If you know of any terms you want to see listed here please e-mail me at Luis1600@hotmail.com

Definitions of terms as they apply to investments, and the bylaws of the Common Sense Investment Club

ABANDONMENT

Voluntary giving up all rights, title, or claim to property that rightfully belongs to the Member. An example of abandonment would be stocks, shares, bonds, mutual funds held in a brokerage account for which the Club is unable to locate the listed owner over a specified period of time, usually a few years.

ABILITY TO PAY

The Club’s ability to meet Account Payable of a Departing Member’s share of his proportionate Clubs Interest of Assets. The delivery of such funds may be in equity, stocks, or cash or any combination of such, depending on the solvency of the Club and the taxable consequences to the remaining Members. The period from the day of acknowledgment should not exceed 45 days. Member should give 45 days notice to the Club in writing.

ABSORBED

A cost that is treated as an expense rather than passed on to a Member

ACCOUNT

Relationship between the Clubs Bank, and the Club’s Broker, evident by the deposits against which withdrawals can be made. Among them are Cash, Equity in Stocks, Interest Income, Dividends, Bond, Property, Time, Custodial, Joint, Trustee, Corporate, Not-For-Profit, Special, Regular Accounts. Administrative responsibility is handled by the Account Officer (Treasurer).

ACCOUNT BALANCE

Net of debits and credits at the end of a reporting period. Term applies to a variety of account relationships, such as with banks, brokerage firm, classification of transactions in a bookkeeping system. The same account may be an ASSET Account or a LIABILITY Account Balance. Depending on the account, for example a bank account is an asset to the club but a liability to the bank.

ACCOUNT AGENT

Brokerage or bank employee who handles the accounts of the Club.

ACCOUT RECONCILIATION

The process of adjusting the Club’s or Member’s particular account so that it the balance of the statement matches any accrual of interest, dividends and capital appreciation cancel one another.

ACCOUNT STATEMENT

(a)     Any record of transactions and their effects on change or open-account balances during a specified period.

(b)    Statement summarizing all transactions and showing the status of an account with broker-dealer firms, banks, including long and short term positions. Such statement must be issued quarterly, but are generally provided monthly when accounts are active.

ACCRUED INTEREST, DIVIDENDS

Interest or dividend that has accumulated between the most recent accounting periods could be year to date, during the month and in a calendar year.

ACTIVE ACCOUNT

An account having securities, cash or equivalents under the Club’s name.  A member’s proportionate interest in the Clubs ASSETS.

ADDITIONAL PAID-IN-CAPITAL

Capital received from the Clubs’ Members in exchange for stock or shares in the Clubs ASSETS.

ADJUSTED BASIS

Base price from which to judge capital gains or losses upon sale of an asset like stock, shares. The cost of commissions in effect is deducted at the time of sale when net proceeds are used for tax purposes. The price must be adjusted for any stock split that have occurred since the initial purchase before arriving at the adjusted basis.

AGENT

Individual authorized by another person or organization to act in the latter’s behalf.

(a)     They act on behalf of and are subject to control of the principal.

(b)    They do not have title to the principal’s property.

(c)     They owe the duty of obedience to the organization or other person on whom they represent.

AMENDMENT

Addition to, or change, in a legal document. When properly signed, it has full legal effect of the original document.

ANALYSIS

(a)     Fundamental: analysis of the balance sheet and income statements of companies in order to forecast their future stock price movements. Fundamental analysis considers past records of assets. Earnings, sales, products, management, and markets in presiding future trends in these indicators of a company’s success or failure. Appreciating the above, investors can asses whether a particular stock or group of stocks are undervalued or overvalued.

(b)    Research into the demand and supply for a security, based on trading volume and price studies. Technical analysis use charts or computer programs to identify and project price trends in a market. Most analysis is done for the short- or intermediate-term but some technicians also predict long-term cycles based on other charts and other data. Unlike Fundamental Analysis, Technical Analysis is not concerned with the financial position of the company.

ANNUAL MEETING

Once a year meeting when the managers of a company or organization report to stockholders on the year’s results.

ANNUAL REPORT

Yearly record of an organization’s Financial condition that must be distributed to shareholders (Members). Included in these is the Balance Sheet and Income Statement.

