STOCK MARKET GLOSSARY

 

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  • A PRIORI
    A Latin phrase meaning "known ahead of time" or more precisely, known without any empirical evidence or experience. The classical example would be a mathematical truism like 1 + 1 = 2. This truth can be concluded without any experience or evidence. A priori is the opposite of "a posteriori" which means known with the advantage of experience or evidence - literally "known afterwards". In the stock market, private investors are in the business of predicting the future. When you buy a share you do so because you expect it to go up - based on your study of the share's price charts, its financials and your general awareness of the economy. But you could be wrong so you prediction is "a priori". Once it has gone up your experience is "a posteriori".
  • ABANDON
    An option contract which is not enforced because it is out-of-the-money. Options confer a right to either buy (call) or sell (put) a certain quantity of shares (or other instruments) at a fixed price before a specified date. If they are not exercised then the option is said to have been “abandoned” – thus an abandon is an option which has not been exercised and has subsequently lapsed.
  • ABANDONED BABY
    A rare candlestick pattern which can indicate either a new bullish or a new bearish trend. A bullish abandoned baby pattern occurs where there is a strong downward candle at the end of an established downtrend which is then followed by a lower doji formation and finally a strong upward candle where the open is higher than any point in the previous day's doji. The bearish abandoned baby pattern is the opposite.
  • ABC
    Elliott wave terminology for a three-wave countertrend (or downtrend) price movement. Wave “a” is the first down-wave against the trend of the market. Wave “b” is a corrective (upward) wave to wave “a”. Wave “c” is the final price move downwards to complete the countertrend price move. Elliott wave followers study “a” and “c” waves for price ratios based on numbers from the Fibonacci series. It has been noted that most bear trends typically have a significant rally which normally recovers about 50% of the initial (“a” wave) fall.
  • ABNORMAL ITEM
    An income or expense which may be part of the company’s normal business but which is abnormal in amount. So an unusually high expense or income might be considered abnormal. This is to distinguish it from an “extraordinary item” which is usually entirely outside the company’s normal business – such as the once-off sale of a fixed asset, a fine for misconduct or some kind of natural catastrophe.
  • ABOVE-THE-LINE
    Any normal expense or income which has been included in the calculation of a company’s gross profit and which is a part of its normal business (such as cost-of-sales or sales). This is as opposed to below-the-line incomes and expenses which are taken out after gross profit - so fixed expenses like finance costs, salaries, rent and so on. So the "line" is at gross profit.
  • ACCEPTANCE
    Where a bank “accepts” some kind of debt instrument usually at a discount. Debt instruments are basically IOU’s written by one organisation in favour of another. If the company that is owed the money wants to get that money before it is due, they can take it to a bank and “discount” it. This means that the bank will pay them out the money now – less a small fee or discount. This fee when expressed as a percentage of the principal amount can be expressed as an annualised percentage and is known as the Bankers Acceptance rate (the BA rate).
  • ACCEPTANCE DATE
    The date on which the right acquired by a shareholder as a result of a rights issue must be exercised. Listed companies often raise additional capital from their existing shareholders by undertaking a rights issue. This means that they offer additional shares to their existing shareholders, in proportion to what they already hold at a discount. These rights are embodied in a document called a “renounce-able nil paid letter of allocation” or “NPL” for short. When there is a rights issue, the company sends out NPLs to all their shareholders holding the shares on a  certain date (although these days they arrange for the NPLs to appear on their portfolio in their trading platform). The shareholder must then either sell these NPLs or take up the shares before the acceptance date. After the acceptance date, the NPLs have no value. The NPLs are usually listed on the JSE alongside the ordinary shares of the company for a period of about six weeks, ending on the acceptance date. This enables holders of the NPLs to sell them to other investors. The NPL has a value determined by the difference between the current market price of the ordinary share and the take-up price.
  • ACCOMMODATION
    The extension of credit by the Reserve Bank to commercial banks. The central bank acts as a banker to the commercial banks, lending them money as they need it through what is known as the “discount window”. The discount window used to be an actual window in the Reserve Bank at which clerks from the commercial banks would go to draw physical cash. This “accommodation” was given at a rate known as the “repo rate” – which is still set today by the Monetary Policy Committee (MPC) every two months. The Reserve Bank can increase and decrease the liquidity in the economy by raising and lowering the repo rate.
  • ACCOUNTANCY
    A set of conventions for recording and gathering financial transactions in an organisation. The academic discipline which is accountancy has established a set of conventions for totaling the two sides of every transaction in an organisation under a set of headings within a defined time period (known as the “accounting period”). There are four main headings – incomes, expenses, assets and liabilities. The total of incomes plus liabilities must always equal the total of expenses plus assets. This is known as the accounting equation. Each of these four main headings is then divided up into sub-headings. For example, assets can be either fixed or current – and then current assets are usually divided further into stock (inventory), debtors (account receivable) and cash and bank balances. Every transaction ever done by any organisation anywhere has two sides (debit and credit) and each of those two sides fit under one of these main headings in such a way that the balance sheet (the accounting equation) always balances. These headings are then subject to further conventions – like the profit calculation which, in simple terms, subtracts the expenses of the period from the incomes of the period in order to arrive at the profit or loss for the period.
  • ACCOUNTING CONSERVATISM
    Accountants are notoriously conservative people. Conservatism applies to incomes, expenses, liabilities and assets of unknown amounts. To be conservative means generally expecting incomes to come in later and be smaller and to expect expenses to come in earlier and be larger. The problem is that Generally Accepting Accounting Practice (GAAP) does not precisely determine exactly how conservative an accountant must be in many situations. This leads to difficulty in comparing the financials of different companies – some are more conservative than others. For example, a construction company has a contract to build a road. This will take several years to complete and the problem arises over when exactly the income and hence the profits are recognised in the books of account. Should they be recognised when the contract is won, but before any work is done – or when the contract is completed and full payment received – or on some partial basis. The exact method chosen could significantly impact on the company’s profitability in the various financial periods covered. Obviously, the most conservative approach would be only recognise the income once the work is completed and the final payment is received – but is that the best method? It will reduce profits in the years prior to completion and then boost profits in the year of completion. There are no hard and fast rules.
  • ACCOUNTING CONVENTIONS
    These are conventions developed by the accounting profession to ensure that the financial statements display a clear and accurate picture of the progress of the business during the accounting. The purpose is to enable stakeholders to evaluate the performance of the business during the accounting period and its solvency at the end of that period. Probably the most deeply entrenched convention is the profit calculation which in simple terms subtracts the expenses of the business from its incomes in order to arrive at its profit or loss for the period. This is usually done in three stages – the trading account (where the company’s variable costs are subtracted from its turnover in order to arrive at gross profit), the profit and loss account (where the company’s fixed expenses are subtracted from the gross profit in order to arrive at the net profit) and the income statement which shows how the profits have been allocated (i.e. to taxation, minorities, director emoluments etc.). The income statement is disclosable to the public in a public company (in terms of the Companies Act) and hence contains much more information, usually given by way of a note rather than on the face of the income statement. There are many other accounting conventions which are applied in the preparation of the financial statements.
