Stock Market Every business has its own jargon used by experts that may be difficult for the general public to understand. Regretfully, the financial industry also frequently uses this type of lingo. To characterize particular occurrences, financial experts have created new acronyms, modified the meaning of preexisting phrases, and created new terms over time.
To make it easier for the typical investor to understand, we shall define 22 common investment words in this article.
Market Performance Terms:
Term 1: Bull Market
Perhaps the most often used words in relation to the stock market are bulls and bears.
Simply said, a bull market is one in which the stock market is steadily rising. However, there isn’t a single, universal way to tell if a market is bullish. A 20% increase in stock prices is typically seen as a bull market.
Second Term: Bear Market
A bear market, as opposed to a bull market, is characterized by a sustained and steady decline in stock values. A 20% decline in stock prices relative to prior levels is typically regarded as a bear market.
Comprehending the Terminology of Various Stock Types
To describe the worth of features or stocks that are listed on the stock market, analysts and investors have developed a number of phrases. Let’s examine the true meanings of some of these phrases in more detail:
Third Term: Dog Stock
In two somewhat distinct situations, stocks can be referred to by the terms “dog” or “dog stock”:
Scenario 1: A stock that consistently underperforms and affects the performance of the entire portfolio
A stock that continuously provides high dividend yields is the second scenario.
The latter scenario is the foundation of a well-known investing technique known as “dogs of the Dow.” Purchasing the top ten dividend-paying equities in the Dow Jones Industrial Average is the goal of this strategy.
Term 4: Stocks with Blue Chips
The phrase “blue-chip stocks” is frequently used. But there isn’t a universally accepted definition of it. Nevertheless, these stocks are frequently associated with a few essential characteristics:
- issued by a reputable large-cap corporation
- Stocks of businesses having significant market shares in important industries
- Stocks with large dividends
- A company’s stocks that have demonstrated steady growth over a long period of time
All of the aforementioned definitions of blue-chip stocks are valid, but they don’t offer a precise, measurable way to determine whether or not businesses like Airtel and Ultra Tech Cements qualify as blue-chip stocks. Despite this, they rank 11th and 19th among India’s listed firms, respectively.
Term 5: Stock Defense
Generally speaking, defensive equities are thought to be less volatile than the stock market as a whole. Stocks in important sectors including healthcare, utilities, and fast-moving consumer goods (FMCG) are often seen as defensive investments by investors.
Nonetheless, there is a mathematical foundation for determining defensive stocks. A stock’s beta must be much less than one in order to be considered protective. A lower beta indicates less volatility because beta is a measure of the stock’s volatility.
Term 6: Income Stock
An equity share that consistently distributes dividends to investors is known as an income stock. Typically, a corporation with a substantial market capitalization and consistent cash flows may issue this kind of stock.
Term 7: Stock Growth
Growth stocks, on the other hand, are issued by businesses whose stock price is expected to rise at a rate that is noticeably faster than the market. Although there are no set standards for identifying a growth stock, the following characteristics set it apart from other stocks:
- Excessive P/E (price to earnings) ratio
- greater growth in revenue relative to other businesses
- Despite poor current earnings, there are expectations of substantial future earnings.
- restricted dividend distribution
- Businesses with distinctive product lines
- Market leaders in a rapidly expanding industry
Value Stock (Term 8)
A value stock is an equity share that is thought to be trading on the stock exchanges for less than its intrinsic worth or projected future price. Choosing stocks of businesses with attributes like these is a common component of value investing strategies.
- sluggish growth in sales and profits relative to other businesses
- dependable cash flows
- Low ratio of price to earnings
- Stock prices haven’t changed much in recent quarters.
- Not preferred by analysts, fund managers, and the general public
- Frequently Used Terms in the Stock Market Associated with Investment Strategy
Investors have developed a variety of investment methods over time in an effort to generate profits. Active strategy and passive strategy are two of the most often used phrases in this context.
Term 9: Proactive Approach
When a fund management employs an active strategy, they actively choose which individual investments to include in the Mutual Fund portfolio. This implies that the fund manager will begin with a universe of hundreds or thousands of businesses before selecting equities according to the mutual fund’s valuation concept and investment style. Currently, an active investment approach forms the basis of the majority of equity-based investments.