APPRECIATION

Increase in value of an asset such as a stock, portfolio of stocks or Real Estate property.

ARITHMETIC MEAN

Simple average obtained by dividing the sum of two or more items by the number of items.

ASSET

Anything having commercial or exchange value that is owned by a business, institution, or individual.

ASSET ALLOCATION

Apportioning of investment funds among categories of assets. The term applies to the different sources of assets, capitalization of companies as well as the categories and sub-categories in an industry.

ASSIGN

Transfer of ownership from one party to another. Ownership can be in a number of forms including tangible property. For the Club’s purposes, to assign means any transfer of: property, stock, shares, rights, contracts, goods, goods, certificates, marketable securities of all kinds, options, claims of all kinds, torts, anything item having obligations of monetary and non-monetary nature, mortgage, liens, creditor notes et cetera. These are examples of prohibited acts in within the Club. Unless it is mentioned in these definitions and the bylaws of the Club’s agreement and its articles or has been an agreed upon (3/4 approval votes) act at an earlier date by the Members of the Club, the acts are grounds for expulsion of the Members involved. The Club will not recognize said acts or agreements.

AUDIT, REPORTS

(a)     Audit: professional or internal verification of the Club’s accounting documents and supporting data for purpose of rendering an opinion as to their fairness, consistency, and conformity with generally accepted Accounting Principles.

(b)    Audit Report: The declaration following the completion of an examination of the financial documents and or statements.

BALANCE SHEET

Financial Report: showing the status of assets, liabilities, and owner’s equity on a given date, usually the close of the month.

BASIS

Original Capital invested plus reinvested dividends plus reinvested interest income.

BEAR MARKET

Prolonged period of falling prices brought by the anticipation of declining economic activity.

BOARD OF DIRECTORS

Group of individuals elected by an organization, club, company or institution at an annual meeting, by the shareholders. Of the entity already mentioned and empowered to carry out certain tasks as spelled out in the entity’s by-laws and or articles contained within.

BOOK VALUE

(1)    Value at which an asset is carried on a balance sheet. For example, a piece of manufacturing equipment is put on the books at cost when purchased. Its value is then reduced each year at any as depreciation is charged to income. Thus, its book value at any time is its cost minus any accumulated depreciation. However, the primary purpose of accounting for depreciation is to enable a company to recover its cost, not to replace the asset or reflects its declining usefulness. Book Value may therefore vary significantly form MARKET VALUE of the same.

(2)    Net asset value of a company or organization’s securities, calculated by using the following formula: Total assets minus intangible assets (goodwill, patents etc.) minus current liabilities (short-term obligations) and equity issues that have prior claims (subtracting then here has the effect of treating them as paid) EQUALS Total NET ASSET VALUE available for payment of the issue under consideration. Total Net Asset figure divided by the number of shares gives NET ASSET VALUE per share. Book Value can be a guide in selecting under priced stocks and is an indication of the ultimate value of securities liquidation.

BOTTOM

(a)     Support level for market prices of any type. When prices fall below that level and appear to have to be continuing downward without check, it is said that the BOTTOM DROPPED OUT. When prices begin to trend upward again, it I said to have BOTTOMED OUT.

(b)    Lowest market price of a security during a day, season, year or cycle. Also the lowest level of prices for the market as a whole, as measured by any of several indexes.

BOTTUM-UP APPROACH TO INVESTING

Search for outstanding performance of individual stocks before considering the impact of the economic trends. The Company may be identified by fundamentals in their numbers, personal knowledge, products and services. This approach assumes the individual companies can do well, even in an industry that is not performing well.

BROKER

Person who acts as an intermediary between a buyer and a seller, usually charging a commission.

BULL MARKET

Prolonged rise in the prices of stocks.

BUSINESS DAY

Day when the financial markets are open for trading.

BUY

Acquire property in return for money. A Synonym for bargain.

BUY AND HOLD STRATEGY

Strategy that calls for accumulating shares in a company over the years.  This allows the investor to pay favorable long-term tax on profits and requires far less attention than more active trading strategies.

BUYER’ MARKET

Market situation that is the opposite of a seller’s market.

BUYING ON MARGIN

Buying securities with credit available through a relationship with a broker, called a MARGIN ACCOUNT. The Federal reserve Board closely regulates arrangements of this kind. This is a Prohibited ACT the Bylaws of the Club.

