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144a is the legal rule that sets out when you can sell shares in a company in which you are an insider - i.e., say, the venture capital investor in the early rounds. Usually shares are locked up 6 months and change after the first day of trading after an IPO.

529 Savings Plan

Think: Tax advantaged college savings plan for the middle class. Taxes on college savings are deferred if various standards are met.


An annuity is a contract written by an insurance company, which guarantees income for the rest of your life in return for a set of payments up front.

Note the "ann" in the word, which is also coincidentally the opening of the word annual—as in the payments happen annually. These payments either come in one plop or are "accumulated" over time. In theory, it has less risk than just buying a bunch of stocks. But there is a price to pay for that risk mitigation... usually in the form of lower returns to annuitants.


When a company can't pay its bills. It goes kaput. Dies. The creditors to whom it promised to pay back money don't get paid (the bank's GOOD customers have to make up the difference even though they did nothing wrong) and the bankrupt company is a corporate deadbeat.

Business Cycle

In the end, everything is the same. Ups. Downs. We all lead back, more or less, to the same place. Business is no different - there are booms and busts and over time, real estate goes up. So does the stock market. Over time.


Click here. http://myjuicecleanse.com/ After you've expanded too much and just need the contraction, this will help.


A form of business organization in which the business acquires a legal status separate from its owners; this limits the liability or risks of the owners by placing their other assets beyond the reach of court action and creditors. Corporations divide ownership into units represented by shares of stock that can be transferred or exchanged. Corporations are also generally characterized by the separation of ownership from management; thus shareholders often play very little role in the practical management of the corporation.

Credit Risk

Will the borrower pay or end up a deadbeat so that the rest of society has to pay for their debts? That's credit risk - the risk that the promise to pay won't be honored.


When you have custody, you have the actual physical assets, whether they are in the form of cash or securities.

If a client has given their investment adviser full discretion to withdraw customer cash and securities, the investment adviser is considered to have custody.


Usually, what happens right around April 15th each year.

From a macro perspective, a depression is defined differently by different groups, but most agree that it's a more severe and prolonged version of a recession, with GDP in sustained decline and unemployment at high rates.

When it happens, everyone has less money to spend and things become a cycle—since people aren’t spending money, businesses don’t need to make as much stuff and they lose revenues so some of them shut down, which means fewer jobs and even less spending. During a depression, the government might step in with programs that are meant to provide jobs and get people spending again.


No longer empt. That is, "tax friendly" - "exempt" from taxability. Your home mortgage interest is a tax exempt payment.http://www.shmoop.com/financial-literacy/mortgages/mortgage-shmortgage-mechanics.html


Click here.http://www.mcdonalds.com/us/en/food/product_nutrition.sandwiches.287.double-quarter-pounder-with-cheese.html Lots of expansion comes from clicking here. Same idea with money in a business cycle.


The person who's in charge of taking care of assets or something else on behalf of others.

In a trust, the fiduciary manages the trust on behalf of the beneficiary, for example. They must act in the best interests of the beneficiary; they can’t grab the cash and head for the Caymans.

Fiscal Policy

When the economy begins to suffer from serious recession or inflation, politicians will almost always intervene to try to improve the situation. Their interventions may or not be good economics-often they're not!-but you can hardly blame the politicians for trying. Nobody wants to go down in history like Herbert Hoover, the president who became a widely hated figure for failing to use the government aggressively enough to try to end the Great Depression. LInk here: http://www.shmoop.com/economic-policy-macroeconomics/fiscal-policy.html

Flat Yield Curve

Happens in blue moons and when the cost of renting money is the same if you're renting it for a short period of time or a long period of time. A normal yield curve goes... up - that is, the cost of borrowing money in the short term is cheaper than that in the long term.

Fundamental Analysis

When it's a blast doing damental analysis. Applies to investing in companies - to determine whether it's a good or bad deal at $37.20 a share, you assess the core business operations of the company, their revenue growth, profit margins, cash flow generation and other things that all pertain to the basics of investing which are to get more out of an investment than you put in; this system differs from astrology which is the primary form of "analysis" for "macro trading" and other short term "strategies" that rely on charts and bumps on skulls.

Gross National Product

Hamburgers. They're a huge national product of the U.S. and they're gross. Just see GDP and click here <>

Incentive Stock Option

Think: An enticement to work for a Silicon Valley startup for a below market salary. That is, we'll pay you $45,000 a year even though you are used to making $100,000. But we'll give you 300,000 ISOs (incentive stock options) at a 4 cent a share strike price - so if we make it big, you make millions.... More or less.


