STOCK MARKET TERMS

A Z
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A GROUP SHARES

Stocks which have very high liquidity.
The company has large equity base and
large public holding.
The company has a given consistent good
performance over the years.
B1 GROUP SHARES
Shares have high liquidity.
Company has equity above Rs.30 million.
Company fundamentals and financial
parameters in line with the industry.
B2 GROUP SHARES
Share with low investor interest.
Shares trade below par value (face value).
Company has equity below Rs.30million.
Company's shares are not widely held.
Company has surveillance measure initiated
against it by the EXCHANGES for suspected
price manipulations.
Shares have low trading volume at the
EXCHANGES.
A-D INDEX OR
ADVANCE-DECLINE
INDEX
A tool for detecting bullish or bearish trend
in stock market. One divides the number of
traded shares which have risen in price by
those which have fallen.
Example:
If 200 shares have advanced and 100
declined on a particular day the A-D INDEX
is 2.
Number more than 1 indicates a bull trend
and less than 1 a bear trend.
ALPHA FACTOR

A concept, which measures the inherent
volatility of share.
A share with alpha factor of 1.5 is slated to
rise in price by 50% in a year on its inherent
strength, such as growth in EPS, regardless
of the behavior of the market.
ANNUALIZED YEILD The calculation:
3
(NAV-face value + dividend paid)/(Face
value * number of years)
ARBITRAGE

Profiting from differences in piece of the
same share traded on two or more stock
exchanges.
An arbitrageur makes money by buying in
lower market and immediately thereafter
selling in the higher market, or vice versa,
thereby making a profit.
ASPIRIN COUNT
THEORY
A lighthearted approach to the market
behavior which declares that if aspirin
consumption rises in the country, about a
year later the market will fall and vice
versa.....
ASSET VALUE OR NAV
Term used by mutual funds and other
investment trusts, to indicate the net
tangible asset value of each share, calculated
by taking the total value of an investment
portfolio on market rates on a certain date
and dividing it by the number of
outstanding shares. the net asset value of a
mutual fund indicates how well or badly the
fund managers have played the stock
market.
ASSIMILATION
A complete absorption of a new issue(IPO)
by the market.
i.e. with no shares unsubscribed.
BAROMETER STOCK
A share, usually a blue chip, whose price is
taken to show the state of the share market.
It is a widely held, that for frequently traded
share with a stable price record, the BETA
COEFFICIENT is 1.
BASE MARKET VALUE
Average market price of a group of shares at
a given time.
Used for plotting changes in market
indexing.
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BASIS POINT
.o1% of yield of a fixed interest bond.
Thus with the fluctuation of price of a bond,
if the yield increases from 14.27% to 15.31%,
there has been increase of 104 basis points.
BETA FACTOR
A measure of performance of a particular
share in relation to the general movement of
the market.
If a share has a beta of 1 its rise and fall
corresponds exactly with the market. With a
beta factor of 2 its rise and fall is double.
With beta of 0.5 the particular share will rise
only 55 if the market rises 10% and falls 5%
if the market falls by 10%.shares with
negative betas are contrarian shares.
BIGGER FOOL THEORY

You may have been foolish enough to buy
an overpriced stock, but you believe that
there is an even bigger fool who will buy it
from you at higher price.
BLACK KNIGHT An unwelcome takeover bidder.
BLOCK TRADE

Trading large blocks of shares, usually by
mutual funds or institutional investors.
There are specialist brokers who carry out
the trade discreetly, without unduly
affecting the price movement of the shares.
BOOK CLOSURE

Before a company declares a dividend or
issues bonus or rights shares, it closes its
register of members for a certain period,
from 1week to 1 month, during which no
transfer of shares is registered. After book
closure shares are quoted ex-dividend, ex-
bonus or ex-rights prices.
BOOK VALUE
The value at which an asset is carried on a
balance sheet. Since the asset is subjected to
depreciation, the book value is lower every
year. Cost minus accumulated depreciation
will thus show the book value of an asset.
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The net asset value (NAV) of a company's
share. Take the total assets of a company
and deduct current liabilities, long term
liabilities, and preference shares. What
remains is shareholders fund. Divide this by
the number of shares issued. The result is
the book value of a share.

