Fed Put

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This glossary was created both from and for the perspective of someone living in the United States.
Under the most ideal conditions this glossary could be one small ingredient that helps you grow rich very slowly.
If your believe that you can grow your assets very quickly through either investing or speculation, I hope that resources such as the web pages and YouTube videos that I have provided can guide you towards more realistic goals.
However real people's needs may be, having unrealistic goals of growing their money makes people highly susceptible to all manner of puffery and outright scams.

Example

Format:
Term ( common abbreviation if applicable )
Definition

403b
A defined contribution plan for a non-profit organization.

401k
A defined contribution plan for a for profit company.

Alternative Investments
Stocks and bonds are traditional investments.
Investments other than stocks and bonds are alternative investments.

Balance Sheet
Statement of a firm's assets and liabilities as of a moment in time.

Big Bath
Once management sees that previously expected earnings will be missed, management may choose to lump in other expenses that may otherwise have been taken later.
The above statement is not intended to say that the action is or is not proper but rather that it may happen.

Book Value
Value of an individual asset or the net of assets and liabilities for the entire firm, according to the firm's accounting statements.

Bond
Debt.
A corporate bond is a bond issued by a corporation.
A municipal bond is a bond issued by a municipality, county, or state, despite the fact that the term "municipal bond" contains the specific word "municipal".
Typically, interest on a bond is paid semi-annually, with the principal repaid when the bond matures.

California Public Employees' Retirement System ( CalPERS )
Agency that manages pensions for the California public sector.
Due to its size, CalPERS can have impact on the overall market.
An ongoing challenge for CalPERS is to what degree it is guided by its definition of socially responsible investing versus managing for maximum total return.

Cloud Washing
For the last several years "the cloud" has been a hot term to such an extent that an episode of Family Guy referenced it.
As a result, management of publicly held companies may feel compelled to classify revenue as being "cloud revenue" with the intent of increasing the firm's stock price and thus their compensation.

Conglomerate
A corporation that has complete ownership or a controlling in interest in different business units.
Twenty years and further back, General Electric would have been an example of a successful conglomerate.
An earlier version of this glossary referred to General Electric as an example of an unsuccessful conglomerate.
Since then, General Electric has moved towards being less of a conglomerate.

Conglomerate Discount
Just as with clothing, themes in corporate finance go in and out of fashion.
Conglomerates are currently out of fashion.
As such, the market capitalization of a publicly traded company that owns several disparate subsidiaries may be less than the sum of the market capitalizations of those companies if they traded separately.

Cookie Jar Accounting
While it may be easy to understand that a firm's management may decide to overstate earnings to maximize its compensation, it may be less obvious that management may also understate income in order to maximize its compensation.
All other factors held constant, the market capitalization of a firm whose earnings are linear may be greater than a firm whose earning's vary widely quarter to quarter, even if the total earnings over a year are the same for both firms.
Recognizing this, the management of a firm may use or exceed its discretion under GAAP to use reserves in order to smooth income.

Defined Benefit Plan
A traditional pension.
After some specified period of employment a benefit is paid according to a formula.

Defined Contribution Plan
401k's and 403b's are example of defined contribution.
An employee and/or an employer make contributions to the employee's account.
The contributions are placed in investments that the employee chooses from those made available by the employer.

Disambiguate
Ability to distinguish between things, especially those having similar content or similar names.
Without further context, ISS could stand for the International Space Station.
Narrowing our scope to corporate finance, ISS would likely mean institutional shareholder services.
However, even within the field of finance, the abbreviation PE could mean private equity, or it could mean price earnings ratio.

Dow Jones Industrial Average ( DJIA or "The Dow" )
Price weighted equity index of 30 companies.
While referring to this index as simply "The Dow" is very common, the Dow Jones Transportation Average is actually older.

Dow Jones Transportation Average ( DJTA )
Price weighted average index of 20 companies in the transportation sector.

