a profit. The risk is the share price will go up rather than down and you will have to buy the shares at a higher price than you sold them. And because there is no limit to how high a stock’s share price can there is no limit to how much you could lose.

Stock exchanges: Regulated marketplaces for buying and selling stocks, bonds, and other financial instruments. There are three major North American exchanges – Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE)) and the Nasdaq (Nasdaq).A stock exchange can be a physical location such as the TSX or NYSE or electronic exchange like Nasdaq.

Stock market: Refers to public markets where publicly owned companies list their stock on a public platform so investors can buy and sell shares in those companies. It includes both primary and secondary markets and is also a combination of OTC (Over The Counter) trading, electronic trading, and stock exchanges.

Stock Performance: The gain or loss on share price, plus dividends if applicable, over a period of time. A stock is considered performing well when the share price is rising and poor performing when the share price is falling. A stocks performance is different from the performance of the underlying company and is not necessarily tied to the performance of the company. A company can be performing well but the stock price falls on events outside its control, such as a war or an overall negative market environment.

Taxable account: An investment account that does not have any tax advantages, so you have paid taxes on any money you transfer into the account and when you sell any assets in the account (usually in the form of capital gains tax)

Ticker symbol: Also known simply as ‘ticker.’ A combination of one to five letters that represent a publicly traded company on a stock exchange. A ticker is unique to a company that trades in each country. For example, in Canada the ticker ‘T’ represents Telus Corporation on the TSX. In the US markets, the ticker ‘T’ represents AT&T Inc on the NYSE.

Total market fund: A passive (little buying or selling activity) index or mutual fund that tracks the performance of the US stock market by investing in over 2000 US stocks. A total market fund typically tracks an index that includes between 3,000 and 5,000 companies, ranging from small to large US companies (based on their market capitalization). For example, the Russell 3000 Index measures the performance of the 3,000 largest publicly traded US based companies (based on their market capitalization), or the Wilshire 5000 Index that measures the performance of almost entire US stock market.

Tracking Stock: A type of stock that is designed to track or mirror the performance of a particular business unit or operating division of a larger company. Unlike traditional common stocks, which represent ownership in the entire company, tracking stocks are often created to reflect the financial performance of a specific segment or business unit within a company. The value of a tracking stock is determined by the performance of the underlying business unit or division it is designed to track, rather than the performance of the entire parent company. This means that investors can gain exposure to a particular business unit or division without having to own shares in the parent company.

Unicorn: The nickname for a private start-up valued at more than $1 billion.

The Volatility Index (VIX): Created by the Chicago Board Options Exchange, it is also referred to as the ‘fear gauge.’ The VIX is often used as a gauge of market sentiment, with higher readings indicating greater levels of fear and uncertainty, and lower readings indicating greater levels of confidence and optimism. As such, it can be a useful tool for investors in assessing the overall risk level of the market and making informed investment decisions. It indicates the markets relative expectations of volatility for the next 30 days by analyzing the prices of options contracts on the S&P 500 index, which are essentially bets on whether the market will go up or down. The higher the number the more fear of a potential market crash. For example, a VIX reading of 10 – 15 indicates low volatility, 20 – 30 indicates mild concern, 30 – 40 indicates fear of a sharp and substantial market fall, and anything over 40 signals a near panic in the markets.

For example, when investors are optimistic and confident about the market’s future performance, they are less likely to purchase options to protect themselves against potential losses. This results in lower option prices, which in turn leads to a lower VIX reading. On the other hand, when investors are uncertain or fearful about the market’s future, they are more likely to buy options to protect themselves, driving up option prices and causing the VIX to rise.

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Options Trading Terms

When trading options, do not be blinded by money you could make and forget about the money you could lose.

ATM – At the Money: Call options are At the Money when the underlying stock price is equal to the agreed price (strike price) of the option.

Calls

  • Buy a call: the option to Buy shares at an agreed price (strike price) any time up to the agreed date (strike date).
  • Call Option: Gives the buyer the right, but not the obligation, to buy the underlying stock at an agreed upon until the expiry date of the option.
  • Sell a covered call: the obligation to Sell shares you own at an agreed price (strike price) any time up to the agreed date (strike date)
  • Sell a naked call: the obligation to Sell shares you don’t own at an agreed price (strike price) any time up to the agreed date (strike date). Very risky with tremendous downside.

Exercise: The owner of the option (buyer) executes the right to purchase the underlying stock for the agreed price. The seller of the option must deliver the underlying shares to the owner of the option, and in return receives a cash amount equal to the strike price multiplied by the number of call options exercised.