NOTE: A good company should focus on
increasing its book value (asset) year after
year.
BRAND EQUITY
A brand is a promise of quality, and brand
equity is a value addition to a product or a
company.
BUY ORDER
An order to the stockbroker to buy shares
either at the BEST price or within a price
limit (LIMIT ORDER).
CAPITAL EMPLOYED Net assets used in a business to make profits
CAPITAL EXPENDITURE
Expenditure on accruing. Fixed, rather than
liquid assets.
CAPITAL GEARING
The ratio of fixed interest loan and
preference shares to the ordinary share
capital of a company.
LOW GEARED: More share capital than
loan.
HIGHLY GEARED: More loan than share
capital.
CAPITAL ISSUE
The issue of shares by a company, whether
as a new issue or premium issue or rights
issue.
CAPITAL STRUCTURE
OF COMPANIES
The capital of a new company consists of
issued and subscribed equity shares,
redeemable preference shares, and secured
and unsecured loans. When the company is
making profits, that part of the profits
remaining undistributed among the
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shareholders is transferred to reserves and
becomes part of the capital structure.
CAPITAL SURPLUS
The difference between the nominal or face
value of the shares sold by a company to the
public and the sum realized by selling them
as a premium issue.
CAPITAL TURNOVER
Annual sales divided by paid up equity.
Studies over a period, it shows the extent to
which a company can grow without
additional capital investment.
CAPITALIZATION
Conversion of free reserves of a limited
company into capital by issuing bonus
shares.
CAPTIVE FUND
A venture capital fund wholly owned by a
larger body than individual entrepreneurs.
CASH FLOW
It is the amount earned by a company before
depreciation and other deductions which do
not require any cash outlay.
It is also called cash earnings per share.
CUM-BONUS
Shares with bonus entitlement. A buyer of
such shares receive the bonus shares
distributed by a company on registration on
their shares before the record date.
CUM-DIVIDEND

The buyer of the share is entitled to the
dividend if he buys the share before the
closure of the company's books.
These shares are sold at a slightly higher
price than the ex-dividend shares.
CIRCUIT BREAKER
A system to curb excessive speculation in
the stock market, applied by the stock
exchange. When the index spurts or plunges
more than a % decided by the authorities,
then the trading is then suspended for some
time to let the market cool.
NOTE: This happened during the crash in
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2006 may...trading was suspended for 1 hr to
stop the free fall of the market.
CONSOLIDATION
A continued upward or downward trend,
within a narrow range, of share prices of a
company, or in general, indicating an
imminent breakout in the same direction.
CONTRARIAN SHARES
Shares which behave in a fashion contrary to
the general stock market trend, i.e., fall in
rising market and rise in falling market.
COOKING THE BOOK

Falsifying the financial accounts of a
company to keep the share holders happy
and to attract investors with the lure of high
profit. A high level accounting skill
combines with low level cunning to achieve
this end. Certain expenses are omitted,
liabilities are concealed, write-offs delayed,
valuation reserves not provided for, and
other such fraudulent practices are followed
to present a false picture.
COST OF CAPITAL

The return that an investment could earn if
another, alternative investment with equal
risk, were chosen. Also called the
opportunity cost.
CURRENT RATIO
The ratio of current assets to current
liabilities. If it is more than 1, the company's
operations are in a healthy state.
DAY ORDER
An order, which is only good for the day it
is placed, to a stockbroker to buy or sell
particular shares. If the order is to be held
till it can be executed, its called a GOOD-
TILL-CANCELLED order.
DEBT-EQUITY RATIO
1) The total liabilities of a company divided
by the shareholders equity.
2) The total long term debt divided by
shareholders equity.
3) The total long term debt plus the par
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value(face value) of preference shares
divided by the par value(face value) of the
equity shares.
*this ratio measure a company's solvency.
DEFLATION
Opposite to inflation, it is a reduction in
national income and output, accompanied
by a general fall in prices. It can be brought
about by reduced imports, higher taxation,
and high interest rates, among other
measures. During a deflation period the
stock market usually suffers from
depression.
DEGEARING