We at Shmoop are keen on Keynes -But as the Depression only worsened through the first years of the 1930s, many began to doubt the classical economists' faith in the market's long-run ability to correct itself. "In the long run we're all dead," protested British economistJohn Maynard Keynes. "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." In his massively influentialGeneral Theory of Employment, Interest and Money(1936), Keynes suggested that the Great Depression had been caused by a broad failure of aggregate demand across the economy, which created a new equilibrium at less than full employment-a situation in which Depression conditions might persist indefinitely. In order to increase aggregate demand and get the economy moving again, Keynes argued that the government should massively increase its own spending in times of economic distress, even if it meant running a significant budget deficit. While most of the key players in the Roosevelt administration were initially skeptical of Keynes's theories, the New Deal did end up taking on a broadly Keynesian quality, characterized by major and unprecedented government interventions into the economy. Keynesian ideas went on to dominate academic and government thinking about political economy through the 1960s.


Stuff you owe.

Monetary Policy

By serving as an intermediary bank, setting reserve requirements, and making short-term loans to banks, the Fed plays a crucial role in overseeing the nation's banks and money supply. Our checks (a huge part of our money supply) are efficiently processed, banks are prevented from lending more of our money than is safe, and banks are provided assistance in meeting the federal regulations that ensure a stable and safe financial system. But the Fed also uses some of these same tools to more generally influence the performance of the economy. By adjusting the discount rate and reserve requirement, the Fed can make adjustments in the nation's money supply during periods of recession and inflation. http://www.shmoop.com/money-banking/monetary-policy.html

Non Exempt

See Exempt

Non-Qualified Stock Option

A stock option that isn't "qualified" to receive favorable tax treatment, more or less. That is, in a qualified stock option, an employee can buy it out, own the equity, hold it for a year or much more and then get long term gain tax treatment. In a non-qualified option, all gains are ordinary income abuse.


The original amount of money you put down for a deposit or investment.

The higher the principal, the more you will pay in interest on a loan or the more potential returns you could get on an investment.


You borrow $10,000 to buy a car. You pay off the loan in two years, and your total payments are $15,000. That means that in addition to the principal of the loan ($10,000), you’ve paid $5,000 in interest.

Red Herring

Alas, nothing to do with CSI IPO. A red herring is a preliminary prospectus, which companies have to submit to the SEC outlining all the company details before a public offering. It's written partly in red ink, hence the nickname.

Rule Of 72


A nifty little equation that lets you use the number 72 to figure out how long it will take for you to double the value of your investment. Just divide 72 by the annual rate of return on an investment to find out how many years will take for it be worth twice as much.


You buy a bond for $1,000 at an annual rate of 8%. Divide 72 by 8 and you'll find out that it'll take you nine years to double that 1G.

S&P 500

A broad market index of 500 major companies in the US. Most investors think of the S&P 500 index as being the market.

Shares Outstanding

The number of shares a company has that are outstanding. That's not like "outstanding" as in amazing, mind you.


Company X has all hundred million shares outstanding in the stock moved from $12 a share in January to $34 a share by December. How much market capitalization or the value did it gain? Well, at $12 a share, the company was worth, according to Wall Street, $1.2 billion. By December, it was worth $3.4 billion for a gain of $2.2 billion. The shares outstanding did not change. It was only price appreciation, which added value to the company. The company could have acquired another company using only its stock. For example, it might have paid 50 million shares to buy company Y. It would then have 150 million shares outstanding. If the street liked the purchase and the stock traded up to $20 a share, then the new market capitalization would be $3 billion.

Sharpe Ratio

You produced a given investment result. A good one. But how much risk did you take to get it? That's what the Sharpe Ratio measures. You want a deeper definition? Google it.

Sinking Fund

A company with bonds outstanding will buy a portion of the bonds each year by making periodic payments to a trustee who then buys a portion of the issue on the open market. Investors prefer sinking funds since they greatly reduce the risk of the issuer's defaulting on repaying the principal at maturity.


Company X has $100 million a year in free cash flow production. It has 10 bonds outstanding, each of which has a $50 million face value. The company takes half of its free cash flow to retire those bonds—or buy them back—thus reducing the leverage and risk to the company's balance sheet.


The difference between the bid and the ask price. (See bid-ask spread.)

Statutory Voting

For every share you have, you get one vote. Yawn. 

Stock Certificate

The piece of paper that says you own a given ownership piece in a company in the form of shares.

Stock Split

See stock dividend. They are identical in result.


Investors get all excited when they hear news of a stock splitting. Economically, this event means next to nothing. All it does is take a pie that's divided into six slices, and in the case of a 2 for 1 stock split, divide that pie into 12 slices. Or, said another way, an $80 stock becomes two shares of a $40 stock. 

