Investment Terms That You Should Understand
Blue Chip Stock
This is perhaps one of the most familiar of Wall Street's terms. Blue chip describes companies that have operated through good times and bad, retaining their value and paying dividends. The term dates back to the early 1900s, when the most valuable chips used in an alternative financial pursuit, namely poker, were blue. Today, the expression may be out of date, since gamblers favor multicolored chips now. Similarly, some believe that blue chip stocks are no longer the market's driving force, or even an indicator of its overall trends and performance.
10-Bagger
If you buy a stock at $5 and stick with it as it rises to $50, you've got a 10-bagger. A relatively new term usually attributed to fund manager Peter Lynch, "10-bagger" describes a stock whose value has increased 10 times. The word construction is often applied to other notable rises, as in 30-bagger or 100-bagger (think Yahoo! since it began trading in 1996). Lynch says the term has its origins in baseball, where a home run is dubbed a "four-bagger." Whatever its origin, 10-bagger now generally refers to a stock that has shown remarkable gains. To achieve this kind of performance, investors must not only find and purchase good stocks, but hang onto them as well.
Tombstone
When a new stock is issued, its birth announcement carries the ironic name of tombstone, which are those staid, simple advertisements seen in financial newspapers like The Wall Street Journal or the Financial Times. The label was applied by printers, around 1880, who described such ads as "tombstone style." The term also captures the hostility between underwriters over the order in which their names are listed. Government regulations require that tombstones avoid the flash of mainstream advertising, so they simply cite the amount of stock offered, its price, and the underwriters and dealers who have it for sale. Still, tombstones are often misunderstood by individual investors. By the time an ad hits the newspaper, the first shares are already in the hands of investors.
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This is perhaps one of the most familiar of Wall Street's terms. Blue chip describes companies that have operated through good times and bad, retaining their value and paying dividends. The term dates back to the early 1900s, when the most valuable chips used in an alternative financial pursuit, namely poker, were blue. Today, the expression may be out of date, since gamblers favor multicolored chips now. Similarly, some believe that blue chip stocks are no longer the market's driving force, or even an indicator of its overall trends and performance.
10-Bagger
If you buy a stock at $5 and stick with it as it rises to $50, you've got a 10-bagger. A relatively new term usually attributed to fund manager Peter Lynch, "10-bagger" describes a stock whose value has increased 10 times. The word construction is often applied to other notable rises, as in 30-bagger or 100-bagger (think Yahoo! since it began trading in 1996). Lynch says the term has its origins in baseball, where a home run is dubbed a "four-bagger." Whatever its origin, 10-bagger now generally refers to a stock that has shown remarkable gains. To achieve this kind of performance, investors must not only find and purchase good stocks, but hang onto them as well.
Tombstone
When a new stock is issued, its birth announcement carries the ironic name of tombstone, which are those staid, simple advertisements seen in financial newspapers like The Wall Street Journal or the Financial Times. The label was applied by printers, around 1880, who described such ads as "tombstone style." The term also captures the hostility between underwriters over the order in which their names are listed. Government regulations require that tombstones avoid the flash of mainstream advertising, so they simply cite the amount of stock offered, its price, and the underwriters and dealers who have it for sale. Still, tombstones are often misunderstood by individual investors. By the time an ad hits the newspaper, the first shares are already in the hands of investors.
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posted by Bob Moser at
4:52 PM
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