The "dead cat bounce" and other financial jargon

We explain some uncommon—and occasionally graphic—investment terms.

By Vicki Brentnall
Staff Writer

Animal lovers, take heed: Some investment terminology shows little respect for our four-legged friends. Take "dead cat bounce," for instance. That term refers to a stock that's had a rapid, steep decline, followed by a brief rally. Like a dead cat dropped from the roof of a building, it may bounce up a little, but that doesn't mean it has another life left.

Other investment lingo is just as disrespectful if not quite as colorful, and much of it is equally mystifying. Lest you be caught unawares in a conversation, here's an A-to-Z guide to some of the terms that Wall Streeters commonly pepper their conversations with.

Angel investor. A venture capitalist who provides funds for small start-up companies, hoping to get a high return on his investment.

Bottom fisher. An investor who buys stocks that have fallen to their lowest prices to date, in hopes that they'll turn up again.

Bubble. A market condition in which prices for certain types of stocks rise very quickly, only to fall just as fast later on.

Category killer. A large company that puts smaller, more specialized but less efficient competitors out of business. A prime example of a category killer is Wal-Mart.

Cats and dogs. Speculative stocks that have short or suspicious sales, dividends, and earnings histories. In a bull market, it's common to hear "everything's going up, even the cats and dogs."

Coattail investing. Mimicking the moves of well-known, successful investors. A risky approach because of the timing; by the time the coattail investor learns of the strategy, it may already be too late to gain on the investment.

Cookie jar accounting. A tactic whereby a company appears to smooth its income by posting generous reserves from one year against severe losses in another year.

Death Valley curve. The rapid use of capital by a start-up company. The company may not see a revenue stream for years, due to cash-flow difficulties.

Dogs of the Dow. Investment strategy in which someone buys the 10 highest-yielding stocks in the Dow Jones Industrial Average at the beginning of the year and adjusts the portfolio annually to include the new top 10. The "Dogs" tend to beat the DJIA because they initially trade at depressed prices but show significant improvement by the end of the year.

Elephants. Large institutional investors that purchase stocks in high volumes. Examples include mutual funds, banks, insurance companies, and pension plans.

Fighting the tape. Buying stocks when the market is falling. Many experts believe that underestimating the market's momentum can be a deadly error for investors.

Flipping. Buying IPO shares, then selling them within a short time period (such as two days) for a quick profit.

Goldbrick shares. Shares of a stock that appears to be of quality and value, when in reality it's of questionable worth.

Goldilocks economy. A period of steady economic growth and nominal inflation. The mid- to late '90s, for example, were "not too hot, not too cold, but just right."

Gunslinger. An aggressive portfolio manager who invests in high-risk stocks in search of high returns.

Hard landing. When the government raises interest rates to slow inflation and ends up sending the economy into a recession. In a "soft landing," the more desirable result, the Fed raises rates just enough to slow the economy down effectively.

In the penalty box. A company's stock is depressed, and will be for quite some time, due to poor earnings, government regulations, or other issues.

Long bond. A bond that matures in more than 10 years. Generally refers to the 30-year Treasury bond.

Main Street. The investing public, as opposed to Wall Street, the investment professionals.

Nifty 50. The 50 favorite stocks of institutional investors. While the list constantly changes, it usually contains those issues with consistent earnings growth and higher-than-average price-earnings ratios.

Overbought. Describes a stock whose price has risen too high too quickly and is due for a drop.

Pump and dump. An illegal scheme whereby a group of people buy a stock, then hype it (usually on the Internet) so that many others buy, driving the price up. The pumpers later dump (sell) the stock, raking in profits and causing the stock's price to dive. The investing public is left with near-worthless shares.

Sleeping Beauty. A company that's a prime takeover target because of its desirable qualities (such as large cash reserves, undervalued assets, etc.) but has yet to be noticed by firms that might want to acquire it.

Suicide pill. A potentially crippling or deadly action taken by a company, usually designed to make its own stock less appealing in an effort to avoid a hostile takeover.

Sweat equity. The increase in value of a business or asset that's due to the owner's hard work.

Take a flier. To invest in speculative securities, and, in doing so, take a big risk. If the investments tank, you could end up "taking a bath"—suffering a huge loss.

Top-down investing. Strategy whereby an investor first looks at current economic trends to determine what industries are doing well or have the potential to do well, then looks for attractive companies within those industries. "Bottom-up investors" look for specific companies that can do well, even in an industry that's less than promising, while downplaying current economic factors.

Value trap. Investing in a stock whose price is depressed for a good reason, mistaking it for a value stock.

White knight. A friendly company that agrees to take over a target company that's facing a hostile takeover by another company.

Zombies. Companies that somehow continue to operate even though they're insolvent. These companies are also known as The Living Dead or Brain Dead.

For more definitions of investment expressions and jargon, go to Investopedia.com (www.investopedia.com) or look in Barron's Dictionary of Finance and Investment Terms, available at many local libraries.

 

Vicki Brentnall. The "dead cat bounce" and other financial jargon. Medical Economics Nov. 7, 2003;80:43.