Replacing fixed interest loan by issuing
equity shares of a comparable value. This is
done to lower the company's capital gearing
or leverage.
DELTA STOCKS The least liquid shares of a stock exchange.
DEMAND -PULL
INFLATION
Inflation caused by the increase in demand
in excess of the industry's capacity to
supply.
DEPRECIATED COST
The net book value of an asset after
accumulated depreciation has been
deducted from the original cost.
DISCOUNTED CASH
FLOW
Evaluation of discounted future cash flow in
terms of their present value.
DIVIDEND
Payment made to shareholders, usually once
or twice a year out of a company's profit
after tax. Dividend payments do not
distribute the entire net profit of a company.
Part or substantial part of which is held back
as reserves for the company's expansion.
Dividend is declared on the face value of a
share, and not on its market price.
DIVIDEND YIELD
Dividend per share divided by its market
price, multiplied by 100.
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For example, 50% dividend on a share of
230, face value Rs.10 is (5/230) *100=2.17%
DOLLAR COST
AVERAGING
Rather than buying a large number of shares
all at once, at one price, the strategy of
dividing the investment amount into a
number of equal parts and buying at
different intervals, to take advantage of
lower prices. Useful strategy during bear
phase when the lowest price of a share
cannot be known.
EARNINGS TO EQUITY
RATIO
Profit after tax minus dividend on
preference shares divided by equity share
capital plus reserves, and the sum
multiplied by a hundred.
This ratio indicates how profitable the
company is making use of its capital.
ELLIOTT WAVE THEORY
A theory of recognition of market trend
which postulates that the market follows a
pattern of five waves up and three waves
down to form a cycle of eight waves and
that moves in short and long cycles.
EARNINGS PER SHARE
One of the most wildly used indicators of
the worth of a share.
EPS = PAT/no of shares.
EXACT INTEREST
Interest calculated on 365 days a year, as
against 360 days of ordinary interest.
EXTRAORDINARY
GENERAL MEETING

Any general meeting other than the annual
general meeting, called to obtain
shareholders consent to urgent decisions.
FILL OR KILL ORDER

An order to a stockbroker to buy or sell a
particular share immediately. If the order is
not executed at once, it should be treated as
cancelled.
FINANCIAL
STRUCTURE
Distinguished from capital structure of a
company which includes only long term
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debt and equity, the financial structure is
influenced by the growth and stability of
sales, market competition, the quantum of
profits, the attitude of short-term lenders,
and the efficiency of the company's
management.
The financial structure helps take leverage
decisions.
FLOATING STOCK
The number of shares of a company that is
traded on the stock exchange; usually a
fraction of the total number issued and
outstanding.
FLOTATION
Raising the necessary capital for a new
company by an open offer to the public to
subscribe shares or through private
placement.
Where the company is already in existence
as a private company, but wishes to expand
and go public, flotation is the process by
which it goes to a merchant bank or any
financial institution which then offers shares
to the public.
FREE CAPITAL
Cash.
Also shares of a company available to the
public, i.e. shares not held by the controlling
share holders, those on firm allotment or
issued to institutions.
FULLY DILUTED EPS
EPS after accounting for all rights, bonuses,
and issue of convertible debentures during a
period.
FULLY PAID SHARE
CAPITAL

Share capital whose full value has been
realized from the investors, as against partly
paid up share capital where investors have
yet to pay one or more calls.
FULLY VALUED

A share which has attained a price that has
taken into full consideration the
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fundamental strength of the company.
If the price further increases the share will
become overvalued; if it decreases the share
will be undervalued.
GAMMA STOCKS
Shares of small companies which are traded
infrequently.
GDP Gross Domestic Product.
GILT-EDGED

Government securities and bonds, usually
with an unattractive interest rate, these are
nevertheless very safe assets to hold, as the
government is responsible for the payment
of interest and refund originally such
certificates were edged with gold.
GOLDEN SHARE

A share that controls 51% or more of the
voting rights of a company.
GOOD-TILL-
CANCELLED ORDER
(GTC)
A client's order to buy or sell shares, usually
at a specific price, which remains valid till
executed.
Different from a day order or a fill or kill
order.
GREEN SHOE OPTION

