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Alphabetically listed explanation of key share market investing terms and jargon
When you start researching shares you will inevitably come across terms and abbreviations you may not have encountered before. The list below is in alphabetical order to help you quickly find an explanation of the share market jargon you are seeking.
AGM – Annual General Meeting. All listed companies are required to hold a meeting of shareholders and directors to report on the year’s activities, provide guidance on the company’s future prospects, and answer queries from registered shareholders. Shareholders also vote on any significant corporate proposals, directors’ appointment and renumeration.
All Ords – All Ordinaries Index. A weighted share price index of about 500 ASX listed companies. Provides an overview of the performance of the overall market both currently and historically back to when it was established in 1980.
Annual Report – All companies must produce an annual report on the year’s activities and provide details about the company’s balance sheet, including terms and conditions of debt securities. The latter is useful to help you make a judgement on the ability of the business to continue to meet its obligations.
Asset Allocation – The process of allocation proportions of your total investible wealth to different assets classes.
Asset Backing per Share – The dollar value of a company’s net assets divided by the number of shares on issue. The higher the asset backing the lower the perceived risk of debt default, making the company more attractive to both equity investors and debt providers.
ASX – Australian Securities Exchange. The primary exchange for buying and selling shares and associated derivative products. Also provides access to selective components of the commodity, bond and energy markets, and enforces listed companies’ compliance and listing rules as well as promoting a good corporate governance framework.
ASX Code – An abbreviation used to identify a listed company. Useful for looking up a share price and other company information, trading and creating stock watch lists.
Basis Point – Represents one per cent of one per cent (.01%). Used a lot by economists and market specialists when commenting on interest rates. An example could be: ‘The RBA will raise interest rates by 25 basis points’ (0.25%).
Bear Market – When the market is falling and risk is perceived high. It is considered a bear market when a country’s equities market suffers a decline of 20% or more.
Benchmark – Used to compare something to a reference point. For instance, you may compare a bank’s share price performance over a period of time against a benchmark like the S&P/ASX200 Banks (Industry) index, or you may compare an equities fund managers performance against a benchmark like the S&P/ASX200.
Beta – An indication of risk that measure a stocks volatility compared to a benchmark like the S&P/ASX200. In simplistic terms, a stock with a beta of above 1 can be interpreted as being more volatile that the benchmark.
Bid Price – The current price a buyer is willing to pay for a share.
Blue Chip – Larger companies that have demonstrated a long term ability to perform across the economic cycle. Includes companies like the big four banks, resource companies like BHP and Rio Tinto and Woodside Petroleum, global players like CSL, and diversified giants like Wesfarmers.
Brokerage Fee – what you pay a broker for each purchase or sale of a share parcel.
Bull market – When the market is rising and the outlook is for further increases across most sectors.
Buy Back – When a company uses its cash reserves to buy back and cancel its own shares. It is a form of returning capital to shareholders as by reducing the number of shares on issue, the remaining shares increase in value.
Capital Gains Tax – The tax you pay on the gain you make when you sell a parcel of shares at a profit.
CHESS – The settlement system used by the ASX.
CFD – Contracts for difference. An instrument that uses leverage for a greater exposure to shares, indices and commodities. Profits and losses are magnified and if certain debt to equity ratios are breached there may be a margin call requiring an additional injection of cash or securities.
Contributing Shares – Partly paid shares with terms and conditions for the payment of the outstanding balance.
Cum-dividend – When a company declares a dividend it will be reflected in the company’s share price until the date the company determines payment from the current shareholder registry.
Debt to equity Ratio – A key metric when evaluating a company’s health, generally against its peers. It is calculated by dividing a company’s total liabilities by its shareholder equity. A high ratio is an indicator of increased risk, but too low a ratio indicates the company is not taking full advantage of its balance sheet for growth.
Delisted – When a company’s listing is permanently removed from the ASX. It could be due to takeover, insolvency, or privatisation.
Derivative – Financial instruments that derive their value from an underlying asset, including shares, share indices, bonds, currencies and commodities. Typically married with leverage and used when investing in futures, warrants, exchange-traded options and contracts for difference (CFD).
Diversification – Investing in asset classes that have different performance drivers. For instance, bond performance is driven by interest rates and typically have an inverse relationship to equities, which are driven by economic performance. The aim of diversification is to lower risk within a portfolio and smooth returns over the long term.
Dividend – The method by which a company shares its profit with shareholders. Dividends are paid per share and distributed twice a year. Dividends are not guaranteed and will vary or may not be paid at all, depending on the company’s performance.
Dividend Reinvestment Plan – A mechanism that allows shareholders of participating companies to reinvest their dividends to increase their shareholding.
Dividend Yield – The dividend divided by the share price sale of the company and expressed as a percentage.
