One of the most famous market bubbles of all time, which occurred in Holland during the early 1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person's annual salary. Taobiz explains Dutch Tulip Bulb Market Bubble The tulip was brought to Europe in the middle of the sixteenth century from the Ottoman Empire. Holland's upper classes soon competed for the rarest bulbs as tulips became a status symbol. By 1636, tulip bulbs were traded on the stock exchanges of numerous Dutch towns and cities, encouraging all members of society to speculate in the markets. Many people traded or sold possessions to participate in the tulip market mania. Like any bubble, it all came to an end in 1637, when prices dropped and panic selling began. Bulbs were soon trading at a fraction of what they once had, leaving many people in financial ruin.
1. A public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price. 2. A type of auction in which the price on an item is lowered until it gets a bid. The first bid made is the winning bid and results in a sale, assuming that the price is above the reserve price. This is in contrast to typical options, where the price rises as bidders compete. Taobiz explains Dutch Auction 1. If a company is using a Dutch auction IPO, potential investors enter their bids for the number of shares they want to purchase as well as the price they are willing to pay. For example, an investor may place a bid for 100 shares at $100 while another investor offers $95 for 500 shares. once all the bids are submitted, the allotted placement is assigned to the bidders from the highest bids down, until all of the allotted shares are assigned. However, the price that each bidder pays is based on the lowest price of all the allotted bidders, or essentially the last successful bid. Therefore, even if you bid $100 for your 1,000 shares, if the last successful bid is $80, you will only have to pay $80 for your 1,000 shares. The U.S. Treasury (and other countries) uses a Dutch auction to sell securities. The Dutch auction also provides an alternative bidding process to IPO pricing. When Google launched its public offering, it relied on a Dutch auction to earn a fair price. 2. For example, the auctioneer starts at $2,000 for an object. If there are no bidders, the price is lowered by $100. The object will be sold once a bidder accepts the last price announced by the auctioneer, say $1,500.
A number that tests for autocorrelation in the residuals from a statistical regression analysis. The Durbin-Watson statistic is always between 0 and 4. A value of 2 means that there is no autocorrelation in the sample. Values approaching 0 indicate positive autocorrelation and values toward 4 indicate negative autocorrelation. Taobiz explains Durbin Watson Statistic Autocorrelation can be a significant problem in analyzing historical pricing information if one does not know to look out for it. For instance, since stock prices tend not to change too radically from one day to another, the prices from one day to the next could potentailly be highly correlated, even though there is little useful information in this observation. In order to avoid autocorrelation issues, the easiest solution in finance is to simply convert a series of historical prices into a series of percentage-price changes from day to day.
A secondary voting proxy that allows a shareholder to override an already submitted vote. When duplicate proxies are received by the corporation, the document with the most timely information will be taken into account. Taobiz explains Duplicate Proxy Issuing a duplicate proxy will retract a shareholder's earlier decision. Most firms will provide shareholders with additional proxy forms, allowing them to change their mind when voting on corporate issues. The secondary proxy should be submitted in a timely manner, or risk missing the voting process.
A temporary identification number attached to a security by a company until the official CUSIP number is assigned. Committee on Uniform Securities Identification Procedures (CUSIP) numbers identify securities when recording buy and sell orders. A dummy CUSIP number is a nine-character code for internal company use but may never actually be changed to an official identifier. Dummy CUSIP numbers may also be assigned to securities that are no longer in existence. Taobiz explains Dummy CUSIP Number The nine-digit dummy cusip numbers are supplied by the CUSIP Service Bureau (CSB). The first six characters identify the issuer, the next two describe the issue and the last character is used as a mathematical check for accuracy. The fourth, fifth and seventh characters are always nines (for example, 11199-19-11).
An official public statement of a company's profitability for a specific time period, typically a quarter or a year. An earnings announcement is typically made on a specific date during earnings season and is preceded by earnings estimates issued by equity analysts. When the company has been profitable leading up to the announcement, their share price will usually increase after the information is released. Taobiz explains Earnings Announcement Because the earnings announcement is the official statement of a company's profitability, the days leading up to the announcement are often filled with speculation. Analyst estimates can be notoriously off-the-mark, and can rapidly adjust up or down the days leading up to the announcement. This can attract the attention of investors who take the estimates at face value, artificially inflating the share price on speculative trading.
An indicator of a company's financial performance, which is calculated as: This measure attempts to gauge a firm's profitability before any legally required payments, such as taxes and interest on debt, are paid. Depreciation is removed because this is an expense the firm records, but does not necessarily have to pay in cash. Taobiz explains Earnings Before Interest, Tax and Depreciation - EBITD EBITD is very similar to earnings before interest, taxes, depreciation and amortization (EBITDA), but excludes amortization. The difference between amortization and depreciation is subtle, but worth noting. Depreciation relates to the expensing of the original cost of a tangible assets over its useful life, while amortization is the expense of an intangible asset's cost over its useful life. Intangible assets include, but are not limited to, goodwill and patents, and are unlikely to represent a large expense for most firms. Using either the EBITD or EBITDA measures should yield similar results.
An earnings metric used in the evaluation of oil, gas and mineral firms. The metric is used in a similar manner to the way that EBITDA is used for other firms, and allows investors and other stakeholders to get a better idea of the true earnings-generating capacity of the firm without the obscuring the effects of accounting rules. Taobiz explains Earnings Before Interest, Depreciation, Amortization and Exploration - EBIDAX EBIDAX is one of several earnings metrics that may be employed by analysts to evaluate the financial strength of an oil, gas or mineral firm. Exploration costs are excluded because there are different methods than can be used to account for exploration costs in oil and gas accounting. Excluding these costs allows for a more accurate comparison to the firm’s competitors, who may use different accounting methods.
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