Investing Terms You Should Know!
Financial Hedges
Like their trimmed namesakes that surround your home, financial hedges serve as protection - not from prowlers, but against losses and potential losses in your portfolio. The term hedge was originally adopted by the financial world in the 1600s. It has come to refer to investors protecting themselves, or hedging, by acquiring stock options or other instruments that bet on movement contrary to their core strategy. In other words, when an investor purchases stocks he wants to go up, the investor can hedge by obtaining options that allow him to profit if prices go down. Though in theory it seems a pretty simple, even logical way to cover your bets, buying into hedge funds isn't necessarily safe, since they often engage in speculative investing.
Bubble
When investors put money into instruments based more on hope than sound business practice, their gains may disappear as quickly as a soap bubble. And that's the basis for the contemporary definition of bubble, used to describe a market whose sentiment has little to do with economic or business reality. In the 1700s, "to bubble" meant "to cheat," but recently it has been given its less base, though no less ominous, meaning. Today, analysts are concerned about a bubble that has driven the stock market to record highs, despite the Fed's belief that earnings aren't strong enough to support such values. If corporate profits don't meet expectations, the market may drop sharply - bursting the bubble, and slowing the longest peacetime expansion in history.
Bulls & Bears
Even those who infrequently follow stocks know that a bull is a market optimist and a bear expects prices to soon head south. So the statue of a bull on Wall Street in Manhattan could well be seen as a monument to the financial markets' enduring optimism. Perhaps because history shows that up markets outpace down markets, no bear statues are in sight. In any case, these most famous of financial terms derive from an 18th-century English proverb that warned against "selling the bearskin before catching the bear." That referred to hunters who collected their fees before setting out into the wilderness, then died before delivering the goods. As for bull, it may have been paired with bear simply because of the ancient sports of "bear and bull baiting." Those popular matchups, combined with the bull's aggressive nature, made it a label for the bear's opposite: an investor who sees prices rising.
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Like their trimmed namesakes that surround your home, financial hedges serve as protection - not from prowlers, but against losses and potential losses in your portfolio. The term hedge was originally adopted by the financial world in the 1600s. It has come to refer to investors protecting themselves, or hedging, by acquiring stock options or other instruments that bet on movement contrary to their core strategy. In other words, when an investor purchases stocks he wants to go up, the investor can hedge by obtaining options that allow him to profit if prices go down. Though in theory it seems a pretty simple, even logical way to cover your bets, buying into hedge funds isn't necessarily safe, since they often engage in speculative investing.
Bubble
When investors put money into instruments based more on hope than sound business practice, their gains may disappear as quickly as a soap bubble. And that's the basis for the contemporary definition of bubble, used to describe a market whose sentiment has little to do with economic or business reality. In the 1700s, "to bubble" meant "to cheat," but recently it has been given its less base, though no less ominous, meaning. Today, analysts are concerned about a bubble that has driven the stock market to record highs, despite the Fed's belief that earnings aren't strong enough to support such values. If corporate profits don't meet expectations, the market may drop sharply - bursting the bubble, and slowing the longest peacetime expansion in history.
Bulls & Bears
Even those who infrequently follow stocks know that a bull is a market optimist and a bear expects prices to soon head south. So the statue of a bull on Wall Street in Manhattan could well be seen as a monument to the financial markets' enduring optimism. Perhaps because history shows that up markets outpace down markets, no bear statues are in sight. In any case, these most famous of financial terms derive from an 18th-century English proverb that warned against "selling the bearskin before catching the bear." That referred to hunters who collected their fees before setting out into the wilderness, then died before delivering the goods. As for bull, it may have been paired with bear simply because of the ancient sports of "bear and bull baiting." Those popular matchups, combined with the bull's aggressive nature, made it a label for the bear's opposite: an investor who sees prices rising.
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posted by Bob Moser at
7:13 PM
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