by astanhaus

Originally submitted for an Economic Literacy independent research project with Professor Christopher Ragan at McGill University.


Absolute Advantage: I’m superior at doing everything compared to you because I am extremely efficient. [snap, snap.]

Alpha: A number that measures the performance of an investment compared to a benchmark, like the stock market index.

Asset: An item that has monetary value, which we hope will benefit us in the future.

Asset-Backed Security: Banks take loans for things like houses and cars, break them up, and squish them into packages called an asset-backed security. These make money from interest payments on the outstanding loans.

Balance Sheet :A sheet of paper stating how many assets (value owned) and liabilities (money owed) a company or person possesses.

Banks: An establishment that stores and plays with $$. Fun fact: investment banks are not the same as my corner commercial bank.

Bank Run: “I must have my money now!” I say in a state of pure panic. And my panicked state is made worse when I’m at the teller window and I’m told the bank does not have cash on hand to give me the $$ in my account. Need a visual? Watch It’s a Wonderful Life.

Bankruptcy: The legal water bucket that puts out the flames of unpayable outstanding debts.

Bear Market: This is not the selling of a nude animal. It’s a falling market that makes investors growl.

Benchmark: Like the pretty girl in the room that everyone judges herself against, this standard can be applied to the performances of securities, mutual funds and investment managers.

Beta: A number that represents how much a share price moves along with a market’s movement.

Bond: A fixed income security. When a company or government needs money, they issue a bond in exchange for a lender’s $$. The bond is a promise to pay the bondholder back the money loaned with a bit more (interest payment) in a certain amount of time.

Bond Rating: Just like in school, when I got a grade for my book report, bonds get grades based on their quality. Moody’s, Standard & Poor’s, and Fitch hand out the grades. The grades range from AAA to C. Conveniently, the bond buyers pay these companies to grade them. Wouldn’t school have been easier if I had been paying my teacher?

Broker: A person who sells and buys stocks or bonds on behalf of another person.

Bull Market: The market is on the ups, so enjoy the ride and hold on tight to those horns.

Business Cycle: Everyone has her good and bad months, and so does the economy.

Buy Side: The big boys (and girls) who research and buy large portions of securities for mutual funds, pension funds, and insurance firms.

CAPM: Capital Asset Pricing Model. How much should I price this volatile stock? This model tells me, taking into account risk & expected return.

Capital Gain: An asset is sold for more than its purchase price. Another thing to report to the tax man!

Capital Stock: I own big ticket items to help me produce my flow. Think investment pieces. That little black dress that fits just right, perfect for fabulous occasions, and everyone will compliment me accordingly.

Cash Flow: Money coming in and out. The speed can range from a rush to a trickle.

Commodity: A uniform good (ex. gold or oil) that is used in producing other goods and services. Must meet a minimum standard (basis grade).

Comparative Advantage: I’m better than you, I have a lower opportunity cost.

Compound Interest: Think about how a snowball rolling down a hill gains snow. So too, can $$ grow exponentially. The initial investment is increased by an interest payment, which increases the value of the investment, which increases subsequent interest payments.

Consumer Price Index: CPI. A # that tracks changes in prices (inflation) by tracking a basket of goods ranging from groceries to cars.

Contrarian: Buy when everyone is selling, sell when everyone in buying.

Corporate Bond: A loan to a company.

Coupon: 1. Redeemed for discounted groceries. 2. The fixed payment received semiannually from owning a coupon bond.

Cyclical Stock: A stock that moves with consumer preferences and the market’s movements.

Debt: Owe something to someone.

Default: I just can’t! This hurts whether my boy or bond tell me this.

Defensive Stock: Rain or shine these stocks will keep steady. Everyone needs to eat.

Deficit: Oops, I spent more $$ than what came in this month.

Demand: I want it! And I want it now!

Derivative: A contract (really a bet) on an underlying security. Its price is derived from the underlying security.  Futures and options are derivatives.

Diversification: I have rain boots, riding boots, ankle boots, booties and snow boots to wear depending on the occasion. I want just as much variety in my portfolio to perform well, no matter the market.

Dividend: A company or mutual fund’s pocket change that it throws at shareholders every few months. A slice of the returns! Common, but not mandatory.

Due Diligence: Cross those t’s and dot those i’s before signing.

Equilibrium: Ohmmmmm…Ohmmmm. I’m meditating to find balance, find my center.

Fiscal Policy: “Hi, I’m from the government and I’m here to help.” Thanks for this type of policy, John Maynard Keynes!

Flow: I use my capital stock to produce this. From those one time purchases, I get a flow. Think constant compliments of my classic watch.

Free Market: Kiddies, go play in the sandbox. And no, I won’t help you if you get sand in your wound.

Fundamental Analysis: Evaluate the value of a security. Used by value investors (i.e. Warren Buffett) to decide if there is a difference between the genuine value of a stock and its current price. If price<value, buy and potentially could make lots of money.

Gains From Trade: Win-Win. Let’s trade.