  • ACCOUNTING PERIOD
    The period of time over which the financial affairs of a company are being accounted for. The matching principle ensures that the incomes for the accounting period are off-set against the expenses for the same period in order to arrive at the profit or loss. The balance sheet shows the asset and liability position at the end of the accounting period. In terms of the Companies Act, companies are required to have an annual accounting period, but this may vary (i.e. be more or less than 12 months) if they have elected to change their financial year-end – usually because they have been the subject of a take-over and wish to align their financial year-end with that of their new parent company.
  • ACCOUNTING POLICY
    A policy established by the board of directors for the allocation of transaction entries into the books of account. For public, listed companies, the accounting policies are normally set out in the first note to the financial accounts. They usually concern the method used to value stock and depreciate assets, the principles used in consolidating accounts, the method by which leases are charged, provisions made for deferred taxation, exchange rates used to value foreign currencies, what constitutes turnover and other items specific to the company. These days, most listed companies financial statements are available from their web site – which you can go to directly from that company’s share price graph in your charting package.
  • ACCOUNTS PAYABLE
    Amounts owing to the company’s creditors in the balance sheet. These appear under current liabilities. These amounts are owed by the company in the short term (normal commercial periods of 30, 60 or 90 days), usually as a result of purchases on credit. Accounts payable or "creditors" as they are sometimes called are a source of funding for the company and contribute positively to their overall working capital position.
  • ACCOUNTS RECEIVABLE
    Amounts owing to the company usually by clients who have bought product on credit. This is another term for “debtors” and appears in the balance sheet under current assets. This indicates the amount owed to the company in the short term, usually as a result of sales on credit. Debtors are a part of the company’s working capital.
  • ACCRUAL
    A balance sheet item that consists of an expense or income which has not yet been paid or received. So for example, if a company owes rent on the date of the balance sheet then it would be shown as an accrued expense with other accounts payable. Equally, if it is owed money, that would be shown as an accrued income together with its other accounts receivable.
  • ACCUMULATION
    When the volumes traded in a share start to pick up while the share price moves sideways or upwards, this is known as an accumulation phase. It indicates that the share is becoming stronger. After a period of accumulation, the supply of shares will sooner or later be exceeded by the demand and this may send the share price shooting upwards rapidly.
  • ACCUMULATION AREA
    A period on a chart where the share is moving sideways at the bottom of a downward move. It is said that the share is being accumulated by “smart” money. See “distribution area” also.
  • ACID TEST RATIO
    An accounting ratio used to determine whether a company’s current assets excluding its stock (i.e just its debtors and cash balances) is sufficient to pay off its current liabilities. The ratio is debtors plus cash expressed as a percentage of current liabilities. The logic is that it could be a problem to sell the company’s stock in a crisis.
  • ACQUISITION
    This is when one company acquires more than 50% of the shares of another. The company acquiring the shares then becomes the "holding company" and the acquired company becomes a "subsidiary". Once a company acquires another company – it is required by the Companies Act (71 of 2008) to consolidate its financial statements to produce group financial statements.
  • ACT OF GOD
    A completely unpredictable event or “black swan” (see The Black Swan” by Nasssim Talbert) event, usually but not always occurring as a result of some natural phenomenon such as a hurricane, flood or earthquake. In law, this is called a “force majeure” and is usually taken into account in a clause in every contract. For example, a company may undertake to deliver a certain quantity of wheat of a certain quality on a certain date – provided that there is no force majeure which is outside of their control that would prevent them from fulfilling their obligation. In essence, an act of God is one which investors cannot anticipate and therefore cannot be discounted in any way.
  • ACTUALS
    Refers to actual physical commodities, as distinguished from the futures on those commodities. So, for example, there is a “spot” market for gold which shows the actual trading of gold day-to-day and there is a “futures” market for gold contracts where the gold is due to be delivered on specific future dates usually at the end of each quarter. So there will be a price for gold to be delivered at the end of March, June, September and December.
  • ACTUARIES INDEX
    Most stock market indexes, except for the very simplest are calculated by actuaries. This is because the calculation must take into account the minute-to-minute trading in the market and accommodate a number of complications such as mergers, acquisitions, share splits and consolidations while at the same time taking into account the company’s “free float”. Thus, the JSE/FTSE Actuaries indexes are monitored constantly by a group of actuaries employed by the JSE. Simpler old indexes like the Dow Jones Industrial index are a simple average of the thirty largest companies trading on Wall Street – not even adjusted for their market capitalisation. To view the JSE actuaries indexes just type “JSE-“ into your software and that will put you at the top of a list of all the JSE Actuaries indexes for all the sectors and sub-sectors on the JSE. These can be useful for comparing with individual shares that you may be interested in, using a comparative relative strength chart.
  • ACTUARY
    An actuary is a person who is capable of calculating the probability of key commercial events or of calculating the weightings in an index. Insurance companies employ actuaries to determine their exposure on specific insurance products. The JSE employs actuaries to calculate the various JSE indexes and to cope with the fact that the shares regularly join and leave the JSE for various reasons. Hence the JSE Actuaries indexes.
  • ADAM SMITH
    The first person to study and write about economics. Adam Smith is regarded as the father of the discipline of economics. He observed what he described as the “invisible hand” which seemed to guide the allocation of scarce resources within an economy where all participants were acting in their own best interests. This is the basis of the capitalist system. Prices are the mechanism used by people who want a particular product to communicate with people who supply it. If the price rises it is a signal for additional production and vice versa – but prices only go up if there is rising demand, or a shortage of supply.
  • ADJUSTED TOTAL EQUITY (ATE)
    This figure is calculated by subtracting any funds not cleared from an account's total equity.
  • ADMINISTERED PRICES
    Prices of certain products in South Africa are determined, not by the forces of supply and demand, but by various government departments and institutions. For example, water, paraffin, electricity and petrol, the cost of bus and train fares and so on. These prices are periodically adjusted, usually by a supposedly independent authority such as NERSA (the National Energy Regulator).
  • ADRS
    Certificates that are issued by a bank of US origin and traded in the U.S. as domestic shares. The certificates represent the foreign securities that the bank holds in that security's country of origin. Many JSE-listed companies have ADRs which are trading is America. Good examples are Bidvest, Discovery and Harmony. This obviously increases the awareness of their companies and provides a larger investing public for them.
  • ADVANCE/DECLINE RATIO
    This is a refinement of the net advance/decline line calculated by dividing the difference between the total number of shares up and the total number of shares down by the total number of active shares on that day. The objective of this ratio is to determine whether more shares are moving up than down or vice versa. The weakness in this type of analysis is that the relative size of the various shares and the extent of their various moves is not taken into account. Thus a small downward movement on a very small company with a low market capitalization can negate a large move on a very substantial share like Sasol.
  • ADVERSE EXCURSION
    The loss attributable to price movement against the position in any one trade from the time that the trade began. So, for example if XYZ shares were bought for 1000c each and the share has fallen to 900c then the adverse excursion would be 100c or the degree to which the trade is “out of the money”.
