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Financial Lingo Explained

June 16, 2024
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Wiko Steyn
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Wiko Steyn

Some important and some not so important market terms.

 

IPO 

Initial Public Offering. Describes the process of a private company going public by selling shares on the stock market. Essentially, an IPO means that a company's ownership is converting from private ownership to public ownership. Investing in IPOs is inherently risky, since the companies do not have  proven track records.  

 

CAGR 

Compound Annual Growth Rate is the mean annual growth rate of an investment over a specified period. It represents one of the most accurate ways to calculate and determine returns for investments.

 

FCF 

Free Cash Flow represents the amount of cash generated by a company minus the cost of all expenditures. Free cash flow is an important measurement since it shows how efficient a company is at generating cash. FU Investments places great emphasis on FCF ratios when we are investigating a company's financials.

 

TAM 

Total Addressable Market defines the overall demand for a product or service. It represents the total revenue potential if the company is able to capture 100% of the market share. It is an important metric for a company's potential growth runway. It is usually combined with the companys penetration into the market.

 

P/E 

Price/Earnings Ratio is a valuation metric of a company but it should never be looked at in isolation. It is simply calculated by dividing the share price of the stock by its earning per share. It is important to always consider the projected growth of a company alongside valuation metrics, because certain assets can grow their earnings power and will have lower future valuation ratios. Many growth companies might even have negative P/E ratios, this does not necessarily make them bad investments, it is always good to have a holistic view.

 

Beta  

An indication of how volatile a stock is compared to the overall stock market. A Beta of 1 means that if the stock market goes up by 20% the stock will also go up by 20%. It is obviously not 100% correct since a new piece of information on a specific stock might cause it to react differently. A high beta indicates more volatility and with more volatility comes more risk. Growth stocks usually have higher Betas compared to value stocks. Our Unicorn Portfolio will also have a much higher Beta compared to the Core Fund.

 

DCA 

Dollar-Cost Averaging is a strategy that FU Investments use to lower the risk of investing. Instead of investing a lump sum all at once into an asset, the total investment cash is divided up and allocated over a longer period. 

 

PT  

Price Target refers to an analyst's prediction of an asset's share price in the future. It is usually given as a one year price target but longer periods are also possible.

 

Now let's have a look at some not so important, but sometimes useful expressions and acronyms:

 

HODL 

Hold On for Dear Life, this acronym became massively popular in the crypto market, it is believed that it was a drunken spelling mistake of Hold. This became an overnight meme sensation, which now refers to a long term investing strategy, where an investor will hold onto an asset even during extreme volatility or depreciation.

 

FUD 

Fear, Uncertainty, Doubt refers to rumours or scare tactics used to unsettle investors. It is a strategy used to influence investors by spreading negative and dubious or false information.

 

Bagholders  

Describes investors who are still holding onto stocks or crypto after suffering significant losses. Unfortunately, most new investors in the market today are some form of bagholder, it only varies by degree.

 

DYOR 

Do Your Own Research, this is quite an important one and we are strong advocates for the concept. Never invest in someone else's conviction and always do your due diligence.

 

BTD/BTFD 

Buy The Dip or just the more aggressive form of the expression. You will see a lot of this going around on social media and in news headlines at the moment. When the market or an asset is going down, there is a common belief that it will go up again and it might be a good idea to invest. Unfortunately, this is not always the case and our next expression shows why.

 

Never Catch a Falling Knife 

Any asset can always depreciate further, and what might look cheap now, could get even cheaper in the future. The market is relatively efficient and there is usually a reason why a stock is going down, whether it is macro headwinds or company specific, never assume that it is a bargain.

 

Deep Dive 

A research article about a company that thoroughly investigates the company to have a deeper understanding of the company's operations, management and financials.   

 

Stonks 

A deliberate misspelling of stocks. In some contexts, its used as a joke term if a loss is made. 

 

Diamond Hands  

Refers to investors who are not selling even if there is significant downward pressure. They usually have a high risk tolerance for volatile assets.

 

Paper Hands 

Are the opposite of diamond hands which refers to people who usually sell too early because they are risk-averse.

 

NGMI 

Not Going to Make means you will not be successful due to a bad decision or poor judgement.

 

WAGMI 

We All Are Going to Make It. Well, lets hope so!


 


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