ITM – In the Money: Call options are In the Money when the underlying stock price is greater than the strike price of the option.

OTM – In the Money: A call option is In the Money when the underlying stock price is less than the strike price of the option.

Premium: The amount paid by the buyer of the option, to the seller of the option.

Puts

  • Put option: Provides the owner of the Put option the option, but not an obligation, to sell the underlying security at the agreed price any time up to expiration date (strike date).
  • Buy a Put: the option to Sell shares at an agreed price (strike price) any time up to the agreed date (strike date)
  • Sell a Put: the obligation to Buy shares you own at an agreed price (strike price) any time up to the agreed date (strike date)

Strike Date: the date upon which the Option expires, and the Option may be exercised. Every Option has a Strike Date.

Strike Price: The price at which the underlying stock can be purchased before the option’s maturity date. At maturity, the call option will have value to the buyer if the underlying stock price is greater than the strike price, or if the stock price is less than the strike price, the option will expire worthless.

Time Decay – The process by which the option loses a portion or all of its value as the option approaches maturity. The time value of an option is determined by the time to expiry, the underlying share price, strike price, underlying volatility, and is associated with the potential of the option to increase its value prior to expiry. Time Decay is earned by the option seller.

Volatility – A measure of the variability/risk of the underlying stock. Higher volatility stocks will imply higher option prices, and lower volatility stocks imply lower option prices. For the option seller, higher volatility means that equivalent premiums can be earned by selling options that are further out of the money (OTM). Lower volatility will result in selling options less OTM in order to earn an equivalent amount of premium.

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Miscellaneous Terms

AI: Artificial Intelligence is systems or machines that uses data to imitate human intelligence to solve problems.

APM: Asset Performance Management, references a type of software that helps to improve the reliability and availability of physical assets using techniques such as condition monitoring and predictive maintenance.

ASP: Average Selling Price.

Boepd: barrels of oil equivalent (“boe”) per day

Bopd: barrels of oil and/or natural gas liquids (condensate) per day

Decision Analytics Solutions: Software using artificial intelligence to make decisions in real work, dynamic environments.

Director: A person who serves on the Board of Directors. They can be employees of the company or completely independent of the company. Together, the Directors form the Board of Directors.

EAM: Enterprise Asset Management, references a type of software including asset register, work order
management, inventory and procurement functions in an integrated business software package.

Enterprise AI: Artificial intelligence software solutions deployed across the whole enterprise.

ERP: Enterprise Resource Planning, references software that helps manage a wide variety of day-to-day
operational tasks for a range of industries and business types. ERP can provide solutions for accounting, human resources, manufacturing and distribution, materials management, sales, supply chain, and customer service.

GIS: Geographic Information Systems, a type of software that helps store, retrieve, manage, display, and analyze geographic and spatial data, allowing users to produce maps and other displays of geographic information for analysis and presentation.

IoT – Internet of Things: Connected devices that utilize sensors and software to collect and share data over the Internet with other devices and systems.

IIOT – Industrial internet of things: A subset of the Internet of Things that focuses on connected devices in the industrial sector.

IT: Information Technology refers to the use of any computers, storage, networking, and other physical
devices, infrastructure, and processes to create, process, store, secure and exchange all forms of electronic data.

KPI: Key Performance Indicator. KPIs provide objectives for teams to aim for, can be used to measure progress towards those important business objectives, and help decision makers make better decisions. High level KPIs measure the overall performance of the company while low level KPIs drill down and measure the performance of teams and smaller business units.

ML: Machine Learning. A subfield of Artificial Intelligence where the focus is on teaching computers to ‘learn’ from experience based on processing massive amounts of data with computer algorithms.

NGLs: natural gas liquids.

NPS: Net Promoter Score, a widely used market research metric that typically takes the form of a single survey question asking respondents to rate the likelihood that they would recommend a company, product, or a service to a friend or colleague.

PPM: project Portfolio Management, references software which provides visibility, oversight, and tools to help companies prioritize and manage current projects and resources, as well as future needs and demands.

Recurring Revenue: revenue from clients that recurs in accordance with an existing contract. Includes
revenue from SaaS, Maintenance, and Hosting.

SaaS: Software as a Service.

SDG: Sustainable Development Goals.

SEO/SEM: Search Engine Optimization / Search Engine Marketing.

SMEs: Subject Matter Experts.

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