- Tausif Mulla
7 Financial Buzzwords You Probably Haven’t Heard Before
Financial lingo and jargon are phrases or words in the financial industry that may be difficult to understand for someone who has never been exposed to it before. Here's a list of seven lingos/jargon for your reference.
1) “Sleeping Beauty”
Sleeping beauty is an investment that has been in a dormant state for a long period of time and may be considered to be in default or in the process of default. Similarly, Sleeping beauty bonds are a type of bond which can only be issued by the U.S. Treasury. The U.S. Treasury issues by law one sleeping beauty bond to any investor who invests $100,000 or more in Treasury securities.
2) “Wacky Investing”
Wacky investing is a term used to describe investments that are too speculative and risky to be considered safe.
These investments typically have a low chance of success, but the risk is worth the reward. Wacky investing strategies can include investing in penny stocks, shorting stocks, investing in cryptocurrencies, and more. This term was originally used by the US Securities and Exchange Commission (SEC) in the early 1990s when it was trying to regulate the booming investment scene. Wacky investing typically involves high risks and high rewards with little chance of success.
3) “Eat Your Own Dog Food”
Back in 1988, for the first time, Microsoft asked its LAN manager to use one of their products internally. The e-mail came with the title “eating your own dog food” and started a trend that continues to this day in the tech industry.
This led to the start of practice where companies test the product or service by letting employees use them before releasing it to the world, known as “eat your own dog food” or dogfooding. Famous products like Gmail or Facebook’s react feature, are all result of dogfooding. The idea of eating your own dog food has been around for a long time.
4) “Suicide Pill”
In order to have a chance of staying afloat, many companies may resort to desperate measures. When the company is on the verge of bankruptcy, it may be forced to seek out measures that make it look less desirable. This could include taking on mountains of debt or offloading key assets. Suicide pills are one such tactic. In most cases, smaller companies with no desire to get ripped apart by the industry's biggest players will seek protection from a bankruptcy court rather than merge.
5) “Cockroach Theory”
The Cockroach theory, also known as the Law of the Unintended Consequence, is a theory in which it is believed that there are always more bad things lurking than you can imagine. The theory states that in any given situation there will be at least one other problem that you didn't even think about and it will be worse than anything you originally expected. This was a popularized term in Nassim Taleb's book The Black Swan and has since been associated with a wide variety of different situations. Similarly, the Cockroach theory in finance indicates that, when a company announces negative news to the public, there may be more negative news to come
6) “Bucket Shop”
A bucket shop is an unregulated, speculative trading firm that usually operates out of a single room or small office. The firm does not require a license, pays commission only on profits, and often targets inexperienced traders.
At any given time, there are usually dozens of traders in the small room taking turns to trade stocks on voice-activated machines provided by bucket shops. These traders receive an initial deposit from investors and then use margin transactions to generate returns for their clients after which they are paid their commissions according to profit-sharing ratios.
7) “Pump and Dump”
Pump and dump is a trading strategy that is based on the hype cycle theory. It involves buying a stock after it has just been introduced and then waiting for the price to rise. After the price rises, one rapidly sells their shares. Pump and Dump investing was first introduced by William J. O'Neil in his book "How to Make Money in Stocks" as a way for people to make quick profits without taking any risks. It has since been used to describe any short-term behavior when buying or selling an asset.
This strategy is illegal in most countries and it can be harmful to investors because of its volatility. The short-term gain from a pump and dump is often offset by losses incurred later because of price falls when making trades at higher prices.
Pump and Dump strategies are usually seen in penny stocks such as stocks from companies with low market capitalization or a small number of stocks traded daily.