That said, companies usually only split their stock this way when they are bullish on the future returns. There is also a funky thing called a reverse stock split, in which case a company goes from having, say, a two-dollar stock, and in a 1 to 5 reverse split, that two dollar a share hundred-million share company becomes a $10 a share 20,000,000 share company.

Strike Price

The price at which you may strike—whaBAM!—lightning fast. It's the price on an option where you can either buy or sell the security. WhaBAM! (We just like saying that.)


You have a stock trading at $14 a share. You were a lucky employee to have joined before the IPO and you received stock options with a strike price of a dollar a share. You can say that you are $13 in the money based on the stock trading here at $14. In practice, to buy your Beemer, you would execute what's called a same day sale with your broker who would remit to you the difference from the strike price to the actual clearing price or 13 bucks. Then go 325i.

Subordinated Debenture

A corporate bond that is lower in priority—i.e., subordinated—to other debt that the company has incurred. Typically, large companies have many series of debt. Comcast, for example, has had over two dozen different layers of debt in its history. The lowest rated bonds in that stack get paid off after all of the more senior bonds are paid. Hence, the nomenclature as "subordinated."

Super-Voting Stock

Like the over-powered Superman, Super-Vote Stock owners have beefed up voting abilities above and beyond the rest of the stockholders.


Sometimes founders have an emotional connection with their companies that extends far beyond their financial involvement. So they give you a special clause in the governance of the company that gives them a special class of stock. That stock often carries a much greater voting power than the economics would dictate for the number of shares that they own. 

For example, a founder who economically owns 20% of a company might have 5 to 1 super voting stock, in which case that founder's 20% economic share gets treated under of vote as if it is hundred points votes against the 1 for 1 normal shares owned by everyone else. That is, the founder can't be fired by the board. 

Super voting stock isn't always just about ego. Wall Street often acts with short-term greed and the super voting stock allows companies to make long-term backs in the best long-term greed interests of the company.

Systematic Risk

Risk in the system. Like... if you own a bunch of stocks and the whole system crashes (i.e. the market goes down and not in the good way), that's just risk you take on if you are long the market. To hedge that risk, you can find ways to be short the market - i.e. buy puts or collect some cash premiums by selling calls. R-rated note: Systematic risk applies to risk of the market going UP as well - if you're short and it takes off, then click here.http://www.job-applications.com/united-states-postal-service-job-application/

Term Sheet

A piece of paper that sets out terms of a deal. Sometimes on a napkin.


I invest $1,000,000.00 in you.com today.

In return, I get:
  • 51% of your company;
  • your lungs;
  • your liver;
  • your soul.

Thank you. 


Mr. Faust

Time Value

See intrinsic value. All options have two components of value. Intrinsic value is how much you'd make if you exercised the option right now - intrinsic value can range from 0 to infinity. Time value is just the difference between the current price for that option and its intrinsic value.

The concept of time value relates to all of investing. That is, "a dollar today is worth more than a dollar tomorrow" (in a normal world). Why? Because today you can invest that dollar. You can buy stocks, real estate, commodities, bonds, ...whatever. And those investments give positive returns (risk adjusted) or you wouldn't make those investments. Even if you only buy a 1% very safe T-Bill that dollar today will be worth something like 1.00001 dollars tomorrow. The TIME involved in investing matters a ton: Warren Buffet has a great quote here that goes something like: "Wanna be a billionaire? Easy. Start with 100 grand of savings, put it in an index fund that goes up about 10% a year, and live to be 400 or so." For the R rated version of Time Value, see Discounted Cash Flow Analysis.

Trade Deficit

Like a wart. A bad thing if you have one. It happens when you are paying more cashola to buy things from a given country than receipts you are getting in cash FROM that country for selling your shizzel to them.


For decades, America gathered most of the natural resources it needed to build cars.... from America. We made our own steel, tires, leather, rear-view-mirror-fuzzy-dice, etc. We then sold that car to Europeans and Asians and made a friendly killing. We had balanced trade in those days where we were King of the Castle. 

Then bad things happened: we lost our dominance in the auto industry; our cost of labor skyrocketed relative to that in emerging countries so we lost a lot of our industries; and we never even made it to the finals of the World Cup. 

Today, more wealth leaves the U.S., buying things from China and other countries, than wealth comes in. We are have a trade deficit with China.

Trading Volume

How LOUD IT IS ON THE TRADING FLOOR!!!! But really, refers to how many shares trade in a security over a given period of time.


