Few things make you feel like an outsider as much as not speaking the same language as everyone else. This is true on a trip to Paris (Duolingo did not prepare you for how fast the French converse), but it’s also the case when you decide to go from being a saver to being an investor. Hey, it can even happen if you’ve been investing for years then decide you want to take your portfolio to the next level.
Don’t let the jargon get you down. Just read our handy investment-terms cheat sheet. (You'll be speaking Finance Bro in no time.)
Bear hug
A bear hug is an unsolicited offer from a company to buy the shares of another for a far higher per-share price than the company is worth in the market. If this overly generous offer isn't accepted, shareholders may sue.
Bonus issue (also known as a scrip issue)
An offer of free shares to existing shareholders, instead of a dividend payout.
Buyback
When a company buys shares back from shareholders to limit the available supply, increase their value or shift controlling stakes, among other reasons. Technology investor Prosus (PRX) made a record-breaking buyback in 2020, buying $1.37 billion of its own shares and $3.63 billion of Naspers' shares – the largest share buyback in Johannesburg Stock Exchange (JSE) history.
Divestiture / Divestment
When a company sells off assets, subsidiaries or business divisions. This could be to streamline operations or maximise the value of the parent company. (In less positive circumstances, it could be to cut costs, repay debts – or through bankruptcy.) Electronics giant Philips (PHG) has divested many of its divisions (such as its chip division, NXP) to maintain focus areas like health technology.
Dividends
A portion of an organisation's profit, paid out to investors. They can choose to reinvest the dividend or receive a cash payout.
Dividend yield
This is a financial ratio showing how much a company pays out in dividends each year relative to its stock price. Dividend yield = dividend ÷ share price.
Exchange traded fund
A type of fund that holds multiple underlying assets. Its share price fluctuates throughout the day as it is bought and sold on an exchange. Satrix, a company that tracks indexes, introduced South Africa's first ETF in 2000. It was called the Satrix Top 40 ETF.
Market cap
Short for market capitalisation, this is a company's worth determined by the stock market – a sum market value of all owned shares. At the time of writing, Apple's (AAPL) current market cap is $2.96 trillion, while Netflix's is $195.69 billion.
Price-to-earnings (P/E) ratio
The P/E ratio is a company's share price relative to its earnings per share. A high P/E ratio could mean that the company's stock is overvalued. The average P/E ratio for the S&P 500 ranges between 13 and 15.
Reverse split
The opposite of stock splits (see below), a reverse split is when an organisation decreases its number of shares in order to boost their value.
Reverse takeover
A process that allows private companies to become publicly traded without going through an initial public offering (IPO). The New York Stock Exchange did this in 2006, acquiring Archipelago Holdings to create the NYSE Arca Exchange. It then renamed itself and started trading publicly.
Rights offering issue
When a company invites shareholders to buy discounted, newly issued shares for a period to raise money, such as for expansion or acquisition. Sasol (SOL) considered doing so in late 2020 to raise $2 billion for debt repayment.
Spinoff (also known as a spin-out)
Selling new shares of an existing business to create an independent company worth more than it would've been as part of the larger business. This is what Naspers (NPN) did in 2019 when it spun off Multichoice (MCG) for R42 billion.
Stock split
When a company's board of directors chooses to divide its existing shares into multiple shares to lower the trading price of its stock. J.P. Morgan (JPM) does this often with its ETFs.
Vertical merger
A merger of companies positioned at different stages of a production process, creating a more valuable entity with more control over its supply chain. In 2005, Google (GOOGL) completed a vertical merger with Android in a $50 million deal.
Year-to-date return
The profit or loss from an investment since the first day of trading in the current calendar year. This measure is used to assess the performance of stocks. Not to be confused with the annual return, which is the average yearly investment increase over a specific period.
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