A provision in an agreement with the
underwriters of an issue which states that in
event of exceptional investor interest the
issuer will authorize additional share for
distribution.
GROSS BLOCK
Value of a company's fixed assets before
depreciation, the gross assets of a company
include land, buildings, machinery and
office equipment.
GROSS NATIONAL
PRODUCT
The total value in money of all finished
goods and services produced in an economy
in one full year, and all net properly income
from abroad.
The GNP growth rate is one of the most
important economic indicators of a country's
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health.
GROSS PROFIT

Net sales minus the cost of production, but
without deduction of interest, depreciation,
and taxes.
GROSS SALES

Total sales at the full value of a commodity,
before commissions and discounts are
deducted.
GROWTH RATE

The growth rate is measured by the
increased earning of a company over its
previous achievement, expressed in
percentage.
HAIRCUT

The difference between the buying price and
selling price of a market maker.
HEAD AND SHOULDER
A pattern in a share price chart with two
short bulges on either side and a large one
in the middle, resembling the head and
shoulder of a person. as the price moves
down from the head to the right shoulder,
we see this as a signal for a further fall in
prices and vice versa.
HEDGING AGAINST
INFLATION
Protecting one's savings from loss of value
through inflation by investing in such items
whose price rises with the general rise in
prices.
Historically, the stock market has always
kept pace with inflation.
HIDDEN RESERVES

Funds held by a company but not disclosed
in the balance sheet.
This may be done by not disclosing an asset
or deliberately undervaluing it to reduce
taxation.
HIGH GRADE BOND
A loan instrument graded triple A or double
A by CRISIL.
HYPERINFLATION
Swiftly rising prices at the rate of 50% or
more a month.
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HYPOTHECATION

Pledging assets against a loan.
The ownership of the asset or the income
from the asset is not transferred; expect that
in default of repayment of the loan the asset
may be sold to realize its value. Brokers will
accept shares as collateral for loans to
finance purchase of shares or to cover short
sales.
INCOME SHARES
Shares with low P/E and low price. Gives
good dividend, sometimes equaling or
excelling the rate from fixed deposit. The
companies follow a policy of high payouts.
INCOME TAX REBATE
The various opportunities for gaining
rebates are now curtailed.
Under section 80L interest and dividend
income up to Rs.7000 is exempted from
income.
Under section 80 investments in Govt.
approved schemes like the NSS, NSC, PFF,
LIC schemes, etc. will qualify for a 20%
rebate on the gross tax up to a savings limit
of Rs.60000.
INDEX FUND
Mutual fund whose portfolio of shares is
identical to a well known Index, such as
Sensex or Nifty.
Such an investment policy reflects the brief
that trying to beat the market index over the
long term is futile, and it is best to keep up
with the market.
INDEXATION
The practice of relating economic variables
such as wages, taxes, annuities, dearness
allowances, and pensions to changes in the
general price level, which offers some relief
against inflation, but leaves savers and
lenders worse off.
INFLATION Supplementing traditional financial
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ACCOUNTING statements by showing the effects of
inflation on the items contained in them,
and adjusting profit and loss accordingly.
INFLATION AND THE
RUPEE
Under the pressure of varying rates of
inflation, the value of a rupee against
today's purchasing power is worked out.
INFLATION HEDGE
An asset whose market price keeps ahead of
the rate of inflation, so that the owner of the
asset suffers no loss of purchasing power.
INSIDER TRADING
An illegal activity in which persons in a
company having confidential information,
such as expansion plans, financial results,
takeover bids, etc., take advantage of such
information to make a profit on the stock
exchange by buying or selling shares.
INSOLVENCY
If a company is unable to pay its creditors
because it doesn't have liquid funds, it is
technically insolvent.
If a creditor presses for payment and the
company cannot pay within a short period,
the creditor can sue the company and it may
have to sell off some assets to meet the
obligation.
If the company's assets fall below its
liabilities, it is insolvent in the sense of
bankruptcy.
INTANGIBLE ASSETS