  • ADVICE
    Investment advice has become a big industry in South Africa and world-wide. Lay people with surplus cash obviously wish to generate a return which is better than inflation – and this requires that they take a degree of risk. Investments which are risk-free are inevitably also return free – especially after taking inflation and taxation into account. The business of investment advice is governed by the Financial Advisory and Intermediary Services Act (or FAIS – 37 of 2002). This Act requires that anyone who sells investment advice for a fee must be registered in terms of the Act as a “financial advisor”. To obtain this registration the person concerned must pass a series of exams. The problem with financial advisors is that they are inevitably motivated by the commissions that they can earn on the investments that they manage to sell. High risk investments are more difficult to sell than low risk investments and for this reason usually pay a higher commission. For this reason, investment advisors tend to concentrate on selling the more risky investments. As a private investor you should strive to educate yourself in the art of investment so that you are free of the need for other people’s advice or opinions. Focus on the facts and develop your own opinion. You will usually find that your selections are at least as good as the financial advisor – but they cost you nothing. Nobody cares about your money except you – so take responsibility for your own financial affairs.
  • AFFECTED TRANSACTION
    A transaction defined in the Companies Act as one which will result in a change in the control of the company. This could be any type of merger, acquisition or even a share buy-back. The Companies Act is concerned to protect shareholders and other interested parties from any insider trading or other frauds during an affected transaction. The takeover panel is tasked with examining affected transactions to ensure that they comply with the Act.
  • AFRICA BOARD
    A division of the JSE which was abandoned in June 2012. The Africa board was originally supposed to attract companies from the rest of Africa to list on the JSE. Only two shares were eventually listed there and after a time the JSE moved their listing to the main board and closed the Africa Board.
  • AFRICAN GROWTH AND OPPORTUNITY ACT
    An American Act which allows certain African countries to export to America duty free. Altogether, 37 countries in Africa benefit from this piece of American legislation, but South Africa, because it is the largest economy, benefits the most. In the 2016 re-negotiation of AGOA, the Americans were insistent that we allow 65 000 tons of bone-in chicken to be imported from America into South Africa every year if we were to keep AGOA. This has had a major impact on the chicken industry which is already under pressure from cheap imports from Europe and Brazil. AGOA has been very important for the motor industry and a major factor in the establishment of significant motor manufacturing in South Africa by motor car companies.
  • AFRICAN STOCK EXCHANGE
    A stock exchange located somewhere in Africa. The largest stock exchange in Africa is the JSE with a market capitalisation of over $1 trillion. It is larger than all the other African stock exchanges combined. The Egyptian stock exchange has a market capitalisation of around $500bn and other stock exchanges include Nigerian ($30bn), Nairobi ($20bn) and Mauritius ($7bn). Many African countries have minute stock exchanges with less than a dozen listed shares – most of which result from a government privatisation.
  • AFTER-TAX PROFIT
    The profit of the company after taxation has been deducted. This figure is shown in the income statement and is used for calculating the return on shareholders’ funds. The company tax rate in South Africa in 2016 was 28% of taxable income – calculated as total income less expenses used in the generation of that income.
  • AGENT
    When a stockbroker acts on behalf of a client and has no personal interest in the order, then he is acting as an agent.
  • AGM
    This is a meeting of the shareholders of a company, which is required by section 61 of the Companies Act (71 of 2008). The AGM must be held within six months of the end of the company’s financial year. At least 21 days notice of these meetings must be given to shareholders. At the meeting, the directors present the company’s financial statements amongst other things. Shareholders vote at these meetings according to the number of voting shares which they hold.
  • AGOA
    An American Act which allows certain African countries to export to America duty free. Altogether, 37 countries in Africa benefit from this piece of American legislation, but South Africa, because it is the largest economy, benefits the most. In the 2016 re-negotiation of AGOA, the Americans were insistent that we allow 65 000 tons of bone-in chicken to be imported from America into South Africa every year if we were to keep AGOA. This has had a major impact on the chicken industry which is already under pressure from cheap imports from Europe and Brazil. AGOA has been very important for the motor industry and a major factor in the establishment of significant motor manufacturing in South Africa by motor car companies.
  • AGRICULTURAL PRODUCTS DIVISION
    A division of the JSE that runs spot and derivatives markets in agricultural products. The main products are soya beans, wheat, sunflower and maize (yellow and white). In the spot market these commodities are traded for immediate delivery while in the futures market, contracts are traded to supply at the end of each quarter. These markets are heavily influenced by the prices of equivalent commodities on international markets – and by the rand/dollar exchange rate.
  • AIM
    A part of the London Stock Exchange which caters for smaller companies – in a similar way to the JSE’s Alt-X. Some South African companies are listed on both the AIM and the JSE – with either primary or secondary listings.
  • ALL COULD
    The term used to refer to an order that has been only partially executed. Oftentimes, this term applies to a limit order which was unable to be totally filled due to a lack of other parties in the trading pit willing to buy or sell at that price.
  • ALL SHARE INDEX
    All stock exchanges have indexes which provide averages of the prices of their listed shares. These averages are normally “weighted” so that larger companies are more important and smaller companies have less of an impact. The JSE Overall Index contains all the shares in the sectoral indexes.
  • ALL-OR-NOTHING
    Where the full order on the JSE must be executed immediately, or, if it is not possible to do so, the order is cancelled.
  • ALLOCATION
    The number of shares actually sold to a person who has applied to participate in a new issue. If the issue is over-subscribed, the applicant may only be allocated a small proportion of his total application. The balance of his money is refunded.
  • ALPHA
    Premium that an investment portfolio earns above a given point of reference; a measure of stock performance independent of the market. A term previously given to the most actively traded shares on the London Stock Exchange along with beta, gamma and delta shares. This classification was replaced by the normal market size classification in January 1991.
  • ALSI 40 INDEX
    An index of the 40 biggest companies trading on the JSE. This index is weighted for the market capitalisation of the companies it includes and also their “free float”. As an investor you need to be aware that the index contains several commodity shares which can skew the index if commodity prices move drastically. You may find it more useful to look at the JSE Fin30 which just contains the 30 largest financial and industrial shares.
  • ALT-X
    Alt-X is a market for small to medium companies in the growth phase. The listing requirements are less stringent than those of the Main Board of the JSE. The Alt-X has basically taken over the role of the Venture Capital Market and Development Capital Market as the place where smaller companies can list on the JSE.
  • ALTERNATIVE EXCHANGE
    Alt-X is a market for small to medium companies in the growth phase. The listing requirements are less stringent than those of the Main Board of the JSE. The Alt-X has basically taken over the role of the Venture Capital Market and Development Capital Market as the place where smaller companies can list on the JSE.
  • ALTERNATIVE INVESTMENT MARKET
    A part of the London Stock Exchange which caters for smaller companies – in a similar way to the JSE’s Alt-X. Some South African companies are listed on both the AIM and the JSE – with either primary or secondary listings.
  • AMALGAMATION
    (Also called an amalgamation.) This occurs where two or more companies come under the control of one, whose shareholders then become the shareholders of the companies that were merged. Sometimes one of the two merged companies is used as a vehicle for the merger, and sometimes a totally new company is formed for this purpose. A merger is seen as distinct from a “take-over” or an “absorption”.
