A rental agreement that obliges the lessee (the person making periodic lease payments) to make a baloon payment at the end of the lease agreement amounting to the difference between the the residual and fair market value of the asset. Also called a "finance lease". Since the lessee must purchase the leased asset upon lease expiration, that person bears the risk that the asset depreciates more than was expected by the end of the lease. Of course, at the same time, the lessee stands to realize a gain if the asset depreciates less than expected.For example, suppose your lease payments are based on the assumption that a $20,000 new car will be worth only $10,000 at the end of your lease agreement. If the car turns out to be worth only $4,000, you must compensate the lessor (the company who leased the car to you) for the lost $6,000 since your lease payment was calculated on the basis of the car having a salvage value of $10,000. Basically, since you are buying the car, you must bear the loss of that extra depreciation. Conversely, if the car is worth more than $10,000 at the end of the lease, you receive a refund from the lessor.
The act of holding an investment for too long. It often occurs when traders attempt to time the market by identifying the end of a price trend and the beginning of a new one, but, due to greed and fear, tend to overstay their positions. This usually results in reduced gains or, worse, further losses. Knowing when to sell or get out of an investment is just as important as knowing when to get in. However, timing the market correctly is a task that even professional investors and traders find difficult to accomplish on a consistent basis, so attempting market timing is not recommended for the average investor.
A decentralized market of securities not listed on an exchange where market participants trade over the telephone, facsimile or electronic network instead of a physical trading floor. There is no central exchange or meeting place for this market. Also referred to as the "OTC market". In the OTC market, trading occurs via a network of middlemen, called dealers, who carry inventories of securities to facilitate the buy and sell orders of investors, rather than providing the order matchmaking service seen in specialist exchanges such as the NYSE.
This occurs when a salesperson continues their sales pitch after the customer has already decided to purchase. This mistake can sometimes annoy the customer, and could potentially cause the customer to change their mind, causing the deal to fall through. Over-selling, although it may be done with good intentions, usually does more harm than good. Great salespeople know when to close the sale and when the customer is ready to buy.
An analyst recommendation meaning a stock is expected to do slightly better than the market return. Also known as "market outperform", "moderate buy", or "accumulate". Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy.
A slang term given to investors or other market participants who ignore important pieces of information or situations, which have the ability to impact them or the market in which they operate. The reasons behind type of action can include risk aversion and bias. The investment term is derived from the similarities between investors and these large birds, where in response to a dangerous situation, they stick their heads in the ground. These participants will ignore the market at all costs when it is not working to their advantage, in effect sticking their 'heads in the ground' in response to the stress of the market.
A major change in how some process is accomplished. A paradigm shift can happen when new technology is introduced that radically alters the production process of a good. For example, the assembly line created a substantial paradigm shift not only in the auto industry, but in all other areas of manufacturing as well. Paradigm shifts can require that entire departments be eliminated or created in some cases, and millions or even billions of dollars of new equipment purchased while the old equipment is sold or recycled. Paradigm shifts have become much more frequent in the past hundred years, as the industrial revolution has transformed many social and industrial processes. This process is likely to become even more commonplace in the future as our rate of technological advancement increases.
Unrealized capital gain (or capital loss) in an investment. It is calculated by comparing the market price of a security to the original purchase price. Gains or losses only become realized when the security is sold. Investors commonly justify bad investment decisions because of paper gains or losses. Two examples:1. Although you officially recognize a transaction when you sell a security, many investors believe they haven't lost any money in a sinking investment because they haven't yet sold it. While you don't have a capital loss for tax purposes, there is a loss in value. 2. On the flip side, the dotcom boom saw many "paper millionaires" created due to stock options. The problem was that rules in options contracts made it impossible for these people to sell their stock and realize their wealth. Consequently, after the dotcom market crashed, many paper millionaires went broke.
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