Glossary

Learn & be a stock guru...

The financial world has developed a special investment-oriented language to help describe the stock market, investments, securities for the stock market, stock market analysis, and its conditions. At times you may be confronted with a term which is totally alien or has a completely different meaning from what you thought. Misunderstanding these terms can sometimes lead to the wrong conclusion, and that can cost you money!

What you don't know can hurt you.

Warrant

A security that allows the owner to buy a predetermined number of shares of a stock -- generally at a higher price -- at some point in the future. For example, you might buy a warrant that gives you the right to purchase 10 shares of XYZ stock at Rs.50 per share at any time before Jan 1, 2004. Warrants are generally offered in tandem with a fixed-income security to provide additional incentive to the buyer.

Whipsaw

An investment where the price goes the opposite direction from that which was anticipated right after the transaction is made. For example, an investment is made based on a buy signal generated by a technical indicator such as the 200-day moving average and then shortly thereafter, the price moves in the opposite direction giving a sell signal, frequently with a loss. Whipsaws can substantially increase your commissions for stocks and the fund manager may prohibit excessive mutual fund switching.

Will

A legal document in which you state where you want your legal assets to go after your death.

Working Capital

Current assets minus current liabilities. A firm's working capital is the money it has available to meet current obligations (those due in less than a year). A firm with a great deal of working capital is in little danger of failing in the near future, but enormous working capital over a prolonged period could also imply excessively conservative management. Working capital, after all, is short-term in nature and hasn't been put to work in the company's profit-making business operations. As with most measures of corporate well-being, this one varies by industry and even by season.

Wrap Account

An investment account in which the investor receives brokerage and other investment services for a single, predetermined price -- usually a percentage of assets ranging from 1 percent to 3 percent. Wrap accounts have gained popularity in recent years, in part because many investors got tired of putting their money into funds that ""nickel-and-dimed"" them with smaller fees.

A wrap fee can also remove the temptation for a broker to repeatedly buy and sell (churn) for the sole purpose of generating commissions.

Write-down

Firms are said to write down an asset when they recognize, for accounting purposes, that it has less value than previously thought. Inventory write-downs are classic examples; for awhile, purveyors of bell-bottoms probably felt the need to take significant write-downs, although they might have had the chance to book significant profits if they held on long enough. Note that a write-off is an extreme example of a write-down; a write-off reduces the asset's value to zero. Both write-downs and write-offs reduce net income when taken.