Basics: Investment jargon

Every field has its jargon – shorthand for oft-used terms or obscurantist language created to keep outsiders mystified.

Here are a few terms IFO finds interesting. We’ll run these notes whenever we find particularly useful ones, or ones we didn’t know in spite of our decades of investing practice.

Investopedia explains Front Running, a phrase we’ve seen before, but most recently in a WSJ discussion of the Berkshire/Buffett/Sokol controversy:

“For example, analysts and brokers who buy up shares in a company just before the brokerage is about to recommended the stock as a strong buy are practicing front running.
“Another example is a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares.”

This is such a good site, we’ve added Investopedia to our Blog Roll. They have much educational material, interesting ads on the site, and a running series of videos that explain various kinds of investment products.

Another term is “Trailing Stop” – a stop order technique to make the computer do your work for you when you’ve analyzed your own psychology as being too emotional to execute trades you know should make.

Or as Investopedia puts it: “What Does Trailing Stop Mean? A stop-loss order set at a percentage level below the market price – for a long position. The trailing stop price is adjusted as the price fluctuates.” The only addition IFO would make to that admirably concise definition is that her online broker allows trailing stops to be set as percentage OR dollar amounts. Very cool.

A long position is one in which the investor owns the stock, whereas its companion, the short position is one in which the shares are borrowed at one price in the hope that that price will go down before the investor has to pay back the lender of the shares. Very risky. IFO doesn’t recommend it.

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About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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