We use jargon….hopefully this Glossary of Terms helps

A

A

B

B

C

Cost Basis: Not all statements have these but you should know where to get them. The cost basis on mutual funds, ETFs and even stocks will change constantly if you have elected to have dividends or capital gains reinvested. You should also ask your broker or financial institution what basis calculation they use. They should ask you at the time of any sale of securities.

D

Dallas Fed Survey - One of several Federal Reserve regional surveys, the Dallas Fed Manufacturing Survey tracks factory activity in Texas on a monthly basis. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month. It’s a balance index which means in typically takes the difference between those companies reporting a rise in activity (say 30%) and those reporting a decline (say 15%). This gives a score of 15. Responses are aggregated into balance indexes where positive values generally indicate growth while negative values generally indicate contraction. About 100 manufacturers regularly participate in the survey. More here.

E

Employment Costs - The total costs to an employer for paying employees. In December 2018, this was about $36 an hour for all employees and ranged from $16 for private sector service workers to $60 for managerial-level government workers. For the average worker, the cost was around $25 in wages and another $11 in benefits. The costliest benefits were health insurance (26% of benefits), vacation (22%) and mandated costs like social security and workers compensation (23%).

While wages and hourly earnings get a lot of attention in the investment world, it’s worth looking at total costs and benefits. The faster they rise, the more the margin compression for corporations. More here.

ETF - Exchange Traded Fund. A basket of investments that track an index of stock, bonds or commodities. So, an S&P 500 ETF like SPY will own every stock in the index, in the same proportion as the index. You can trade an ETF like a stock…all day every day. The tax treatment is very similar to a stock. When you sell, a capital gain or loss is realized. If you receive a dividend, it’s taxed at ordinary income. ETFs are usually a good idea if you want a cheap, easy and tax efficient investment. More here.

ETF - Things you should know. See our article here.

F

FOMC - Federal Open Markets Committee. There are other Fed committees but this is the big one. It sets interest rates, primarily through the Fed Funds rate. It meets eight times a year. It’s made up of the seven permanent governors (although there are only five as of March 2019), the head of the New York Fed and the four or the twelve regional governors. The other eight regional governors attend but do not vote. The regional governors rotate their membership so get to vote every three years; hence, you hear about the FOMC being hawkish or dovish depending on who’s voting that year.

FOMC meeting can move markets very quickly and decisively. Analysts scrutinize the press statement immediately after the meeting and the minutes, published a month later, for every nuance of detail. More here.

FRN – Floating Rate Note, Treasury. Two-year notes issued by the U.S. Treasury. The coupon rates are not fixed but adjust, or float, every week. The rate is determined by the latest 3-month T-Bill auctions, which are held weekly. Unlike normal bonds, there is minimal reinvestment risk because the rate adjusts so frequently. We would tend to use them in rising rate environments. More here.

G

GDP - Gross Domestic Product measures the entire output and income in an economy.  GNP (Gross National Product) is almost the same thing but it adds in income from abroad. So if a company holds, and earns interest on, a lot of overseas cash that will be counted in GNP but not GDP. There’s not a lot of difference most of the time but in countries like Luxembourg and Ireland, where a lot of foreign companies (e.g. most of the U.S. tech companies) hold their cash, then GNP will be lower than GDP because the income earned is counted back in the home country (in this case the U.S.). In Ireland’s case, GNP is 10% lower than GDP. Starbucks and Amazon count the income back home.

Gross Domestic Income (GDI) is another way of measuring the economy and it is normally the same as GDP.

In the investment world, we look at GDP in the U.S and most other countries too. Occasionally, we’ll look at GDI because it can be more accurate over the long term and it's fun to see the two diverge.

H

Housing Starts - New construction of single and multi-family homes. The data is a seasonally adjusted annual rate number, so tries to adjust for the fact that construction is more of a warm than cold weather activity. It’s also annualized which means if you build 10 in one month it’s a an annualized rate of 120.