Can you find it? Keep lookin'...that's the number of shares that have traded thus far today.

Unlimited Liability

It means you can have your pants sued off, literally. If you house your company inside of a corporate shell, there is usually not unlimited liability, i.e. if your asbestos truck blows up and kills a city, it's only your company that goes BK but you can take your own personal money and run.


It's a tale of two pizza parlors: the Joneses and the Smiths. The Joneses owned their pizza parlor personally as a sole proprietorship style of business ownership. The Smiths set up a limited liability corporation for $299 on LegalZoom.com.

Both operated basically the same. Until The Cheese Day happened. It was bad cheese. They had the same supplier. It turned all of their clients' stomachs to mush. And both operators got sued. And lost. A million dollar judgment.

The Smiths lost the restaurant, but they had taken so much money out of it for years, so they were just fine financially. They'd open a new one down the street. And change cheese suppliers.

The Joneses were not so lucky: the parlor brought $300,000 at auction and the family still owed $700,000. The lawyers stepped in and sold their house, net of mortgage and realtor commissions for $500,000. The cars went for $25,000. Then went the fish tank, the shoes, the jewelry brought over from Europe during the war. All of that was another $20,000.

It still wasn't enough. We shan't continue with what happened to the Joneses, but you don't want to keep up with them. It's called a "limited liability corporation" for really good reason and costs a couple hundred bucks to set up. 

Two words not by Nike: Do it.

Unsystematic Risk

Risk that YOU bring to the table. That is, it's risk of bad stock and bond and ..other.. investment vehicles you'd put your clients' hard earned money into - and lose it because you're a lousy investor. See systematic risk.


You think you're oh so smart. You bet the ranch on new IPO whatever.com...and end up giving the ranch to your broker. That's UNsystematic. It's you. Because as an investor, well, you suck. Moral: Don't be the ranch. And if you aren't a pro investor with all the bells and whistles of training, just buy an index fund and go play golf.

Wrap Account

No, not the kind of account that Jay-Z opens just because he's Jay-Z. He might, but not because he's a (w)rapper. A wrap account is one where the broker manages the portfolio for an annual fee, usually based as a percentage of the assets in the account. The fee covers all administrative, commissions and other expenses (but usually does not cover any fees or charges imposed by an exchange or a regulatory body). The benefit of a wrap account is that it prevents investors from being swamped by commissions because they have a trigger-happy broker who trades like a lab rat on crack.


Clients like wrap accounts—they are the equivalent of the all-you-can-eat salad bar. And banks like them as well because they provide income predictability and a longer term consultative relationship with clients. 

A typical wrap might cost a standard client 1% of assets under management, so if Jay-Z gives his broker $100 million under a wrap account, he'll be charged a million bucks a year in return for handling all of Jay-Z's trading, wiring, account, and a whole bunch of other services. And for many large brokerages, wrap accounts allow for their clients to be able to buy various flavors of funds (mutual, hedge, index) at "wholesale" prices; that is, if the fund is a captive fund maintained by the brokerage, the wrap account allows the client to buy with no commission or upfront charges.


We're a bunch of people at Shmoop who do this for a living. But in this case, "writer" refers to an option. That is, the person who sells an option is the writer of it and the term likely hails from an era in which option contracts weren't fully standardized so the person selling it literally had to write it, or at least a decent portion of it.


I think GOOG is going to be flat to down from the $500 a share it sits at right now...for the next year. I want to take in some money and I'm willing to risk letting GOOG take off and go to $600 or $700—that is, I don't think it'll happen. So I write you a call option that gives you the right to buy a share of GOOG from me for $550 a share. The offer is good any time from now until one year from now (my option expires on the 3rd Friday of that month) and note that American style options are "any time"; European style options expire on a specified single date (i.e., much more vulnerable to short term market gyrations and manipulations so usually priced cheaper).

So what's the deal? Well, I am making a bet that GOOG doesn't trade above $600 between now and then (and I'm conveniently ignoring taxes). Why $600 and not $550? Well, the call option strikes at $550—that is, it's at that price I'm willing to sell you a share of GOOG. And you're paying me $50 for the privilege. So, all in, if you execute the call option I just wrote you, you'll pay me the $50 gate fee plus the $550 a share. And if the stock never gets appreciably above $600 so that you execute your call, then I made 100% on my "investment of risk" in writing you that call; that is, I keep the 50 bucks and buy a nice steak din, on you.


Yield is just the dough you get back after investing an initial sum. It can come in the flavor of bond yield—like a coupon—paying whatever percent face value, based on par value. That is, for a bond trading at par, with face yield of 5%, that bond pays the investor 25 bucks twice a year for that 5% face on a grand invested. 