Unseen and non-physical assets of a
company which are of value to it and also
perhaps a cash value. These increase the
value of a company in the market. Such
assets are trademarks, copyright, franchise,
permits, etc.
INTEREST COVER
The ratio of a company's earnings to interest
due.
The interest is for the loan capital of the
company.
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INTEREST RATE RISK
With rise and fall of interest rates,
announced by the RBI from time to time, the
fortunes of the bond and stock markets are
closely tied.
Highly leveraged companies suffer if the
interest rate rises, as they have to pay more
for their borrowing. This reduces their
profitability.
INTERIM DIVIDEND
An advance installment of the dividend
finally declared. More often one, but
sometimes two such payments are made.
The final dividend is often at least equal,
and sometimes more.
The interim dividend is a fair indication of a
company's profitability, during the working
year.
INTRINSIC VALUE
The intrinsic value of a share, as against its
market driven prices, is its fundamental
strength and potential measured by data
like sales, operating profit, book value, debt
structure, market share, future potential,
etc..
INVENTORY
TURNOVER
Annual sales divided by the average cost of
the inventory gives the ratio of inventory
turnover.
Higher the ratio, the more prosperous the
company.
ISSUES CAPITAL
The amount of authorized capital issued by
a company. A part of the authorized capital
may be withheld for subsequent issue, at
par or at a premium.
JOINT VENTURE
Collaboration, usually both collaborators
have equity stakes in the company.
LAY OFF
Selling off unsubscribed portions of a rights
offer by the issuer to the underwriter at the
offer price.
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LEASE BACK
An arrangement under which a company, in
order to raise cash, sells a piece of
equipment, land, or building on condition
that the buyer will lease it back to the seller
for an agreed rental, for a fixed term.
LEVERAGED BUYOUT
Taking over a company, using borrowed
funds.
LEVERAGED COMPANY
A company with borrowed funds in its
capital structure. If the debt component is
more than a third of the capitalization, it is
called a highly leveraged company.
LIQUIDATION
The winding up of the business of a
company, either through bankruptcy or
through a resolution passed by the
shareholders when the purpose of the
company has been fulfilled.
LOAD
Additional charge to cover expenses,
usually administrative. This is usually
deducted from the NAV of a mutual fund
unit at the time of repurchase by the fund.
MARGIN
The difference in prices at which a jobber
will buy and sell. Also called a HAIRCUT
MARGIN ACCOUNT

An account with a brokerage firm which
will allow the client to buy shares with
money borrowed from the broker. Margin
requirements can be met with a deposit in
cash or shares.
MARKET
CAPITALIZATION
The total market value, at the current stock
exchange list price, of the total number of
equity shares issued by a company.
MARKET SHARE

The percentage of an individual company's
sale of a product in relation to the total sales
of that product by all companies.
MINIMUM LENDING
RATE
The rate of interest charged by the central
bank of a country to a discount approved
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bills of exchange or make short-term loans.
It is the rate which determines the domestic
interest rates charged by banks.
MOU
Memorandum of Understanding - Setting
out terms of a contract, for technical
collaboration.
OPERATING PROFIT OR
LOSS
Profit or loss arising out of the principal
business of a company.
OPERATING RATIOS
These measure a company's operating
efficiency by comparing various income and
expenditure figures from the balance sheet
and profit and loss account.
Some of these ratios are sales to cost of
goods sold, operating income to operating
expense, net profit to gross income, net
income to net worth.
These are compared with the company's
previous results, and the industry averages
PAID UP CAPITAL
Capital acquired by selling shares to
investors, as distinguished from capital
accumulated from earnings or from secured
or unsecured loans.
PAYOUT RATIO
This is dividend per share divided by
earnings per share and the sum multiplied
by 100.
If the payout ratio is 40%,it means that 40%
of the company's profits after tax have been
distributed as dividend and 60% transferred
to reserves.
A very high payout may not be healthy, as it
will slow down the building up of an
adequate reserve.
P/D RATIO
Price-dividend ratio; price/last dividend.
Measures the value of an investment.
PSU Public Sector Undertaking - Run by
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government.
PUBLIC OFFERING
Offering shares to the investing public, as
distinguished from rights offering to
existing shareholders.
QUICK ASSETS
These are liquid or near-liquid assets, such
as cash, money in bank, gold, etc.
RATE OF TURNOVER
Total annual sales divided by the average
inventory shows the speed with which stock
has been turned over.
RETURN ON EQUITY
Net income of a company as a percentage of
its equity capital.
REVENUE ITEMS
These are expenses incurred; income earned;
in the course of, carrying on a business, and
are shown in the income statement of a
company as revenue account.
RIGHTS ISSUE
Issue of shares at par or at a premium by an
existing company to its share holders in a
certain proportion to their holdings, as a
matter of their right to receive preferential
treatment.
RULE OF 72