BUYING POWER

Amount of money available to buy securities, determined by tabulating the cash held in a brokerage account, and adding the amount that could be spent if securities were margined to the limit. Again this term refers to the prohibited act of Margin account.

BUY ON BAD NEWS

Strategy based on the belief that, soon after a company announces bad new, the price of its stock will plummet. Those who but at this stage assume that the price is about as low as it can go, leaving plenty of room for a rise when the news improves. If the adverse happens development is needed temporary, this technique can be quite profitable.

BUY ORDER

An order to a broker to purchase a specified quality or quantity of a security at the Market Price, or another stipulated price.

BUYOUT

Purchase of at least a controlling percentage of a company’s stock to take over its assets and operations. A buyout can be accomplished through negotiation or through a tender offer. A Leveraged buyout occurs when a small group borrows the money to finance the purchase of the shares. The loan is ultimately paid out of cash generated from the acquired company’s operation or from the sale of its assets.

BYLAWS

Rules governing the internal management of an organization, which, in the case of business corporation, is drawn up at the time of incorporation. The Charter is concerned with such broad matters as the number as directors or Officers and the number of authorized shares; the bylaws, which can be usually be amended by the directors themselves, covers such points as the election of directors, the appointment of executive and finance committees, the duties of Officers, and the how share transfer may be made. Bylaws, which are also prevalent in not-for-profit organizations, cannot countermand the laws of the government.

CAPITAL GAIN

Difference between an asset’s purchase price and selling price, when the difference is positive. 

CAPITAL GAIN DISTRIBUTION

Mutual Fund’s distribution to shareholders of profits derived from the sale of stock or bonds. Traditionally, Mutual Fund shareholders benefit from a lower long-term capital gains tax rate regardless of how long they held the fund shares.

CAPITAL GAINS TAX

Tax on profits from the sale of capital assets. Gains From assets owned for a period longer than 12 months currently receives a lesser tax than that held less than 12 months.

CAPITAL INVESTMENT

Capital expenditure

CAPITAL LOSS

Amount by which the proceeds from the sale of Capital Assets are less than the cost of acquiring it.

CASH

(a)     Asset account on a balance sheet representing paper currency and coins, negotiable money orders and checks, and bank balances. Also transactions handled in cash. In the financial statement of annual reports, cash id usually grouped with CASH EQUIVALENTS, defined as all highly liquid securities with a known market value and maturity, when acquired of less than three months.

(b)    To Cash is to convert a negotiable instrument, usually into paper currency and coins.

CASH ACCOUNT

Brokerage account whose transactions are settled on a cash basis. It is distinguished from a Margin Account.

CASH ASSET RATIO

Balance sheet LIQUIDITY RATION representing cash (and equivalents) and marketable securities divided by liabilities. Stricter than the Quick Ration.

CASH BASIS

Method that recognizes revenues when cash is received and recognizes expenses when cash is paid out. In contrast, The ACCRUEL METHEOD recognizes revenues when goods or services are sold and recognizes expenses when obligations are incurred.

CASH DIVIDEND

Cash payment to a corporation’s shareholders, distributed from current earnings or accumulated profits and taxable as income. Cash dividends are distinguished from STOCK DIVIDENDS, which are payment in the form of stock.

CASH EQUIVALENTS

Instruments or investments of such high liquidity and safety that they are virtually as good as cash. Examples are Money Market Funds, and TREASURY BILLS.

CASH FLOW

(a)     In a larger financial sense, an analysis of all the changes that affected the cash account during an accounting period. THE STATEMENT OF CASH FLOWS include in annual reports analyzes all changes affecting cash in the categories of operations, investments, and financing. For example: net operating income is an increase; the purchase of a new building is a decrease; and the issuance of stock or bonds is an increase. When more cash comes in than goes out, it is said to be a positive cash flow. The opposite is negative cash flow. Companies with assets in excess of liabilities may nevertheless go bankrupt because they cannot generate enough cash to meet current obligations.

(b)    In investments, net income plus depreciation and other non-cash charges. In this sense, it is synonymous with Cash Earnings. Investors focus on cash flow from operations because of their concern with a firm’s ability to pay dividends.