Game Theory: I want the best. I want the most. But what is the other person gonna do?  How should I proceed?

Government Bond: The Government needs me to spot it some $$. A formal certificate, instead of crumpled up napkin with a scribble, “I owe $$ to…”

Gross Domestic Product : (GDP) The value of EVERYTHING (think stuff & services) produced within a country within a year. Everyone likes this to grow.

Individual Retirement Account: A way to invest/save for retirement. All taxpayers welcome. Especially a great option for those who do not have a 401 (k) offered through work. Variations include the Traditional IRA and the Roth IRA.

Inefficient Market Theory: Prices do not reflect market value—why Warren Buffett has made so much money.

Inflation: The growth rate of prices. The change in purchasing power of money. On average, the price of everything is going up. Those classic pumps are more expensive each year.

Insurance: Attempt to create financial predictability in an unpredictable world.

Interest Payments: The payment resulting from the product of the interest rate and the account balance.

Interest Rate: When using someone else’s money, this determines the associated fee.

Investment Bank: Not my corner bank. These kinds of banks bring stocks into being (AKA IPOs (AKA initial public offerings)) and help them as they grow up (AKA underwrite (AKA buy up the stock no one else buys after an IPO)).

Investment Objective: Goal. I want those shoes. I want this rate of return.

Investment Style: Risk lover or hater. Black/white or color blocking.

Leading Variable: Know before it happens. These start rumors, just like gossip mags.

Leverage: Using debt to buy an asset. Can pay off splendidly. Or make me wish I was never born.

Liability: The amount of $$ owed to my friend who spotted my drink Monday night. Must pay back.

Liquidity: Ready for duty! Cash is as liquid as $$ can get.

Loan: I was spotted $$ and will have to pay back the $$ plus interest. Like loaning a library book, but more $$ is on the line.

Maturity Date: When I did this, I moved out. When my bond does this, my principal (AKA my $$) is returned.

Mixed Economy: A government is pretty much paws off, but intervenes in cases of market failure.

Monetarist: Money solves/causes all the problems. Print accordingly.

Monetary Policy: [helicopter noise] [thud] “Here’s more money.” Thanks for this type of policy, Milton Friedman.

Monopolistic Competition: Hate to break it to you, but any company can start making cigarettes and use a little Don Draper magic (pre-season 4 episode 12) to make their brand stand out from the crowd.

Monopoly of Violence: If the government controls this monopoly (AKA its military is the biggest, baddest, and supreme those who commit violent acts) there isn’t a chance for organized crime (AKA the five families) to run the show and ruin the lives of citizens. Be careful, this can go either way. Think George Washington or Al Capone.

Mortgage: I don’t have enough cash to pay for my house in full, so I took out one of these. It’s a form of amortization. AKA: paying my debt with installments over time.

Mutual Fund: Professional portfolio management that I can buy into. Instead of having to buy the whole pie, I can buy a slice. A great way to introduce myself to the market.

Opportunity Cost: What will I give up to do that?

Optimal Currency Area: One currency could be a good idea, no more currency conversions every time I take the train over the border.

Permanent Income Hypothesis: How much I decided to spend depends on what I think my income over forever is.

Phillips Curve: A downward sloping line that claims inflation is negatively related to unemployment.

Present Value : The value of money in the future discounted to today. I know I will wear those fabulous shoes one day to a black tie. How long in the future? Discount the price by the interest rate and the length of time from the present and I will find the present value.

Portfolio: Closet:shoes::portfolio:stocks.

Profit: Equals revenue minus costs. Liked by all.

Purchasing Power: Not a magical power, sorry. This is how much bang I get for my buck. Inflation decreases my purchasing power.

REIT: Real Estate Investment Trust. Invest in real estate in stock form.

Resources: The land, labor, and stuff at my disposal to make it happen.

Security: Own a piece of the pie (of a company, govt., etc.). Examples include stocks and bonds.

Short Sell: I expect a stock will go down in price. I borrow a stock and then sell it,, expecting that when I have to deliver the stock I buy it for less than I sold it. If all goes well, I make money.

Speculator: Looking to make $$ off of the hot, new thing. Fun… till it fails… and it generally does.

Stagflation: A time of high inflation and low output.

Sticky prices: Until I can get some Goo Gone and update my menu, this price isn’t going anywhere.

Stock: A security. Own a tiny piece of a company.

Stock Market: I went to the market to buy an AAPL (AKA a share of Apple stock). Where stocks are purchased.

Stock Market Index: A measure of the market overall. The average change in value overall.

Stop-Loss: Make it stop! Please sell my stock. That’s an order!

Supply: [outreached hand] Here you go.

Technical Analysis: If he texted me at 8pm last friday, he’ll text me this Friday at 8pm. If the stock price is on the up, it will continue to do so.

Ticker: Tell me what the market is up to.

Value Investment: This is an inefficient market. This company’s stock is worth much more than it’s current stock price. Buy!! Quality, ladies!

Withdraw: Take away.