An imaginary investor devised by Benjamin Graham and introduced in his 1949 book "The Intelligent Investor". In the book, Mr. Market is a hypothetical investor who is driven by panic, euphoria and apathy (on any given day), and approaches his investing as a reaction to his mood, rather than through fundamental (or technical) analysis. Taobiz explains Mr. Market Investor and author Benjamin Graham invented Mr. Market as a clever means of illustrating the need for investors to make rational decisions in regard to their investment activities instead of allowing emotions to play a deciding role. Mr. Market teaches that although prices fluctuate, it is important to look at the big picture (fundamentals) rather than reacting to temporary emotional responses. Graham is also well-known for his most successful student, multibillion-dollar value investor Warren Buffett.
A family of exotic options based on multiple underlying securities. Mountain range options were first created by French securities firm Société Générale in the late 1990s. These options blend some of the key characteristics of basket-style or rainbow options (which have more than one underlying security or asset) and range options, which have multiyear time ranges. Taobiz explains Mountain Range Options The price of a mountain range option is based on multiple variables, the most important of which is the correlations between the individual securities in the basket. Some options have discrete payout levels (e.g., double the investment, triple the investment) if certain performance metrics are hit by the underlying securities while the option is in effect. Types of mountain range options include Altiplano options, Annapurna options, Everest options, Atlas options and Himalayan options. They are traded over-the-counter (OTC), typically by private banks and institutional investors such as hedge funds. The difficulties in determining the fair market value for these exotic options makes standard formulas (like the Black-Scholes method for vanilla options) nearly impossible to apply. Certain types of mountain range options have recalculation or sampling dates, at which the best- or worst-performing stocks from the basket are removed. Thus, holders of these options must constantly re-evaluate the parameters affecting their current value. Effects such as volatility skew, which is found in most options, can be even more pronounced within mountain range options.
A method of analysis used by security analysts to gather information about a corporation. Mosaic theory involves collecting public, non-public and non-material information about a company in order to determine the underlying value of the company's securities and to enable the analyst to make recommendations to clients based on that information. Taobiz explains Mosaic Theory Some see this style of analysis as a misuse of insider information, but the CFA Institute (formerly known as AIMR) has recognized mosaic theory as a valid method of analysis. However, analysts using this method should disclose the details of the information and methodology they used to arrive at their recommendation.
A securities position that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered (a covered position is hedged from market risk). Taobiz explains Naked Position If an investor simply holds 500 shares of Ford, he or she has a naked position in Ford. If the investor wanted to cover this position, he or she could buy put option contracts, which would help protect against downward movements in the price of Ford shares. Whether to have a naked position is rarely a concern for most small investors, but it is a concern for large investment holders and institutions.
A valuation theory based on the idea that similar assets sell at similar prices. This assumes that a ratio comparing value to some firm-specific variable (operating margins, cash flow, etc.) is the same across similar firms. Taobiz explains Multiples Approach In other words, the theory is that when firms are comparable, we can use the multiples approach to determine the value of one firm based on the value of another.
The classification of a company's stock and bond offerings into different classes. Each class will have different characteristics in order to meet the needs of a wider range of investors than would be possible by issuing just one class of stock. The individual components have varying required rates of return affecting the weighted average cost of capital. Taobiz explains Multiple Capital Structure For example, Berkshire Hathaway's common stock is divided into class A and class B shares. The class A shares (BRK.A) have more voting rights and can be converted to class B shares. The class B shares (BRK.B) have fewer voting rights and cannot be converted to class A shares. Class A shareholders have 0.5% of the voting rights that B shareholder do.
A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation". Taobiz explains Multinational Corporation - MNC Nearly all major multinationals are either American, Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Advocates of multinationals say they create jobs and wealth and improve technology in countries that are in need of such development. On the other hand, critics say multinationals can have undue political influence over governments, can exploit developing nations as well as create job losses in their own home countries.
An anti-dilution provision used to ensure that investors are not penalized when companies are undergoing additional financing or issuing new shares. A narrow-based weighted average takes into account only the total number of outstanding preferred shares for determining the new weighted average price for the old shares. Taobiz explains Narrow-based Weighted Average The new weighted average price is adjusted for the preferred shareholder, thus providing protection against dilution. The narrow-based method is the most favorable for investors, as it lowers the price of the preferred shares more than other methods.
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