Definitions

Alpha – Alpha refers to excess returns earned on an investment above the benchmark return.

Backtest – is the general method for seeing how well a strategy or model would have done in the past. Backtesting assesses the viability of a trading strategy by discovering how it would play out using historical data.

Black Swan – Is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.

CANSLIM – CAN SLIM is a growth stock investing strategy formulated from a study of stock market winners dating back to 1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad by William O’Neil.

Confirmation Bias – is the tendency to search for, interpret, favor, and recall information in a way that confirms or supports one’s prior beliefs or values. People display this bias when they select information that supports their views, ignoring contrary information, or when they interpret ambiguous evidence as supporting their existing attitudes.

Diversification – is a method of portfolio management whereby an investor reduces the volatility (and thus risk) of their portfolio by holding a variety of different investments that have low correlations with each other.

Dollar Cost Average – When you dollar cost average, you invest equal dollar amounts in a security at regular intervals. Rather than attempting to time the market, you buy in at a range of different prices.

Following the herd – To do the same thing that most other people are doing, without really thinking about it for yourself.

FOMO – Fear of Missing Out – Watching others make a lot of money on a certain stock or ETF having a massive rally may make you feel obligated to join in and get in on the gains, even if the logical part of your brain is telling you that the biggest rewards have already been had.

GAAP – Growth at any Price – is a strategy that ignores the current state of the company performance on earnings, revenue, financial condition and focuses instead to projections of the future. The projections are subjective and make many asumptions about future business conditions. If the assumptions are too optimistic, then the stock price will suffer.

GARP – Growth at a reasonable Price – is a strategy that blends aspects of growth and value investing. Investors seeking growth at a reasonable price look for stocks that they believe will deliver above-average growth, but that are not too expensive.

Key Person Risk – is of placing knowledge, skills, and important relationships in the hands of one or a few staff members. If this key person is to leave the business, they take their knowledge with them, leaving the business open for risk.

Law of Large Numbers – In a financial context, indicates that a large entity which is growing rapidly cannot maintain that growth pace forever. The biggest of the blue chips, with market values in the hundreds of billions, are frequently cited as examples of this phenomenon.

Liquid stocks – Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.

Loss Aversion – Is a cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining.

Outperformance – Producing more money for investors than other shares, bonds, etc. of a similar type.

Payment for order flow – (PFOF) is compensation that broker-dealers receive in exchange for placing trades with market makers and electronic communication networks, which aim to execute trades for a slight profit.

P/S Ratio – The price-to-sales ratio (Price/Sales or P/S) is calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. 1 The lower the P/S ratio, the more attractive the investment.

Quant – Quants use computers to tell them what to buy and sell.

Revenue YOY – To calculate YoY, first take your current year’s revenue and subtract the previous year’s revenue. This gives you a total change in revenue. Then, take that amount and divide it by last year’s total revenue. Take that sum and multiply it by 100 to get your YoY percentage.

Steady Eddie – In investing this refers to an individual who follows a conservative and stable approach to investing. This type of investor prioritizes reliability and consistency over high-risk, high-reward strategies. A Steady Eddie investor typically focuses on building a stable and diversified portfolio with the goal of generating steady, reliable returns over the long term.

Survivorship Bias – a logical error in which attention is paid only to those entities that have passed through (or “survived”) a selective filter, which often leads to incorrect conclusions.

Swing trading – is a speculative trading strategy in financial markets where a tradable asset is held for one or more days in an effort to profit from price changes or ‘swings’.

Timing the Market – Market timing is the practice of trading in and out of the stock market or certain asset classes based on predictions of future price movements. Numerous studies have shown that no one can time the market successfully over long periods of time. Immediate investing and dollar cost averaging are better alternatives.

Wall Street Darling– A USA based stock that has an excessively optimistic outlook in the investment community and is driven to extreme prices. . An example today would be the handful of tech stocks that dominate the S&P 500 index.