Term 10: The Passive Approach
On the other extreme of the spectrum from an active investment approach is the passive strategy. The foundation of this investment approach is a process that seeks to buy every stock in an index or benchmark.
Investing in an NIFTY 50 Index Fund, for instance, is an example of a passive investment approach.
Term 11: Investing Based on Factors
One type of passive investment that has gained popularity recently is factor-based investing. By combining elements of active and passive investment techniques, this approach enables investors to focus on particular aspects of investment risk and return.
Low volatility investment and momentum investing are two types of factor-based investing that have gained popularity recently.
Term 12: Investing with Minimal Volatility
The investor aims to invest exclusively in low-volatility stocks, or stocks that can yield steady returns, in the case of low-volatility investing. Low volatility is crucial in this situation when choosing investments, and an index designed specifically for this reason has been developed.
Term 13: Investing with Momentum
A fund manager or analyst who employs a momentum investing technique buys stocks whose prices are increasing. Selling equities that are seeing a decline in value is another aspect of this technique.
Numerous studies have demonstrated that the momentum investing technique may yield substantial returns, despite the fact that it may appear to defy the conventional wisdom of buying low and selling high.
In addition to low volatility and momentum, investors can develop other factor-based investment strategies by considering other criteria like value, size, quality, etc.
Term 14: Investing in Alternatives
This is a very recent addition to the list of investing strategies. Investors using the alternative investing or alternatives method must explore outside conventional asset classes like debt, equity, gold, etc.
Rather, alternative investors choose and invest in more exotic asset classes like infrastructure projects, commodities, collectibles, cryptocurrencies, private equity, private debt, hedge funds, real estate, and structured goods.
Alternative investments like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are becoming so popular that even mutual fund managers and NPS fund managers include them in their portfolios.
Important Terms Used by Financial Experts in the Stock Market
Financial professionals employ a number of phrases that are somewhat uncommon in everyday speech. Let’s examine the definitions of some of these concepts in more detail:
Term 15: Alpha
The first letter in the Greek alphabet, alpha, is used to indicate how well a stock or mutual fund has performed in relation to the benchmark or the market as a whole.
For example, imagine a Large-Cap Mutual Fund has delivered returns of 15% p.a. Let’s now assume that the NIFTY 50, its benchmark index, has produced returns of 10% annually. at the same time frame. In this instance, the Large-Cap Fund’s alpha will be 5%.
Term 16:Dovish Monetary Policy
The Reserve Bank of India and other central banks’ monetary policies are referred to by these words. A central bank’s objective to maintain low interest rates in order to promote economic growth is known as dovish monetary policy.
Term 17: Monetary hawkishness
A hawkish monetary strategy, on the other hand, suggests that the central bank plans to maintain high interest rates. This could be done to keep inflation under control.
Term 18: Being overweight
The market price is expected to rise if an analyst has an excessive amount of stock or sector holdings. Therefore, an investor may be able to increase returns by expanding their investments in the particular stock or industry.
Term 19: Underweight
In a similar vein, the market price is expected to fall when an analyst is underweight on a certain stock or industry. To lower possible losses, investors might think about selling their holdings in a specific stock or industry.
Term 20: Indifferent
A neutral or equal weight position means that no significant shifts in the stock or sector’s market price are expected. As a result, the Stock Market or sector’s predicted returns will match the benchmark or index’s typical returns.
Term 21: Investing from the top down
In order to choose appropriate investment opportunities, a top-down investing technique first looks for several macroeconomic factors. Consumer demand, GDP growth, inflation, and the consumption of commodities are important macroeconomic factors that might affect the selection process.
Following the identification of macroeconomic determinants, the investor chooses a particular Stock Market by taking into account particular sector or industry-specific criteria.
Term 22: From the bottom up Making an investment
The top-down and bottom-up approaches to investment operate in opposite ways. In this instance, the investor does a sectoral analysis after concentrating on particular traits of a single Stock Market. Only when the sector or industry has been thoroughly analyzed are macroeconomic considerations taken into account and an investment chosen.
The bottom line
There are many more terminology used by financial professionals, thus this list is not all-inclusive. However, having a thorough understanding of the meanings of these often used financial terminology will undoubtedly aid investors in making well-informed investing decisions.
