The effect that arises when a stock trades at a certain multiple and, while earnings may be strong, the stock price doesn't move up (or even goes down). The result is that the given multiple (P/E ratio) is reduced even though nothing is fundamentally wrong with the company. Compression of a company's multiple can be interpreted as the valuation being called into question. Remember, the multiple is based off of many factors, but most importantly the future expectations of a company. If a company trades at say, a P/E multiple of 50, this means investors are paying $50 for each $1 of earnings. Generally, an investor would only pay such a high multiple on the expectation that the company will grow significantly faster than its competitors or the stock market in general. When the company's growth rates start to slow, investors might start to doubt its growth prospects, and thus not pay an expensive a premium as they once did. In our case, the company might experience multiple compression with the P/E shrinking to 25, even though earnings haven't changed. With the same earnings of $1, this would mean that the stock price fell in half (25/50 = 1/2). This demonstrates how the stock price could go down when earnings stay the same.
An investor who looks for bargains among stocks whose prices have recently dropped dramatically. The investor believes that a price drop is temporary or is an overreaction to recent bad news and a recovery is soon to follow. A bottom fisher may attempt to find stocks that the market has undervalued through fundamental analysis. Bottom fishers may also be more active during prolonged bear markets where there may be stocks getting hammered through panic selling. Unfortunately, it's difficult to tell the difference between a bargain and a stock that has fallen for a fundamental reason.
The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked at as a measure of success against the competition and consists of growth/decline due to both capital appreciation/losses and new money inflow/outflow. |||There are widely differing views on what "assets under management" refers to. Some financial institutions include bank deposits, mutual funds and institutional money in their calculations; others limit it to funds under discretionary management, where the client delegates responsibility to the company.
A slang term referring to the traditional seating arrangement of younger investment advisors or brokers in a brokerage house. Traditionally, younger brokers would be assigned to sit in the center of the room at desks facing each other, while more experienced or successful brokers would be given offices with doors.
A risk-management committee in a bank or other lending institution that generally comprises the senior-management levels of the institution. The ALCO's primary goal is to evaluate, monitor and approve practices relating to risk due to imbalances in the capital structure. |||For example, the ALCO will have responsibility for setting limits on the arbitrage of borrowing in the short-term markets, while lending long-term instruments. Among the factors considered are liquidity risk, interest rate risk, operational risk and external events that may affect the bank's forecast and strategic balance-sheet allocations. The ALCO will generally report to the board of directors and will also have regulatory reporting responsibilities.
The alteration of normal payment or receipts in a foreign exchange transaction because of an expected change in exchange rates. An expected increase in exchange rates is likely to speed up payments, while an expected decrease in exchange rates will probably slow them down. |||Accelerating the transaction is known as "leads", while slowing it down is known as "lags". Leads will result when firms or individuals making payments expect an increase in the foreign-exchange rate, while lags arise when the exchange rate is expected to fall. Leads and lags are used in an attempt to improve profits.
A type of risk that occurs when a financial model used to measure a firm's market risks or value transactions does not perform the tasks or capture the risks it was designed to. Model risk is considered a subset of operational risk, as model risk mostly affects the firm that creates and uses the model. Traders or other investors who use the model may not completely understand its assumptions and limitations, which limits the usefulness and application of the model itself. Any model is a simplified version of reality, and with any simplification there is the risk that something will fail to be accounted for. The use of financial models has become very prevalent in the past decades, in step with advances in computing power, software applications and new types of financial securities. The Long Term Capital Management debacle was attributed to model risk - in this case, a small error in the fund's computer models was made larger by several orders of magnitude because of the highly leveraged trading strategy LTCM employed.
A lending program created by the Federal Reserve Board on September 19, 2008, that will provide new funding to U.S. financial institutions until October 30, 2009. The Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF) provides funding that allows financial institutions to purchase asset-backed commercial paper (ABCP) from money market mutual funds (MMMF) to prevent default on investors' redemptions. |||The acronym AMLF is generated by taking the first letters from the first two acronyms ABCP (asset-backed commercial paper) and MMMF (money market mutual fund). The letters "AM" are then combined with the acronym for liquidity facility, "LF".
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