EPS – Earnings per Share. Simply divide a company’s annual earnings by the number of shares on issue.
ETF – Exchange Traded Fund. A fund that purchases assets and sells units in the fund to interested investors. The units can be sold on an exchange like a share but because the fund effectively tracks an index, commodity, or other asset there is generally less volatility compared to direct ownership of the underlying assets. The funds retain ownership of the portfolio, and investors get ownership in the fund. There is a wide variety of domestic and international ETFs available. Some of the types of ETFs available may include global infrastructure, future tech, socially responsible screened energy, mid-cap, large industrial, the list goes on.
Franked Dividend – Investors are entitled to a tax credit on dividends where the company has already paid tax on the dividend distributed. The credit amount reflects the amount of tax already paid by the company.
HIN – Holder Identification Number. Registration identifier used to identify the owner of shares bought through a sponsored broker.
Issued Capital – Securities issued by a company to its share and debt holders.
Leverage – Using borrowed funds to gain greater exposure to investments. It can be used for company growth or by investors seeking enhanced returns and willing to take on the additional risk. Leverage can also magnify losses.
Limit Order – Specifies the price a share must reach for a buyer or seller of shares to enter into a transaction.
Liquidation – If a company cannot meet its obligations a liquidator may be appointed by the courts to wind the company up and seek to recover and return as much money as possible to creditors and shareholders. Typically, creditors are repaid outstanding amounts before any return to shareholders.
Liquidity – The ease at which an asset like shares, bonds or property can be sold at current market price.
Listing Rules – Companies listing on a trading exchange like the ASX must comply with the rules set out by the exchange to list and remain listed. It covers things like minimum number of shareholders, types of issued securities and their voting power, minimum number of directors on a board, and requirements to ensure a business can meet its obligations.
Margin Call – many types of leverage require the asset backing the loan, like a portfolio of shares, to be provided as security for the loan meet minimum asset-to-value ratios. If a leveraged investment portfolio falls below this ratio, an investor may be required to repay some of the loan or provide additional securities to get back above the threshold.
Market Capitalisation – Total number of shares on issue multiplied by the company’s share price.
Merger – When two companies propose to merge their businesses to form one larger consolidated entity, typically subject to shareholder approval and some form of pro-rata adjustment to the two shareholder groups.
NAV – Net Asset Value. The book value of a company’s assets divided by the number of shares on issue.
NTA – Net Tangible Assets. Total assets of a company minus all intangible assets like goodwill, patents, and trademarks.
Non-renounceable Rights Issue – When a company seeks to raise additional capital through an issue of new shares, it can specify that the rights to those additional shares cannot be sold, and can only be accepted or rejected by the shareholder.
Option – a contract to buy or sell an underlying asset at a given price and within a defined period of time.
PE – Price to Earnings Ratio. Helps to determine how much value there is in a listed company. Achieved by dividing the company’s share price by its earnings per share.
Proxy – provides the ability for another party to act in placer of the shareholder for the purpose of attending meetings and voting on proposals.
Put Option – a right to sell an underlying asset at a pre-determined exercise price agreed when the contract was created.
REITs – Real Estate Investment Trusts. A listed trust setup to invest in Australian and/or international property. Some trusts may focus on residential developments, or commercial, office or a combination. Investors seek exposure to rental income and property growth.
Renounceable Rights – When a company issues new shares to raise money it can give shareholders the option to sell on an exchange their right to take up an allotment in the issue.
Rights Issue – A company may seek additional capital for growth and issue additional shares for existing shareholders to take up pro-rata at a given price.
SRN – Security Reference Number. Identifies the owner of shares held by a share registry.
Share Indices – An index that measures the performance of a stock exchange or subsets the market, like a banking, property, or healthcare index. Can also be any other desired subset like the top 200 companies, small caps stocks or mid cap stocks.
Short Selling – If an investor believes a company will decline in value, they may borrow parcels of shares, which they then sell in the market. Before the shares need to be returned, the investor expects the share price will decline and they can buy the required shares back to complete the deal. It is a high risk strategy for advanced investors.
Stop Loss – An order to sell a stock if a level of decline is triggered. There will be a cost for an order, but it allows investors to limit the amount of loss they may experience.
Substantial Holder – Any individual or entity holding more than 5% of a company’s voting capital.
Takeover – Offer to purchase all or part of existing shares on issue to take a controlling interest in a company or buy it completely. Can be a long-drawn-out process depending on the offer and response from the target’s board of directors and any regulatory or foreign ownership obstacles to traverse.
Trading Halt – a temporary suspension of trading on a company’s shares, generally indicating it has an important announcement to make.
The information contained in this article is intended to be of a general nature only.
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