The untrained ear would be forgiven for mistaking a conversation between investors for the dialog of a budget fantasy film. Like other exclusive clubs, the world of finance has its very own jargon, and over the centuries a long list of strange and wonderful terms have found their way into this peculiar dialect.
Here, moneyland.ch lists some of the whackiest terms that form part of the language of finance:
1. Dead cat bounce
If this term conjures up images of a dead cat temporarily springing to life, you aren’t far off. A “dead cat bounce” refers to a small spike in a stock’s rates after a major fall. The term is derived from the morbid observation that “even a dead cat will bounce if dropped from high enough”.
2. Ankle biter
Those who have owned a chihuahua at some point in their lives might have some idea of what an “ankle biter” looks like. In finance the term is used to refer to a stock with such a low market capitalization that it is completely dwarfed by the big players. It may be stock issued by a large but undervalued company or in some cases, by a medium-sized enterprise. There is nothing wrong with ankle biters – in fact they tend to show more resilience to market fluctuations thanks to their under-inflated pricing.
3. Cum rights
Although this term sounds like it could have come straight out of a fetish guide or some lewd novel for bored housekeepers, it has nothing to do with the adult industry whatsoever. Shares “cum rights” are shares given to a company’s original shareholders which include special privileges. These privileges entitle cum rights shareholders to first dibs on any new shares issued by the company.
4. Cockroach theory
Does spotting a single cockroach running across you kitchen floor mean that you have a roach problem? The cockroach theory is built on the assumption that it does. In finance, the theory presumes that any negative facts that surface with regards to one company are likely true for the entire industry or for the economy as a whole. For example, if research sheds light on a loophole which allowed a corporation to falsify information provided to shareholders, the cockroach theory would suggest that other corporations are using similar loopholes, and repercussions will be felt throughout the economy.
5. Puke point
Have you ever gotten so sick after eating or drinking something that all you wanted to do was puke it up and be rid of it? At that point, you probably didn’t care about the cost of the food or drink because all you could think about was getting it out of your system. When an investor reaches the “puke point”, all they want to do is to get a badly-performing stock off their hands, regardless of the loss. In most cases, other investors with higher risk capacities are happy to collect the rejected securities at rock-bottom prices.
6. Sleeping beauty
Much like the fair princess of the popular folk tale, a “sleeping beauty” in finance is an undiscovered security or company with high profit potential which is just waiting to be brought to life by savvy investors.
7. Hostile takeover
This term, which could read right out of H. G. Wells “War of the Worlds”, actually denotes the takeover of a company by an investor or competing company (an acquirer) by purchasing shares in the target company. In some cases, the acquirer makes an offer directly to shareholders against the wishes of the target company’s board. In other cases, acquirers discreetly purchase shares via multiple third parties, making it difficult for a target company’s board to detect the takeover.
8. Shark watcher
While this term might prompt mental images of scuba divers in a protective cage, a “shark watcher” in finance has more in common with a lifeguard who scours the surf of a popular bathing spot for signs of sharks. More precisely, a shark watcher is a firm that helps protect companies from hostile takeovers. It accomplishes this (in the best case) by tracking which investors buy company shares.
9. Poison pill
Spies once carried capsules filled with lethal poison capable of rendering them fairly useless to captors. A “poison pill” in finance, formally referred to as a “shareholder rights plan” does much the same thing. This term refers to several different legal mechanisms which can be enacted by a company in the event of a hostile takeover. Poison pills may include the early termination of corporate bonds after a takeover (forcing the acquirer to pay out huge sums to target company shareholders) or the issuance of new shares to long-term shareholders (forcing the acquirer to buy many more shares). Poison pills protect companies and their shareholders from corporate raiders and hostile takeovers by making the cost of taking over a company prohibitive.
10. Suicide pill
A “suicide pill” is a “poison pill” which, in order to thwart a hostile takeover, resorts to protective measures so harsh that they can completely destroy the target company should they be enacted – hence the reference to suicide. For example, a company’s key employees may threaten to resign in the case of a takeover, which would literally cause the company to grind to a halt. The issuance of many new shares or the premature foreclosure of bonds may drive a company deeply into debt. In many cases, suicide pills result in bankruptcy, making the target company worthless to its acquirer.