  • AMERICAN DEPOSITORY RECEIPTS
    Certificates that are issued by a bank of US origin and traded in the U.S. as domestic shares. The certificates represent the foreign securities that the bank holds in that security's country of origin. Many JSE-listed companies have ADRs which are trading is America. Good examples are Bidvest, Discovery and Harmony. This obviously increases the awareness of their companies and provides a larger investing public for them.
  • AMERICAN STOCK EXCHANGE
    Originally an overflow of companies that were too small to list on the New York Stock Exchange the “Amex” used to trade on the street outside the NYSE with brokers making markets next to specific lamp posts. The inclement weather finally forced the Amex or the “curb” exchange to move inside. Today it is a well organised exchange with over 2500 shares listed.
  • AMEX
    Originally an overflow of companies that were too small to list on the New York Stock Exchange the “Amex” used to trade on the street outside the NYSE with brokers making markets next to specific lamp posts. The inclement weather finally forced the Amex or the “curb” exchange to move inside. Today it is a well organised exchange with over 2500 shares listed.
  • AMORTISATION
    Accounting method in which an asset's cost is spread out over a period of time. For example, a vehicle costing R100 000 might be amortised or “depreciated” over five years at a rate of R20 000 per annum.
  • ANAUME
    Candlestick formation. An exceptional exhaustion pattern (meaning "gap filling") composed of five candles. The anaume occurs when the gap is filled in after a market price has changed directions. This pattern coupled with the other patterns, indicates a strong potential for a bullish reversal and price advance.
  • ANCHORING-AND-ADJUSTMENT
    Behavioural finance. The tendency to evaluate current decisions in the context of past events.
  • ANDREWS METHOD
    A technique whereby a technician will pick an extreme low or high to use as a pivot point and draw a line, called the median line, from this point that bisects a line drawn through the next corrective phase that occurs after the pivot point. Lines parallel to the median line are drawn through the high and low points of the corrective phase. The parallel lines define the resistance and support levels for the price channel.
  • ANNUAL EARNINGS CHANGE
    The historical earnings change between the most recently reported fiscal year earnings and the preceding.
  • ANNUAL FINANCIAL STATEMENTS
    Sometimes known as an Annual Report, this is a document required by the Companies Act to be produced once a year for presentation to the Annual General Meeting. These statements must consist of a balance sheet, income statement, directors’ report and auditors’ report in terms of section 29 of the Act. These must be prepared in accordance with Generally Accepted Accounting Practices (GAAP), and must fairly present the state of the company and its profit or loss for the year.
  • ANNUAL GENERAL MEETING
    This is a meeting of the shareholders of a company, which is required by section 61 of the Companies Act (71 of 2008). The AGM must be held within six months of the end of the company’s financial year. At least 21 days notice of these meetings must be given to shareholders. At the meeting, the directors present the company’s financial statements amongst other things. Shareholders vote at these meetings according to the number of voting shares which they hold.
  • ANNUAL NET PROFIT MARGIN
    The percentage that the company earned from gross sales for the most recently reported fiscal year. In other words, the after-tax profit expressed as a percentage of turnover. Also known as the “net margin”. Obviously, if a company is making a declining margin this is something to be concerned about.
  • ANNUAL SALES CHANGE
    The percentage change in sales (turnover) between the most recently reported financial year and the preceding. You should note that unless the increase in sales is more than the going inflation rate the company’s sales are actually declining.
  • ANNUALISE
    The process of adjusting performance or return which has been made over a period of less than or more than a year so that it can be compared with the annual results of other entities. For example, if a certain share gives a return of 25% over a period of six months this would be annualised to 50%.
  • ANNUITY INCOME
    An income which comes in regularly, usually as the result of a contractual obligation and a pre-arranged bank debit order. When analysing a share it is always good to determine how much of its turnover consists of annuity income and how much derives from new sales. Companies which receive most of their turnover as annuity income are far stronger than companies that have to start every month from zero from a sales point of view. Thus service companies, especially those in the financial sector like banks and insurance companies tend to have a high percentage of annuity income. Manufacturing companies and retailers have to constantly make new sales in every accounting period to stay alive and profitable. Some companies have sufficient annuity income to more than cover their monthly overheads – which basically means that any sales that they make in that month go straight to the bottom line. Such companies are “highly rated” on the JSE. Shares which have a high annuity income tend to trade on much higher multiples than shares which have lower or no annuity income.
  • APPLICANT
    An investor who applies for shares in a company’s new issue. Sometimes, if the company is seen to be a very good investment, the shares will be heavily over-subscribed. In this situation the investor may only get a fraction of the shares that he applied for or none. The balance of the investors’ money would then be returned to him or her. If there are insufficient applications to allow the minimum subscription to be taken up then the issue is cancelled and all applicants must be repaid their money.
  • APPRAISAL RIGHTS
    Where a minority shareholder does not agree with a fundamental transaction which the majority of shareholders want, he/she can apply for appraisal rights. In effect, this forces the company to buy back his/her shares at a “fair value”. The concept of “dissenting shareholders” replaces and takes care of the previous Companies Act idea of a “fraud on the minority”.
  • ARBITRAGE
    Simultaneous trading in assets, currency or bills of exchange in different international markets, to take advantage of the different prices ruling in each. Arbitrage is basically buying a share (or any other security) on one stock market and selling it simultaneously on another to take advantage of small differences between the prices. It is usually done these days by high-speed computers that are linked directly into the stock exchange computer. They make a very small percentage on a very large transaction.
  • ARMAX
    Short for Auto-Regressive Moving Average eXogenous variables model. The combination of fundamental variables outside the particular market that correlate with the independent variable added with the ARMA modelling of the remaining residuals.
  • ARMS INDEX
    Also known as TRading INdex (TRIN): An advance/decline stock market indicator. A reading of less than 1.0 indicates bullish demand, while greater than 1.0 is bearish. The index is often smoothed with a simple moving average. Richard Arms developed the TRIN, or Arms index, as a contrarian indicator to detect overbought and oversold levels in the market. Because of its calculation method, the TRIN has an inverse relationship with the market. Generally, a rising TRIN is bearish and a falling TRIN is bullish. Sometimes you will see the scale of the TRIN inverted to reflect this inverse relationship. The TRIN is the advance/decline ratio divided by the advance volume/decline volume ratio.
  • ARTICLES OF ASSOCIATION
    Prior to the Companies Act (71 of 2008), this was a document, drawn up by the subscribers of a company at its inception, which governed the internal affairs and management of the company. The articles dealt with the nature of the company’s shares, the transfer of shares, holding of meetings, powers and qualifications of the directors etc. Under the current Companies Act (in force since May 2011) the Memorandum and Articles of Association are included together in a new document called the “Memorandum of Incorporation”.
  • ASCENDING FORMATION
    A graphical indication that share prices are on an upward cycle.
  • ASK
    The price at which a party is willing to sell. Also referred to as the "offer price.” The JSE’s computer system will automatically execute a transaction when the best bid (i.e. the highest price at which someone is willing to buy) is the same as the best ask (i.e. the lowest price at which someone is willing to sell) for a particular share.
  • ASK SIZE
    The number of futures or options contracts offered at a certain price.