Got it? It is just the percentage rate of return on a bond.

But what if the price of the bond got cut in half? Maybe something bad happened to the company—patent law suit or CEO caught in bed with an alien from Mars—so investors suddenly feared for the creditworthiness of the company. And they sold heavily their bond positions. Now the bonds are selling at 50 cents on the dollar or $500 a unit instead of the standard $1,000. The bonds still have to pay the 50 bucks a year interest but now they yield 10%... 50 bucks of the grand at which they were created.

But yield is also derived in the land of equities. Coca Cola stock trades at 50 bucks a share and pays a $1 dividend. It yields 1/50 = 2%. You get 25 cents 4 times a year for each share you own. And big note: equities pay dividends 4 times a year; bonds pay twice.

Yield To Call

If a bond is callable, the relevant metric is determining the yield from date of purchase (or issue) to the first possible date that it could be called.


Okay, first you gotta go read yield to maturity.

And then add the curveball that companies are afraid. Very very afraid. Of what? Inflation. And deflation. And, mainly, of looking stupid. 

So let's step into the Wayback Machine and go to 1977 when prevailing corporate bond rates were, give or take, 12%. Very expensive money rental—and that was for pretty high quality companies. If a company needed cash, a very bad path to have taken would have been to issue 30 year standard (un-callable) paper. The investors who bought it would have feasted on the 12% interest rates for 30 freakin' years. Awesome deal for the investors; horrible deal for the company.

To protect their careers, the finance people inside the company would likely have issued a call provision, say, 5 years after they'd issued, usually at a modest premium like 102 or something. That is, if the premium they pay over par is 2%, then after 5 years of paying outrageous 12% interest on paper issued at the peak of the horrible-for-investors Jimmy Carter era, the company could buy back its own paper. And pay $1,020 for each grand of par bonds out there. The prevailing rates might then be, say, 7%—so it makes a ton of sense for a company to repurchase and refinance.

So when you see a "yield to call" provision on a bond, if you think rates are going down, be wary of it; if rates are going up during the duration of that bond, it's likely that the bond's call provision won't ever be exercised. It'll just sit its fat lazy duff on the couch, clipping coupons twice a year.

Yield To Maturity

This is the yield that a bondholder will receive by holding the bond until it matures. This assumes that the interest payments are all reinvested, so yield to maturity will change over time as the reinvestment rate fluctuates.


You buy a bond for $1,000 (i.e. at Par) which has a face yield of 6%. That's it. Simple. It's yield to maturity is 6%. 

But it's not. Not really, anyway. 

Why? Because when YTMs are calculated they assume that the 6% is REINVESTED and returns that 6% face value. But, in fact, that's usually not what happens. You get your 30 bucks twice a year on the grand you put down with your broker and... you spend it. On whatever. But you spend it—oh, and you spend it after you are taxed on it. So it's...less. 

What happens if you pay a premium for your bond? Like, you've paid $1,100 for a bond yielding 6%—your YTM will be LESS than 6% because you've paid a premium—but the calculated rate would be as if you reinvested the money at 6% so that YTM number usually overstates the real value you'll derive from that bond. 

Might not seem like much...until you're retired and living on a budget and need every penny to buy toys for your bratty grandkids at Christmas. In this case, note that the yield is in the low 5%s which means that the prevailing rates are lower than they were when the bond was likely issued...so it would be very hard to replace the full 6% interest rate returns when that semi-annual cash coupon came in. 

Zero Coupon Bonds

Bonds that do not have any stated coupon rate are called zero-coupon bonds. Instead of paying regular interest, these bonds are issued at a large discount to their face value, and pay the face value at maturity. The difference between the issue price and face value represents the interest earned on the bond.


Why would you want a bond like this? Well, they usually pay more. Why? There's usually more perceived risk in a Zero, in that you get NONE of your money back until the very end.

In a normal "vanilla" bond, you at least get the semi-annual interest payments along the way so if the company goes bust and really can't pay you back for your sweat, toil, and savings you invested, then at least you got the interest. And that interest can mean a lot to retirees and others who need the cash to live on (so many of them don't buy Zeros in the first place).

But Zeros are great if you already have lots of cash as they are "illiquid." Until they are very liquid—meaning that when they come due, say, on a given issue, 10 years later, you get a mountain of cash. To wit, if you bought a bond maturing for $1,000 in 10 years, that had a face value of 6% yield, you'd put down today $558...and get almost double your money back in a decade. 

All from our hero, Zero.

*Securities is a registered trademark of the College Board, which was not involved in the production of, and does not endorse this product.