Drake Equation
if you are interested in astronomy or science fiction, you might have encountered the Drake Equation.
The Drake equation was created by Frank Drake as a talking point for estimating the number of intelligent civilizations on planets other than Earth.
Regardless of whether your profession or hobbies involve astronomy or science fiction, I would like your take away from this entry to be that for financial models people can disagree both on the values of variables and the equations to be used.
I assembled the snippet below from the Wikipedia entry for the Drake Equation:
The number of civilizations in the Milky Way galaxy with which communication might be possible =
( the average rate of star formation in our Galaxy ) *
( the fraction of those stars that have planets ) *
( the average number of planets that can potentially support life per star that has planets ) *
( the fraction of planets that could support life that actually develop life at some point ) *
( the fraction of planets with life that actually go on to develop intelligent life (civilizations) ) *
( the fraction of civilizations that develop a technology that releases detectable signs of their existence into space ) *
( the length of time for which such civilizations release detectable signals into space )

Dow Jones Transportation Average ( DJTA )
Price weighted average index of 20 companies in the transportation sector.

Earnings
A firm's profit over a period of time.

Earnings Before Interest, Taxes, Depreciation, and Amortization ( EBITDA )
Usually, referred to by the abbreviation: EBITDA.
While yes EBITDA is much shorter than "Earnings Before Interest, Taxes, Depreciation, and Amortization" it is less scary sounding as well.
Consider your own yearly income.
I would certainly like to imagine a world where I personally were not liable for taxes and interest.

Enterprise Value
The sum of a firm's market capitalization plus its debt obligations.

Equity
The equity holders own the company.
The ownership of a given company may be privately held or publicly traded.

Exchange Traded Fund ( ETF )
Unlike a traditional mutual fund, instead of buying and selling at the fund's end of day pricing, an exchange traded fund is bought and sold on an exchange like a stock.

Fed Put
The Fed Put is the premise that the Federal Reserve will step in to rescue the economy.... and by economy I mean financial markets.... so very definitely a bias in favor towards serving Wall Street not Main Street.

Fixed Income
Debt.

Generally Accepted Accounting Principles ( GAAP )
Standards put forth by the Financial Accounting Standards Board for financial statements.
In theory, the role of the executive leadership of a publicly held company is to manage the firm on behalf of its shareholders.
In reality, the role of executive leadership is to exercise the discretion allowed in generally accepted accounting principles to maximize its own compensation.
If the discretion allowed in generally accepted accounting principles proves to be inadequate to paint the picture that management wishes to paint, then management may resort to alternative measures such as "earnings before interest taxes and depreciation".

Global
The whole world, including the United States.
An investment product whose mandate is to invest globally can invest anywhere on the planet, provided that any other requirements are met.

Greenmail
An oldie but a goodie.
Company management agrees to have the company purchase a block of shares so that the owners of those shares will allow management to enjoy their perks of office undisturbed.

Hedge Fund
Hedge funds generally charge 2% of assets under management and 20% of the profits.
As if that is not sweet enough, the carried interest "loophole" in the tax code means that profits are taxed as the capital gains rate not ordinary income.

Income Statement
Earnings over a specific period of time.

Initial Public Offering ( IPO )
The traditional path by which private companies became public companies.

International
The world other than the United States.

Leveraged Buyout ( LBO )
Issuing debt to buy a company.
Bain Capital is by no means involved with every leveraged buyout but it certainly has been involved with some of the highest profile LBO's.
Toys R Us is one leveraged buyout that Bain Capital was involved with that people may be familiar with.
Debt was issued to buy the public shares.
Toys R Us was unable to pay its debt from the buyout as it came due, leading to the liquidation of the company.
iHeartMedia is another Bain Capital related leveraged buyout.
Back when the iHeartMedia was called Clear Channel Communications, debt was used to purchase the publicly traded shares.
The company was unable to meet its debt obligations.
The company has changed its name from Clear Channel Communications to iHeartMedia.
Unlike Toys R Us, iHeartMedia continued to operate as a business before, during, and after its bankruptcy.

Market Capitalization ( Market Cap )
Number of shares times price per share.
Does that that the entire firm could be purchased for that value?
Not exactly.

Mosaic Theory
Using available material public information and available non-material private information to value a security.

Mutual Fund
A mutual fund might be one of: open-end, closed-end, or an exchange traded fund.
An open end mutual fund is bought and sold at end of day pricing.
Shares in an open fund are created and dissolved as shares are bought and sold.
A closed-end fund is bought and sold on an exchange just like any of the companies that trade on a stock exchange.
An exchange traded fund has attributes of both an open-end fund and a closed-end fund.
An exchange traded fund is bought and sold on an exchange like a closed end fund, but there is a mechanism for shares to be created and dissolved.
Because shares can be created and dissolved, the trading price and the net asset value will usually be close or extremely close.