  • ASSET
    An item on the balance sheet that means the possessions of a company, an organisation or an individual. Assets can be tangible (e.g. a vehicle), or intangible (e.g. goodwill). They can be fixed (e.g. land, buildings, vehicles, office furniture) or current (e.g. stock, debtors, cash). A fixed asset is one which is used in the production or supply of goods or services, for rental to others or for administrative purposes and is expected to last for a long period of time, while a current asset is one in which the company trades (e.g. stock) or which is created as a result of trading and expected to be turned back into cash within normal commercial periods of 30, 60 or 90 days, and certainly within twelve months (e.g. debtors for sales).
  • ASSET BACKING
    A strong asset backing indicates that a company has large resources of assets. These may reside in a parent company, or they may belong to the company itself.
  • ASSET BASE
    A concept which came from the previous Companies Act and its doctrine of Capital Preservation. Money raised by a company as a result of issuing shares to the public was protected by the Companies Act from being distributed in the form of dividends. The general rule was that companies may only pay dividends out of profits, and not out of the money that was put into the company to set it up. The new Companies Act (71 of 2008) which came into effect in May 2011 has a new doctrine of “Solvency and Liquidity” and requires a solvency and liquidity test to be undertaken before dividends can be paid.
  • ASSET BUBBLE
    An asset bubble is a period where the price of a particular asset reaches unsustainable levels due to investor enthusiasm. Over the centuries there have been a number of famous asset bubbles. Probably the best known is the Dutch tulip mania which occurred in the 17th century. At the time Holland was booming because of its growing colonial empire. Tulip bulbs went up in price during 1636 and in the first months of 1637 reached absurd levels. Speculators and investors became involved driving prices up and up until eventually the market collapsed leaving many investors penniless. More recently, asset bubbles in a number of commodities in property and in the share market have become well-recognised events. So a bubble refers to the final stages of a bull market where prices rise almost exponentially and lose touch with true value of the asset concerned. In the share market, share prices lose touch with the earnings of the companies which they represent.
  • ASSET MANAGEMENT
    The management of listed or unlisted assets (equities, options etc.).
  • ASSET MARKET
    An asset market is the spot market for a particular asset. Thus, the gold market or the oil market or the market for pork bellies in America. Financial assets like shares and bonds are also asset markets. Derivative markets are not themselves asset markets, but are based on assets traded on an organised exchange. Thus, trade in option contracts on Anglo American shares are derivative instruments based on the underlying price of Anglo American shares. The property market is also an asset market, but has the disadvantage that the asset in question is not homogenous. Every Anglo American share is identical to every other Anglo American share. This means that if Anglos are trading in the share market for R220 per share it is highly likely that you would be able to sell your Anglos for somewhere very close to that price. But if your neighbour sells his house for R2m that does not mean that you can get the same for your house – because you have one bathroom and he has two. In other words, no two properties are the same. They are not homogenous.
  • ASSET STRIPPING
    This occurs where a company is purchased because the market price of its shares is less than the value of its assets. Assets are then sold and a profit is realised.
  • ASSIGNMENT
    When a trader sells short an option, he may be assigned in the event that the purchaser exercises the option. A trader with a short call position is assigned a short futures position. A trader with a short put position is assigned a long futures position.
  • ASSOCIATED COMPANY
    A company in which between 20% and 50% of the share capital is held. Where less than 20% is held then the shares would be considered an “investment” and where more than 50% is held it would be considered a “subsidiary”.
  • ASTROPHYSICAL CYCLE
    Any earthly cycle, such as a market cycle, that has been scientifically related to the physics of the planetary system.
  • AT BEST
    An instruction given to a stockbroker by his clients to sell or buy “at best” would give the broker freedom to purchase or sell the shares concerned at the price most advantageous to his client and as soon as possible.
  • AT MARKET
    An order to be transacted immediately against the best opposite order in the book at the time of making such entry.
  • AT-THE-MONEY
    An option whose strike price is nearest the current price of the underlying deliverable.
  • ATS
    ATS (see SETS). In 1996 the open outcry trading floor was closed on 7 June and replaced by an order driven, centralised, automated trading system known as the Johannesburg Equities Trading (JET) system. In 2002, the JET system is replaced by the London Stock Exchange’s SETS system, hosted by the LSE in London. The system, operated from London by the LSE, is called “JSE SETS”. The JSE also introduces the LSE’s LMIL system, known in South Africa as InfoWiz to provide a world-class information dissemination system and substantially improve the distribution of real-time equities market information. More than just a change in technology platforms, the introduction of JSE SETS also represented the forging of a strategic alliance with the LSE and improved the international visibility of the JSE.
  • ATTRIBUTABLE EARNINGS
    That part of a company’s profit which is “attributable” to the ordinary shareholders. In other words, after the normal operating expenses have been deducted, together with finance costs, extraordinary items, taxation and preference dividends.
  • AUDITORS’ REPORT
    A part of the annual financial statements required by the Companies Act where the auditors state that they have examined the financials and that in their opinion they represent a fair picture of the company’s financial activities over the period in question. Occasionally, the auditors’ report is “qualified” because they did not approve some aspect of the accounts or accounting controls. You should always glance at this report to see if the statements have been “qualified”.
  • AUTHORISED CAPITAL
    The number of shares in each class which a company is authorised to issue to the public or in exchange for assets. The authorised capital must be stated in the Memorandum of Association, but may be increased or reduced by application to the Registrar of Companies. Once the shares have been purchased by the public or swapped for assets (such as a subsidiary), they are known as “issued” capital.
  • AUTOMATED TRADING SYSTEM
    ATS (see SETS). In 1996 the open outcry trading floor was closed on 7 June and replaced by an order driven, centralised, automated trading system known as the Johannesburg Equities Trading (JET) system. In 2002, the JET system is replaced by the London Stock Exchange’s SETS system, hosted by the LSE in London. The system, operated from London by the LSE, is called “JSE SETS”. The JSE also introduces the LSE’s LMIL system, known in South Africa as InfoWiz to provide a world-class information dissemination system and substantially improve the distribution of real-time equities market information. More than just a change in technology platforms, the introduction of JSE SETS also represented the forging of a strategic alliance with the LSE and improved the international visibility of the JSE.
  • AUTOREGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA)
    A linear stochastic model forecasting methodology described by Box and Jenkins in their book “Time Series Analysis, Forecasting and Control”.
  • AVERAGE
    The mean of a set of numbers. Averages are used extensively in the share market for the determination of market indexes and economic data. The moving average in its various forms is the application of an averaging technique to share price (and other) data to reduce the “noise” in the chart and reveal the underlying trends.
  • AVERAGE COST
    A method of valuing shares in a portfolio at the average of what they cost. For example, if 100 shares are bought for 100 cents each and then a further 100 of the same shares are bought for 150 cents each, the average cost would be 125 cents per share. So if a share is falling and an investor is continuing to buy as it falls, he could say that he is “averaging down”. The unit trusts often invoke this logic to persuade people to buy their products on a regular monthly basis even when the market is falling.
