Special Sub-Topic: Finance - Absurdly Simple to Understand
|Layman: So! Look's whose turned up at the party? The Finance geek! What wild fantasies are you having these days?
Moi: Nothing much. I've been thinking about Bo Derek day in and day out.
LM: Huh! So you guys have normal thoughts after all, eh?
Of course, the poor layman never realizes that out at the Street (or Exchange), the names stays the same, the meaning changes! So, in street-lingo, what/who exactly is Bo Derek?|
A perfect Investment or stock. Bo Derek was the lead actress in the movie "10" (1979). She portrayed herself as the perfect woman in that movie. The street boys surely didn't miss the bus...
|Layman: This can't be true. He just can't think like that. So I heard the market's are down these days!
Moi: Eh! Okay, it was down but do you know something? We just saw J.Lo (Jennifer Lopez) yesterday on the charts. So we are back in the game!
Layman: What! What connection do J.Lo and the stock market have?
These laymen will never understand, will they? So what is the significance of J.Lo on the charts?|
It is a reversal pattern. By Charts, I meant the Technical charts. A J.Lo trend is a rounded bottom pattern, signally the change of bear run to a bull run. Now, I don't need to explain how J.Lo was put for this trend, do I?
|The art of stock picking is a subtle art. Common man (also called the Layman) has never been able to appreciate the technicalities and challenges experienced by us in trying to increase (and squander) your hard earned money. Of course, we look at a lot of economic indicators, including lipsticks. So who gave us the remarkably successful 'Leading Lipstick Theory?'|
Leonard Lauder. Before you laugh, let me assure you that this is a very good indicator and is used by certain brokers and consumer behaviour analysts [Caveat: No research has been conducted for countries outside U.S.A.]. The Chairman of the Estee Lauder remarked that "when a consumer feels less than confident about the future, she (or he) turns to less expensive indulgences such as lipsticks. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession."
|The sensible and wise layman believes that at the Street, we undertake extensive research and analysis in picking our stocks. Well, they are the exceptions! Many of us would rather look at skirts. Of course, our motives are completely different from the delinquent and juvenile populi. So what do we look in a skirt?|
The length of the skirt. This theory is not so widespread today. The general thinking, however, was that skirt lengths are a predictor of the stock market direction. If skirts are short, it means the markets are going up, whereas longer skirts mean the markets are heading down. "The idea behind this theory is that shorter skirts indicate that confidence and excitement is high, meaning things are bullish. In contrast, Long skirts indicate fear and general gloom, hinting that things are bearish." [www.investopedia.com]
|Now only a layman (and a cynic on top of it) would ask in desperation, "Lipsticks, Skirts! What next - Aspirins?"
Of course, the layman doesn't know that we have an Aspirin theory also! According to this theory, which factor or guiding principle will give us an indicator of the nature of the economy?|
Aspirins and stock exchange have a negative correlation. One might laugh this off but some traders do use these indicators. The proponents of 'Aspirin theory' advocate the fact that when stock prices fall, people need more and more pain relievers and killers. [Of course, the relationship is not a leading relationship because aspirin sales follow economic cycles, if one were to use this theory]
Other indicators include the cover of the annual report, whether it rained etc.
|The finance guys always marvel at the layman's craze for para-normal stuff. If the layman ever came to know the paranormal stuff that happens in the finance guy's realm. The finance guru usually watches the Super Bowl match to predict which way the market is headed the next year. So if the game is won by the team from the old NFL (now the NFC division of the NFL), the market's expected to go up. So tell me did I push it a little too far this time - did I make this up?|
n. This indicator is called the 'Super Bowl Indicator'. The inverse is also true - old AFL (now the AFC division) team wins and markets goes down. It has been found true 85% of all times. Courtesy: www.investopedia.com
|It's a remarkable thing. Two classes of people on the same earth, using the same language and both think they understand the other and yet they don't- with remarkable consequences. For example, take the following conversation:
Perverted Layman: 'So what's your favourite position, mate?'
Moi: 'Know that I take great risks - so I like it naked'
PL (the groan is quite loud, I presume): 'Hell, tell me something new'
This case merely illustrates the insurmountable differences that have cropped between the layman and the finance guy. So what did the finance guy actually mean?|
He doesn't hedge. A naked position is a position undertaken by a trader without any cover i.e. he is fully exposed to the risk. Let's assume that a trader has 300 units of Stock A. To fully cover his risks, he can take a short position of 300 units of Stock A on the futures markets. Naked positions have higher risk but better returns given occurrence of a favourable scenario.
|I can assure one and all that these misunderstandings can occur even in 'decent' talk. Imagine the surprise of the unsuspecting layman when he was told by the finance whiz kid that the former needs to have a bulldog, a samurai and a dragon. All the layman asked the whiz-kid was for some protection in his stocks dominated portfolio! What was the whiz kid offering our layman in this case?|
Bonds. Samurai Bond is a yen-denominated bond issued in Tokyo by a non-Japanese company. Dragon Bond is issued in Asia but denominated in U.S. dollars. Bulldog Bond is a sterling denominated bond that is issued in London by a company that is not British.
|It is a grave injustice to the ingenuity of the finance guy. He coins terms for financial instruments even when they don't exist. This is mostly done to commemorate a particular event. What is the name given to a bond which has no principal, no interest (coupon) and no maturity?|
Quayle Bond. This bond is named after former Vice-President Dan Quayle. Certain sections sometimes refer to this as the Clinton bond. While it is impossible to have a bond with the above characteristics, it merely illustrates the flexibility of the finance world to coin terms real fast.
|What is the financial term for a written advertisement placed by investment and merchant bankers in a public offering of a security?
It lists the name of all the underwriting groups and basic details about the issue. Quite humorously, these bankers also give the names of other companies whose IPO's (Initial Public Offerings) were handled by the Banker. Back to the question: what's it called?|
Tombstone. This is so-called because of its black border and heavy black print. The tombstone provides investors with "bare bones" information. Courtesy: www.investopedia.com
Caveat (not the traditional idiotic disclaimer): Kindly note that I can assure and vouch for the various indicators mentioned in this quiz. However the most important principle or phenomena (and the one that should guide you) is called, "The Murphy's Law". All other indicators will not work in the presence of this phenomenon.
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