Net Asset Value ( NAV )
A mutual will usually hold liquid securities such as stocks and bonds.
The value of those assets is used to determine the net asset value of a mutual fund or other investment vehicle.
As is often the case, there is a catch.
If the assets are illiquid determining the pricing of the assets can be difficult.
Almost every day I come across something new reading the financial new.
For example, while the public shareholders of Twitter were bought out by Elon Musk there are other shareholders who were not.
I recently read news of Fidelity Investments lowering the value of its Twitter holdings.

Net Present Value
The value today of a stream of cash inflows and outflows.

Other People's Money ( OPM )
If this were a blog about the Federal Government, OPM would likely stand for the US Office of Personnel Management.
While government does have impact on the corporate finance, this blog is not specifically about government.
Other People's Money is the most reliable way to make money in the financial markets.
A financial firm can launch a mutual fund, the have the fund pay itself management fees over the life of the fund.
Better yet, a financial firm can launch a hedge fund and pay itself much higher management fees over the life of that fund.

Payout Ratio
Dividend per share divided by earnings per share.
All other factors held constant, lower is better than higher.
Plot twist: never assume all other factors are equal.

Price Earnings Ratio ( P/E, P.E., or PE )
Price per share divided by earnings per share.
When going just by the abbreviation, you will need to determine from context whether "price earnings ratio" or "private equity" is being referred to.

Private Equity ( PE )
Equity capital that is not traded on a public exchange.
When just going by the abbreviation, hopefully

Private Sector
Not the government.

Public Sector
Government.

Real Estate Investment Trust ( REIT )
Firm that owns and/or operates a real estate business and passes the earnings to the owners.
Offices, shopping centers, and malls are often owned by real estate investment trusts.

Retention Bonus
As an ordinary employee you are best served by working at company that is ideally growing at a steady pace.
A senior executive will also likely be compensated best at a firm that is growing.
However, unlike an ordinary employee, for a senior executive the next best thing to a growing firm may be a firm approaching bankruptcy.
The period leading up to bankruptcy can prove to be ideal for a firm's executive leadership.
The value of the firms equity will be shrinking but the debt holders will have yet to take control.
As such, management may decide it is free to grant itself retention bonuses without fear of oversight.

Special Purpose Acquisition Company ( SPAC )
Shell company that is taken it public so that another firm can use it to go public as an alternative to performing its own initial public offering.

Stock Dividend
A stock dividend may be either a different name for a stock split, or it may be a more significant restructuring of the firm.

Stock Split
The management of a well performing company might split its stock as a signal to the public that management believes growth will continue.
If you had 1,000 shares of a company and the company did a 5 for one stock split you would then have a total of 5,000 shares.
The number of shares would increase but the market capitalization would not change much.
The management of a poorly performing company might need to accept that it has to perform a reverse stock split.
Mutual fund prospectuses and stock exchanges may have minimum dollar per share requirements for securities to be held or traded.
A firm that has experienced decline may need to conduct a reverse stock split in order to stay above such thresholds.
Pulling numbers out of the air, historically companies tried to keep their price per share between very roughly $15 and $80 dollars a share.
Feel free to conduct a more rigorous study.

Talking One's Book
In this context, think of "book" as a synonym for "portfolio".
A given manager of a portfolio may or may not believe that the securities that he or she manages represent a good value.
If a manager intends to keep the securities that are in the portfolio, publicly "talking his or her book" may creating buying interest leading to a higher value of the portfolio.
Alternatively, if a portfolio manager intends to liquidate securities in a portfolio that he or she manages, the manager may "talk his book" in order to interest buyers in the securities in order make it easier to liquidate.

Venture Capital
Very early-stage investment in a company.
Venture capital investment are made with the understanding that many investments will go to zero, but hopefully others will grow enormously.

Window Dressing
An investment fund may sell poorly performing securities at the end of the quarter and purchase securities that had performed well.
While transaction costs may hurt the fund, the intent is to maximize the presence of well performing securities on holdings reporting and diminish the presence of poor performing securities.