  • AVERAGE DIRECTIONAL MOVEMENT INDEX
    Indicator developed by J. Welles Wilder to measure market trend intensity. Average Directional Movement Index Technical Indicator (ADX) helps to determine if there is a price trend. It was developed and described in detail by Welles Wilder in his book "New concepts in technical trading systems". It's important to determine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other. ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend. ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and/or moves above 20, it is a sign that the trading range is ending and a trend could be developing. ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).
  • AVERAGE NUMBER OF SHARES IN ISSUE
    Certain statistics for listed companies on the JSE are given in the form of “per share” data – such as earnings per share and dividends per share. These ratios rely on the number of shares in issue for their calculation. However, most listed companies change the number of shares which they have in issue constantly. This is because they issue new shares to raise additional cash, or as part of an acquisition deal, or they have an employee share incentive scheme which requires them to constantly give shares to their staff to incentivise them, or they do a share buy-back, a share split or a consolidation. Any of these activities will change the number of shares in issue during the financial year. For this reason, they calculate the average number of shares in issue and base certain of their “per share” figures on that. For example, earning per share makes the assumption that the profits of the company were earned evenly throughout the financial year – so if there was an issue of shares after six months of the year that would change the average number of shares in issue over the entire year. For example, if the company began the year with 10m shares and then issued another 5m shares after six month, the average number of shares in issue for the whole year would be 12,5m – even though they would have had 15m shares in issue at the end of the year.
  • AVERAGE TRUE RANGE
    A moving average of the true range. Developed by J. Welles Wilder and introduced in his book, New Concepts in Technical Trading Systems (1978), the Average True Range (ATR) indicator measures a security's volatility. As such, the indicator does not provide an indication of price direction or duration, simply the degree of price movement or volatility.
  • BA RATE
    The annualised interest rate at which financial institutions (typically banks) accept or discount bills of exchange. Often in business a company in need of short-term cash will sell a bill of exchange – which is a type of “IOU” in favour of another business. That IOU can then be “discounted” by a bank – which means that the bank will pay out slightly less than its face value in return for giving the cash now. The fee which the bank charges, expressed as an annual percentage is the Bankers Acceptance or BA rate.
  • BACK MONTHS
    Those futures delivery months with expiration or delivery dates furthest into the future; in other words, futures delivery months other than the spot, or nearby, delivery month.
  • BACK OFFICE
    This is the department in a stockbroking firm, which deals with settlement procedures, such as controlling electronic settlements on behalf of clients and the maintenance of accounts.
  • BACK-TESTING
    A strategy is tested or optimized on historical data and then the strategy is applied to new data to see if the results are consistent. For example, you may believe that a 200-day moving average provides signals which enable you to perform well in the share market. This “trading strategy” can be back tested by applying it historically to the ALSI 40 shares over the past ten years and comparing it to a “buy-and-hold” strategy for the same shares over the same time period.
  • BACKWARD BENDING CURVE
    An economics concept used to describe a phenomenon which occurs in the labour market. As employees are paid more per hour they will tend to work longer hours up to the point where their leisure time is more valuable to them than additional money. After that, they will work less hours. So if you draw a chart with the hours worked on one axis and the rate per hour on the other, it bends backwards at a certain point. Consider the example: Source: https://en.wikipedia.org/wiki/Backward_bending_supply_curve_of_labour
  • BACKWARDATION
    A futures market phenomena in which the relationship between two delivery months of the same commodity is abnormal. The opposite of “contango”.
  • BAD DEBT
    This is a debt which cannot be recovered – thus forcing the company to write it off against profits. Most companies make provision for bad debts, a figure that is adjusted annually. When the economy is in recession, such provisions will tend to be higher, especially among banks. A provision for bad debt is a current liability.
  • BALANCE OF PAYMENTS
    The combined net position on the capital and current accounts of the country. The current account indicates whether South Africa is spending more foreign currency on imports than it is receiving for its exports, while the capital account shows how much money foreigners and South Africans are investing in and disinvesting from South Africa.
  • BALANCE OF TRADE
    This forms part of the balance of payments calculation, but refers only to the difference between the value of exports offset against imports. While the balance of trade will reflect the level of physical imports relative to exports, the balance of payments reflects non-physical flows such as capital and dividends to and from abroad, debt repayment and receipts, interest payments and receipts (the so-called invisible items).
  • BALANCE SHEET
    A list of all balances taken from a company’s ledger after incomes and expenses have been offset to arrive at a profit or loss. These balances are combined in carefully prescribed ways to form a balance sheet as required by the Companies Act (71 of 2008) and GAAP.
  • BALANCED MUTUAL FUND
    A mutual fund that seeks a return that is a combination of capital appreciation and current income, generally by building a portfolio of bonds, preferred stocks and common stocks.
  • BANCASSURANCE
    The working together of a bank and an insurance company to exchange their customer lists and thereby increase business. This usually involves a merger, acquisition or some other equity relationship – such as that which Liberty Life has with Standard Bank, or Old Mutual has with Nedbank.
  • BANDPASS FILTER
    An oscillator that accentuates only the frequencies in an intermediate range and rejects high and low frequencies. Implemented by first applying a low pass filter to the data and then a high pass filter to the resulting data (e.g., two SMA crossover system).
  • BANK INVESTMENT CONTRACTS
    A negotiated-term deposit issued by a commercial bank. See Guaranteed Investment Contracts (GICs).
  • BANK OF ENGLAND (BOE)
    The central bank of the United Kingdom, located on Threadneedle street. Like all central banks, the BOE is engaged in monetary policy which includes controlling inflation and striving to maximise GDP growth.
  • BAR CHART
    A bar chart shows the range of trade for the previous day, week or month by connecting the highest price reached during the day to the lowest price with a vertical bar. The opening and closing prices are then shown by a short horizontal tick off that bar to the left and the right. Sometimes the volume traded in the period is shown below in the form of a histogram. An alternative to the bar chart is the candlestick chart. Most analysts begin their daily analysis by looking at what happened the previous day on a bar chart or a candlestick.
  • BASE CURRENCY
    In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX market, the U.S. Dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair (ex., USD/JPY). The primary exceptions to this rule are the British Pound, the Euro, and the Australian Dollar (ex., EUR/USD).
  • BASE EFFECT
    Most economic statistics are measured over the most recent full year, but updated monthly. This means that the latest month’s figures will have as much impact as the oldest month – which is now being removed from the calculation. For example, if month-on-month inflation increased sharply a year ago then the removal of that relatively high monthly figure from the measure could obscure the effect of the current month’s inflation. This is known as a “base effect”.
  • BASEL AGREEMENT
    An agreement between the major countries of the world on the standards to be applied to their major banks so as to minimise the risk of a bank collapse which could have knock-on effects on the international financial system. The agreement is centred on the capital adequacy ratios required of banks which was originally set at 8%. Subsequently, with the advent of the sub-prime crisis and the collapse of Lehman Bros, stricter requirements were put in place in terms of more recent iterations of the Basel agreement.
  • BASIS POINTS
    The measure of yields on bonds, notes and interest rates; one basis point equals 0.01% of yield. For example if the Governor of the Reserve Bank announces that the “repo” rate is to increase by 50 basis points he is increasing the interest rate which the Reserve Bank charges the commercial banks by half a percent. The commercial banks can then be expected to increase the prime overdraft rate by the same amount so as to preserve their margins.