A most useful formula for calculating the
number of years an investment will take at a
compound rate of interest to double.
Divide 72 by the compound rate of interest
and you get the period of time. or again, if
you know the period of time it takes an
investment to double, divide 72 by the
number of years and you will get the
compound interest rate.
SHARE OPTION
A reward sometimes offered to the
employees of a company to buy shares at a
favorable price or on a preferential basis.
V -FORMATION
A chart pattern in technical analysis which
forms a V, which indicates that the share
price has bottomed out and is on an upward
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course, a reverse V will indicate the opposite
trend.
W-FORMATION

A chart pattern, forming a W, showing that
a share's price has hit the support level
twice, and is now likely to move up.
YIELD
Dividend divided by market price
multiplied by 100.


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BOOKS WHICH WILL HELP
21










o Intelligent Investor
o How To Pick Stocks Like Warren Buffet
o The Real Warren Buffet
o Beating The Street
o One Up On Wall Street
o Warren Buffet Speaks
o Warren Buffet Way
o How To Read Annual Reports And Balance Sheets Raghu R Palat

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THE TRADING CYCLE
23


1. We accumulate trading information - buying books, going to
seminars and researching.

2. We begin to trade with our 'new' knowledge.

3. We consistently 'donate' and then realize we may need more
knowledge or information.

4. We accumulate more information.

5. We switch the commodities we are currently following.

6. We go back into the market and trade with our 'updated' knowledge.

7. We get 'beat up' again and begin to lose some of our confidence. Fear
starts setting in.

8. We start to listen to 'outside news' & other traders.

9. We go back into the market and continue to donate.

10. We switch commodities again.

11. We search for more trading information.

12. We go back into the market and continue to donate.

13. We get 'overconfident' & market humbles us.

14. We start to understand that trading success fully is going to take
more time and more knowledge then we anticipated.

24

















Many Traders Will Give up at this Point as they Realize Work is
Involved.. But do go on..
25


15. We get serious and start concentrating on learning a 'real'
methodology.

16. We trade our methodology with some success, but realize that
something is missing.

17. We begin to understand the need for having rules to apply our
methodology.

18. We take a sabbatical from trading to develop and research our
trading rules.

19. We start trading again, this time with rules and find some success,
but overall we still hesitate when it comes time to execute. We start
trading again, this time with rules and find some success, but overall
we still hesitate when it comes time to execute.

20. We add, subtract and modify rules as we see a need to be more
proficient with our rules.

21. We go back into the market and continue to donate. We go back into
the market and continue to donate.

22. We start to take responsibility for our trading results as we
understand that our success is in us, not the trade methodology.

23. We continue to trade and become more proficient with our
methodology and our rules.

24. As we trade we still have a tendency to violate our rules and our
results are erratic.

25. We know we are close.

26
26. We go back and research our rules.

27. We build the confidence in our rules and go back into the market
and trade.

28. Our trading results are getting better, but we are still hesitating in
executing our rules.

29. We now see the importance of following our rules as we see the
results of our trades when we don't follow them.

30. We begin to see that our lack of success is within us (a lack of
discipline in following the rules because of some kind of fear) and
we begin to work on knowing ourselves better.

31. We continue to trade and the market teaches us more and more
about ourselves.

32. We master our methodology and trading rules.

33. We begin to consistently make money. We begin to consistently
make money.

34. We get a little overconfident and the market humbles us.

35. We continue to learn our lessons.

36. We stop thinking and allow our rules to trade for us (trading
becomes boring, but successful) and our trading account continues
to grow as we increase our contract size.

37. We are making more money then we ever dreamed to be possible.

38. We go on with our lives and accomplish many of the goals we had
always dreamed of.
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I do not know the original compiler of this document. I have only edited
(spelling corrections, etc) and pdf-ed the same. While thanking the
anonymous compiler, please go ahead and profit it!