CASH MANAGEMENT

(a)     Corporate sense: efficient mobilization of ash into income-producing applications.

(b)    Investment sense: Broker’s efficient movement of cash to keep it working.

CASH RATIO

Ration of cash and marketable securities to current liabilities; The cash ration tells the extent to which liabilities could be liquidated immediately. Sometimes called liquid ratio

CERTIFICATE

Formal declaration that can be used to document a fact such as a birth certificate. The following are certificates with particular relevance to finance and investments.

(1)    Auditor’s certificate, sometimes called certificate of accounts, or ACCOUNTANT’S OPINION.

(2)    Bond Certificate, certificate of indebtedness issued by a corporation containing the terms of the issuer’s promise to repay principal and pay interest, and describing collateral if any.

(3)    Certificate of Deposit.

(4)    Certificate of Incorporation

(5)    Certificate of indebtedness, government debt obligation having a maturity shorter than a bond and longer than TREASURY BILL (such as a TRESURY NOTE)

(6)    Partnership certificate, showing the interest of all participants in a business partnership.

Stock Certificate, evidence of ownership of a corporation showing number of shares, name of issuer, amount of par or stated value represented or a declaration of no-par value, and right of the shareholder.  Preferred Stock also lists the issuer’s responsibilities with respect to dividends and voting right, if any.

CERTIFICATE OF DEPOSIT (CD)

Debt instrument issued by the bank that usually pays interest.

CHASING THE MARKET

Purchasing a security at a higher price than intended because prices have risen sharply, or selling it at a lower level when prices fall.

CHECK

Bill of exchange, or draft on a bank drawn against deposited funds to pay a specified sum of money to a specified person on demand. A check is considered as cash and is NEGOTIABLE when endorsed.

CLOSE

(1)    The price of the last trade of a security at the end of a trading day.

(2)    To consummate a sale or agreement.

(3)    In accounting, the transfer of revenue and expense account at the end of a period—closing the books.

CLOSING PRICE

Price of the last transaction completed during a day’s trading session on an organized security exchange.

COLLATERAL

Asset pledged to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.

COMMISION

Fee paid to a broker for executing a trade.

COMMON STOCK

Units of ownership of a public corporation.

CONFIRMATION

Formal memorandum from a broker to a client giving details of a security transaction.

CONTRIBUTED CAPITAL

Also called paid-in-capital, payments made in cash or property to a corporation for stock by shareholders.

CONTROLLING INTEREST

Ownership of more than 50% of a corporation’s voting shares. A much smaller interest owned individually or by a small group in combination, can be controlling if the shares are widely dispersed and not actively voted.

CREDIT

(1)    In accounting; entry-or the act of making an entry –that increases liabilities, owner’s equity, revenue, and gains, and decreases assets and expenses.

(2)    For statements: Adjustment in the costumer’s favor, or increase in equity.

CURRENT ASSETS

Cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold. Exchanged, or expensed in the normal course of business, usually within a year.

CURRENT INCOME

Money that is received on an ongoing basis from investments in the form of dividends, interest, rents, or other income sources.

CURRENT LIABILITIES

Debt or other obligation coming due within a year.

CURRENT MARKET VALUE

Present worth of a portfolio at today’s market prices, as listed in the brokerage statement every month. For stocks and bonds, the current market value is determined by the closing prices. The bid price for over-the-counter securities.

DATE OF RECORD

Date on which a shareholder must officially own shares in order to be entitled to a dividend.

EMERGENCY FUND

Cash reserve that is available to meet financial emergencies, such as medical bills or unexpected auto or home repairs.

ENDORSE

Transfer ownership of an asset by signing the back of a negotiable instrument.

EQUITY REIT

REAL ESTATE INVESTMENT TRUST that takes an ownership position in the real estate it invests in. Stockholders in the equity REITs earn dividends on rental income from the buildings and appreciation if properties are sold for a profit.

EXPENSE RATIO

Amount, expressed as a percentage of total investments, that a shareholder pays annually for a Mutual Fund operating service, salaries, for money managers and administrative staff, and investor centers, among many others.

FILL

Execute a customer’s order to buy or sell a stock, bond, or commodity. An order is partially filled if less than the full amount of the order is supplied.