  • BASKET TRADES
    Large transactions made up of a number of different stocks.
  • BDA SYSTEM
    Broker Deal Accounting system provided for member firms by the JSE information technology division. The system keeps the securities records and books of account for individual member firms in respect of their clients and all their securities trading and related cash and securities movements.
  • BEAR
    An investor who believes that the market or a particular share is going to decline from its current position. In the share market, bulls and bears constantly tussle to dominate. When there are more bulls than bears, the share price will tend to rise and vice versa. Certain formations, like double tops, can quickly turn bulls into bears.
  • BEAR MARKET
    A market where the average of all shares is falling so that each high is lower than the previous high and each low is lower than the previous low. Bear markets usually last for between 18 months and four years. A “”bear”” is someone who expects the market to fall.
  • BEAR RAID
    Where investors who have sold short (made bear sales) attempt to force the price of a share down by making further bear sales so that they can cover their positions profitably at lower prices.
  • BEAR SALE
    A sale of shares before they are purchased. A bear sale (or short sale) is the sale of an undertaking to supply a certain number of shares at a specified date in the future. It describes a situation where someone who feels strongly that the price of a share is about to fall can take advantage of this by selling the shares at current prices for delivery in a few months’ time when they can buy them more cheaply. Bear sales on the JSE are not evident because the seller must arrange to borrow the shares before the bear sale is executed so that delivery of the sale can take place on settlement day (T+3). Bear sales are high risk because if the shares go up instead of down your losses can be considerable.
  • BEAR TREND
    A long downward trend in a share’s price, a sector’s index, the all-market index or other indicator. Bear trends and bull trends are interrupted by periods of sideways movement. Bear trends are generally shorter than bull trends. Consider the following chart of the JSE Overall index: Here you can see the four major bear trends of the past thirty years (since 1985). They were the famous 1987 crash which lasted just six months, the Dot-Com bear trend in 1998, the bear trend which followed the 9/11 attack on the World Trade Center in New York (from 2001 to 2003) and the bear trend which followed the sub-prime crisis of 2007/8.
  • BEARISH COUNTER ATTACK
    The counter part of the bullish counter attack candlestick formation, this is a top reversal signal consisting of two candles: the first is a green candle within a upward trend; the second is a red candle which opens well above its predecessor and closes at or above the close of the previous candle. This signals bearish sentiment as prices are driven down by the perception that the share is over-priced. It is recommended to always wait for a confirmation signal after a candlestick formation to avoid following false signals due to market noise.
  • BEARISH ENGULFING PATTERN
    A top reversal candlestick formation consisting of a small green candle followed by large red candle which engulfs the previous green candle. This formation is the counter part of the bullish engulfing pattern which is a bottom reversal pattern. This formation usually occurs at the top of an uptrend and signals that a trend reversal or correction is likely to occur. In order for the pattern to be valid, the opening price of the red candle must be at or below that of the green candle, and the closing price must be at or above that of the green candle. This reversal signal is stronger if there are no shadows on either candles and also if the red candle engulfs the previous two  green candles. It is important to always wait for a confirmation signal before acting on any candlestick formation.
  • BEE BOARD
    A section of the JSE which is devoted to the trade of black empowerment shares. These shares can only be bought and sold by black people. The need for this arises from the problem which listed companies have with maintaining their BEE share ownership levels. Typically, a large listed company undertakes a BEE transaction at considerable cost as they basically give shares to black groups. If those groups then sell their shares on the open market, their percentage holding in the company declines which forces the company to undertake another expensive BEE deal. To avoid this some listed companies have created a new class of shares which can only be owned by black people. The JSE has responded to this by grouping such shares under the BEE board. Shares like Sasols’ Inzalo and MTN’s Zakhele are candidates for this board.
  • BELL CURVE
    A statistical concept which seeks to reduce a population to its average and then show the positive and negative departures from that average. So, for example, you could take all the spectators in a stadium and measure their heights. Then you could get an average height (“the mean”) and most of the people would be at or close to that average. The further away from that average you got the less people you would have. And then on the extremes, you would have a very few short people and a few very tall people. That would give you a bell shaped chart like the one below: [caption id="attachment_12077" align="alignnone" width="387"] Bell Curve - Source: Wikipedia.[/caption] Statisticians then talk about standard deviations from the mean. One standard deviation is 34,13% to the left or the right of the mean (the average). The second standard deviation is a further 13.13% - so two standard deviations from the mean includes 47.72 % on each side of the mean – or a total of 95,44% of occurrences. On the fringes the third standard deviation is a further 2,14% on each side.
  • BELOW THE LINE
    Those expenses and incomes which are not included in the calculation of headline earnings because they are not part of the company’s normal business.
  • BETA (COEFFICIENT)
    A measure of the market/non-diversifiable risk associated with any given security in the market. A ratio of an individual stock’s historical returns to the average historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock's beta would be 1.2. . Beta, in fact, assumes that the return of share market as a whole has a beta of 1. Then if the returns on a share are twice as volatile as the market it will have a beta of 2 and if they are half as volatile as the average it will have a beta of 0,5. The problem is that the returns on a share include its dividends and thus betas reflect historical earnings data from the financial statements which are only produced three months after the financial year-end. This makes this type of analysis out-of date. However, most institutions rely heavily on beta analysis as they strive, in terms of modern portfolio theory, to construct a portfolio with an overall beta as close to 1 as possible.
  • BETWEEN THE CHAINS
    The stock market in Johannesburg overflowed onto the street outside the old stock exchange building on the corner of Simmonds Street and Commissioner. After a time the authorities closed off the block between Market Street and Commissioner on Simmonds with two chains across the road so that trading could go on uninterrupted by traffic. After a time, this became part of the tradition of the Johannesburg Stock Exchange and when the JSE moved to its new building on Diagonal Street, two chains were painted onto the stock exchange floor to commemorate the time when trades were done “between the chains”. Today, following dematerialisation, the stock exchange has no physical floor and is conducted entirely electronically.
  • BICS
    A negotiated-term deposit issued by a commercial bank. See Guaranteed Investment Contracts (GICs).
  • BID
    An expression of willingness to buy a commodity or share at a given price; the opposite of “offer” or “ask”.
  • BID AND ASK
    Highest price and lowest price that an investor will pay or receive for a trade. For example, this is the highest price at which a share could be sold and the lowest price for which it could be bought at any point in time.
  • BID PRICE
    The price offered by a buyer for a share.
  • BID SIZE
    The number of futures or options contracts bid at a certain price.
  • BID/OFFER SPREAD
    This is the difference between the price at which buyers will buy shares and sellers will sell shares. For smaller, thinly-traded shares the percentage difference between the bid and the offer price will be greater than for larger companies.
  • BIG BANG
    The term coined to denote the deregulation of the London Stock Exchange in 1986. It introduced dual capacity and the dematerialisation of shares. After the big bang, the “open outcry” market ceased to exist in London and all trades were done via a computer screen. The effect of these changes was the elimination of “failed trades” and frauds associated with physical scrip. Transaction settlement periods were improved.