Stock prices quoted on the stock market are often highly inflated. When you give those rates a “haircut”, you trim off the inflated portion of a stock’s price to find its real collateral value. That difference between a stock’s value and its market price is often referred to simply as its “haircut”.
12. Alligator spread
This term may sound wrong on so many levels, but in trading, an “alligator spread” simply denotes a transaction which involves such high brokerage fees, taxes or commissions that the transaction’s profit does not justify its cost.
13. Living dead
While references to the living dead may be more closely associated with Netflix or video games than with finance, the terms “living dead” and “zombie” are alive and well in the stock market. The living dead, in this sense, are stocks or companies which have reached their full growth potential at some point in the past.
A retailer which operates regionally or even nationwide but has long failed to gain new markets is a good example of a “zombie” company. Shareholders still earn regular dividends, and the company continues to operate, but because the company is no longer growing, the market value of its shares will likely decrease over time.
14. Bears and bulls
These terms might have more in common with the wild west than with finance, but they play such a key role in stock trading that statues of bears and bulls are a regular feature in financial districts.
The term “bear” describes a person who takes a short position, meaning they speculate on rates coming down by borrowing securities or commodities and selling them at the going high rate, and then buying back those assets at a lower price when prices go down. The “bear” then returns the borrowed assets and pockets the difference. This expression is believed to have been derived by a practice common among hunters who would borrow goods or money in hope of repaying their debt at a profit after procuring a valuable bear skin.
A “bull”, on the other hand, is an investor which takes a long position, meaning they expect rates to go up. Bulls buy securities or commodities at going rates and sell them at a profit if the price goes up. Fights between bulls and bears were a popular form of entertainment in previous centuries, and that may be where the reference to “bulls” as opposed to “bears” originated.
15. Triple witching day
The mention of a “triple witching day” or “triple witching hour” might evoke images of occult rituals or other fantastic events, but in finance the terms have a more practical meaning. Triple witching days, in trading terms, are the third Friday’s of March, June, September and December, while triple witching hours refer to the last hour that exchanges remain open on those days. Most major derivatives, including index options, index futures, stock options and single-stock futures expire on those days, increasing the chance of unusual market activity, particularly during the last hour of trading.
16. Japanese candlestick
If reading that name makes you think of bamboo, sake, sushi and candlelight, you’ve got it all wrong. As exotic as its name may sound, a Japanese candlestick is really just a basic chart used in trading. The chart, which does in fact trace its origins to Japan, uses candle-like images to show a rate’s progress as well as its opening and closing positions and highest and lowest points.
17. Dawn raid
SWAT teams and pallets of illicit drugs may make for the perfect dawn raid of 1980s Hollywood films, but in finance, a dawn raid packs a good deal less adrenaline. That is, of course, unless you are an investor looking to gain control of a company, or a shareholder trying to protect your investment. Dawn raids are a type of hostile takeover which occur when an acquirer or “predator” ties to gain control of a company buy buying up shares as soon as the stock exchange opens.
18. Glamor stocks
What do glamor and finance have in common? Enough. As their name implies, glamor stocks are shares which everyone wants to have because of the prestige or hype associated with the companies that issue them.
It may sound like a synonym for a manual laborer, but the stock market term “greenshoe” has a more complex meaning. It describes a special clause included in an initial public offering which gives the issuing company the right to issue additional shares if there aren’t enough original shares to meet the demand.
20. High flier
Most people are familiar with the term “high flier” or “highflier” as it is used in reference to an ambitious person. In the stock market, a highflier is a stock which rises in price very quickly compared to other stocks. The term also refers to the company which issues the stock. A company may become a highflier either through the exceptional success of its products, or as a result of hype surrounding the company.
Literally a “servant girl exchange”, this German word is about as doggy as trading jargon gets. But rather than referring to a market on which female household servants are traded, the term “Dienstmädchenbörse” denotes a late stage in a stock’s market cycle. During this phase, small investors with little knowledge of finance (hence the “servant girl” connotation) begin to buy stocks in a company following initial investment by serious investors. Because small investors pay more for shares than what they are really worth, stock prices climb. In the subsequent phase, serious investors sell their stock at the inflated price and exit their positions, causing prices to plunge and small investors to take the loss.