FIXED ASSET

Tangible property used in the operations of a business, but not expected to be consumed or converted into cash in the ordinary course of events. Plants, machinery and equipment, furniture and fixtures. These are commonly expressed in the balance sheet at their net depreciated value.

FLUCTUATION

Changes in prices or interest rates, either up or down. May refer to either a slight or dramatic change in the prices of stocks, bonds, or commodities.

FULLY INVESTED

An investor or a portfolio when funds in cash or cash equivalents are minimal and assets are totally committed to other investments, usually stock. To be fully invested is to have an optimistic view of the market.

GAIN

Profit on a securities transaction. A gain on said security is realized when it is sold for more than its purchased price.  If the investment was help for a period longer than a year, it qualifies for more favorable capital gains tax rates.

GREATER FOOL THEORY

Theory that even though a stock or the market as a whole is fully valued, speculation is justified because there are enough fools to push the prices further upward.

INVESTMENT CLUB

Group of people who pool their assets in order to make joint investment decisions. Each Member of the club contributes a certain amount of capital, with additional money to be invested every month or quarter. Decision on stocks to buy is made by a vote of the members. Besides helping each member become more knowledgeable about investing, these clubs allow people with small amounts of money to participate in a larger investment, own part of a more diversified portfolio, and pay lower commissions rates than would be possible for individual members on their own.

LEADER

Stock or group of stocks at the forefront of an upsurge or a downturn in a market.

LOAD

Sales charge paid by an investor who buys shares in a load mutual fund or annuity. Loads are usually charges when units are purchased, a charge for withdrawing is called a back-end- load. A fund that does not charge this fee is called a no-load fund.

LONG TERM INVESTOR

Someone who invests in stocks, bonds, mutual funds or other investment vehicles for a long time. Typically at least 5 years, in order to fund long-term goals. A long-term investor looks for solid investments with a good long-term track record.

NAV

Net Asset Value; value of all securities owned plus all other assets, such as cash, subtracting all liabilities, then dividing by the total number of shares outstanding. The number of shares outstanding can vary each day depending on redemptions and purchases.

OBLIGATION

Legal responsibility as per a debt.

OPEN

(1)    To establish an account with bank or brokerage

(2)    Unpaid balance.

PORTFOLIO

Combined holding of more than one stock, bond, commodity, real estate investment, Cash Equivalents, or other assets by individuals or institutions investors. The purpose of the portfolio is to reduce risk by diversification.

POSITION

In the context of investments, it refers to the Investor’s disposition either long (betting prices will rise) or short (betting prices will fall) in a particular security in the market. May also refer to the quantitative nature of the allocation of that security as it compares to the overall portfolio.

PRICE/EARNING (P/E)

Price of a stock divided by the earnings per share of the same. The observation period of encompassing the earnings calculation may be a trailing period or may refer to a future period. The PE as it is generally called is measures of the multiple investors are paying currently for a particular stock, thereby the expectation that the earning’s future growth as it compares to the current price.

PROXY

As it relates to the Club’s voting, it is the person authorized to vote on behalf of a stockholder of the Club.

RESOLUTION

Expression of desire or intent.

SELLER’S MARKET

Situation in which there is more demand for a product than there is available supply. As a result, prices tend to be rising, and sellers can set both the prices and the terms of sale. It contrast with a buyer’s market, characterized by excess supply, low prices, and terms suited to the buyer’s desires.

SETTLEMENT

As it applies to the Club, a resolution of differences among the various parties. The delivery of, cash, marketable securities, equity, equal to that which is the liability of the club to a club member. Upon settlement of the members interest in the Club’s assets. The obligation and service has been complete and the member’s needs have been met in proportion to his share of assets.

SILENT MEMBER

As it applies to our Club, a member who has no voting privileges. For breach or responsibilities, or improper acts or acts that impede the business of the club.  The clubs reserves the right to not keep this member if it so votes (¾ is the threshold needed from attending members to pass a vote).

TAX BASIS

For Investment purposes, it is the price at which a stock or bond was purchased, plus brokerage commissions and any reinvested dividend and reinvested interest.

TOP-DOWN APPROACH TO INVESTING

Method in which an investor first looks at trends in the general economy, and next selects industries and then companies that should benefit from those trends. Example, if one believes inflation will stay low, one may look at retailers since consumer’s spending power will be enhanced by low inflation.