As of March 2019, it’s around 1.2m. Just before the crash, it was as high as 2.2m and plunged to 0.5m in two years. The multi-family number is around 25% of the total and we watch it because i) they take longer to build and ii) give some idea about the own/rent direction. The same report also covers “permits issued”, “authorized but not started” and “constructed.” In theory these should just lag each other but in practice, permits and building are delayed or cancelled.

Starts are a major market mover. If developers are building, people are buying and it’s a good measure of economic activity and confidence. More here.

 

I

I

J

J

K

K

L

L

M

Mutual Fund Share Classes: There are many! Check the five letter ticker on your statement. The last letter is always an "X". What you don't want to see are any “B” or “C” or “R” class shares. They're expensive and probably pay the broker a trail or 12b-1 fee. How can you tell? Well, one clue is that a B, C or R will be the penultimate letter in the ticker just before the “X.” What you do want to see is “A” or “I” in the ticker and, preferably, with “LW” or Load-Waived at the end (e.g. AGTHX.LW).

If in doubt call and ask your advisor “Am I invested in the cheapest available share class?”

N

N

O

O

P

P

Q

Q

R

R

S

S

T

Tickers: U.S. listed ETF and stock tickers are straightforward. They're usually two to three letters. A lucky few have one. If they have “ADR” after them, they're foreign stocks listed in the USA and will usually end in "F" or "Y", so NSRGY for Nestle in the US. If the ticker has three or less letters, it means the stock is listed on the NYSE. If it has four, it’s listed on NASDAQ. (Note 2). If the ticker ends in a “Q” it means the company is bankrupt so, unless you’re into protracted legal dealings, don’t buy it.

Some tickers have cute names too but they don’t carry the same concerns that we have for ETFs. So, SAM is Boston Beer (from Sam Adams beer), TAP is Coors, Mammoth Energy is TUSK and Nordstrom is JWN, the initials of the founder John W Nordstrom. FIZZ is the National Beverage Corp. The list goes on.

Mutual fund tickers can be tougher. They will have five letters and an “X” at the end (e.g. POAGX). If they're a money market fund, they will have two Xs (e.g. AJLXX). The first letter usually shares the first letter of the fund company’s name. So, Vanguard funds start with a V, Fidelity funds with a F, and so on.

Option tickers are a different animal. The company ticker may not be the same as the regular ticker. Additional letters indicate the strike price and the month of the option. 

Treasury Securities – U.S. Treasuries are the ultimate safe investment. Other countries may have higher credit ratings, but none beat the depth, breadth and liquidity of U.S. Treasuries. They come in multiple variations from 4 weeks to 30 years. What's the difference between bills, notes and bonds?

  1. Cash Management Bills (CMBs) are securities maturing from 6 days to 50 days and are to help the Treasury manage its cash needs, say around tax time.

  2. Bills are securities maturing from 4 weeks to one year.

  3. Notes are securities maturing from 2 years to 10 years.

  4. Bonds are securities maturing in 30 years.

The Treasury also issues Floating Rate Notes (FRNs) with 2-year maturities and Treasury Inflation Protected Notes (TIPS) with 5, 10 and 30-year maturities.

From our perspective, Treasuries work because we don't have to worry about call risk, default, credit, spread widening and liquidity. More here.

U

U

V

V

W

W

X

X

Y

Yield: For equities this is simply the latest quarterly dividend multiplied by four, divided by the share price. It’s a current yield and probably won't be the same as you have actually received in the prior twelve months.

For bonds, it’s more complicated. The yield is the annual coupon on the bond but if it’s a premium bond things can get tricky. First check if the price you paid for the bond was more than $100. If it is, you have a “premium” bond. Now you have a choice. For example, a bond that you paid $11,000 for will redeem in 10 years at par so you can either amortize the premium of $100 a year or you can pay income tax along the way and take a capital loss.

Z

Z