  • BLACK BOX
    A proprietary, computerized trading system whose rules are not disclosed or readily accessible. Black boxes usually take the form of a computer program which receives share market data by daily download and then calculates buy and sell signals using a secret trading strategy. The user only gets the signals and never sees how the analysis is done.
  • BLACK CHIP
    A listed company whose management consists mainly of Black shareholders.
  • BLACK ECONOMIC EMPOWERMENT
    The Black Economic Empowerment Act (53 of 2002) aims to empower black people through providing private sector companies with an incentive to increase the black ownership of their shares, increase black representation among their senior management, and generally encourage black people and businesses to enter and grow in the economy. This is done through government and quasi-government procurement where a company’s scorecard and BEE level are a key factor in determining whether they will win government contracts on tender.
  • BLACK MONDAY
    Monday, 19th October 1987 when the New York Stock Exchange fell by almost 23% in a single trading day. On the JSE, the fall happened the next day, 20th October 1987. black Monday saw the largest single day fall in the history of Wall Street. The term “black Monday” also sometimes refers to 28th October 1929 when Wall Street fell about 9% in a single trading day. The existence of black Mondays has led investors to be wary of October month because a disproportionate number of stock market crashes have begun in October.
  • BLOCK
    A large amount of stock sold as a single unit. This term is most often used to describe a unit of 1000 shares or more.
  • BLOW-OFF TOP
    A steep and rapid increase in price followed by a steep and rapid drop in price. Also called a “V-top”.
  • BLUE CHIP
    A very safe share that has a long history of sound management and steady dividends. Examples of such shares are Sasol, Bidvest, First National Bank, Pick ’n Pay, Standard Bank and Liberty Life. Investors buy these shares for security rather than quick capital gains. There are, perhaps, as many as 60 shares listed on the JSE that could qualify as blue chips. Typically they are part of the JSE Top 40 index, or at least in the mid-cap index. The easiest way for the private investor to make money on the JSE is to find and buy a blue chip when it is for some reason temporarily out-of-favour with the big institutions. For example, for less than a month at the start of 2016, Standard Bank traded on a dividend yield of more than 5%. This was clearly a buying opportunity with relatively little risk for private investors. Consider the chart:  
  • BOARD
    The collective term for the directors of a company. Directors, appointed by the shareholders, are tasked with the management of the company. They have a responsibility to act in the best interests of the company (as opposed to any particular group of shareholders). They usually meet regularly at board meetings, which are minuted, to discuss the affairs and progress of the company.
  • BODY
    That part of a candlestick chart which appears between the opening and closing prices. Normally, if the close is below the open, the bears are said to have won the day and the candle is coloured red. Alternatively, if the share or index closes above its opening price, the bulls have won and the candle body is coloured green or blue.
  • BOLLINGER BANDS
    An envelope indicator that draws two lines 2 standard deviations above and two standard deviations below a moving average of the share’s price. The idea is that 95% of prices will occur between these two Bollinger bands and so anything which falls outside of them must be either over-bought or over-sold.
  • BOND
    A long-term debt security with a stated interest rate and fixed due dates, issued by a corporation or a government, when interest and principal must be paid. There are many variations.
  • BONUS ISSUE
    A term synonymous with scrip issue and capitalisation issue which describes shares given without charge to existing shareholders in proportion to the shares already held.
  • BOOK BUILD
    When a listed company wishes to raise a large amount of capital from the public by selling shares or bonds, they normally do so through a book build. The CEO of the company and some of his directors will conduct what is known as a road show where they visit institutional fund managers individually or hold a meeting of fund managers to sell the viability of their proposal and its return. In this way they can raise a substantial amount relatively quickly.
  • BOOK VALUE
    This is the value at which an asset appears in the books or accounts of a company. Very often, book values are higher or lower than the real values of the assets, and can be misleading when considering the balance sheet. A good example of this is where a company buys land and records it in its books at cost. Over the years, the land usually becomes much more valuable, but no adjustment is made to the book value.
  • BOOM
    This describes a stage in the business cycle when economic activity is increasing.
  • BORROWINGS
    This is a term used by share market analysts to refer to a company’s long-term indebtedness. It excludes those current liabilities which arise as the result of normal business practice.
  • BOTTOM
    The lowest point in a share’s price cycle. Beginners get excited when a share is going up - smart investors get excited when it is going down, especially if it is a high-quality blue chip. Their goal is to look for the bottom of the cycle so that they can buy in and profit from the upward move, when it arrives. Consider the following chart: You can see here that Standard Bank, which is one of the strongest blue chips on the JSE fell to a bottom in January 2016 - at which point it represented excellent value.
  • BOTTOM REVERSAL SIGNAL
    A term used in technical analysis to describe a formation at the bottom of a trend which signals that the trend is likely to change and become a upward trend. Examples of such formations include the double bottom formation, the island formation and various candlestick formations such as the hammer and the piercing pattern.
  • BOURSE
    A European term for a stock market. For example, the Paris Bourse, or the Frankfurt Bourse.
  • BOX SIZE
    An element of point and figure charting. Point and figure is a one-dimensional chart which has no consistent x-axis showing the passage of time (like a line chart). The idea is to identify changes in direction according to user-determined criteria. In other words, a share’s price is not considered to have “turned” until it has reversed by at least three “boxes”. The choice of the box size is entirely up to the user. For example, if on a certain share, you chose a box size of 100c, then a “three-point reversal” would require you see a change in direction of at least 300c before any change was noted on your chart. In a rising share, each box is represented by an “X” for each 100c passed. This is shown in a rising column of “X’s” until there is a reversal, which is then represented by a column of falling “O’s”, with each “O” representing a fall of 100c. Once again, the downward trend is shown as a falling column of “O’s” until a three-point reversal occurs (i.e. until the share moves up at least 300c – then a new rising column of “X’s” is drawn).
  • BOZU
    Literally "bald" or "monk" in Japanese; in candlestick terminology refers to a situation during which a trading cycle opens or closes on a high or low, indicating a victory for the bulls or the bears.
  • BRACKETING
    A trading range market or a price region that is non-trending. This means a market, share or index that is moving back and forth between two horizontal trendlines.
  • BREAK
    Where a share, index or other instrument’s price moves outside the trading range which has constrained it, breaking a trendline and so establishing a new trend or direction.
  • BREAK AWAY GAP
    A visible gap between the highest price of one day and the lowest price of the next. When a share has been trending down for some time it often reaches a point where the buyers and sellers are finally balanced. This is typically marked by a period of sideways movement, known as an “island”. Then when the uncertainty has been resolved, the share breaks on the upside strongly which results in break-away gaps. Consider the following example: [caption id="" align="alignnone" width="453"] Break Away Gap - Chart by ShareFriend Pro[/caption] In this chart, Sasol, which had been moving sideways and downwards, suddenly broke on the upside so strongly that break-away gaps were created.
  • BREAK FEE
    A fee usually payable by a company seeking to make an acquisition, to the target company in the event that the acquisition for whatever reason does not go through. This acts as an incentive for the acquiring company to get the deal done and compensation for the target company if the deal falls through.
  • BREAK OUT
    A technical term which indicates that a share price has moved clearly up or down after a period of relative indecisiveness or stagnation. A break-out is often a buy/sell signal, especially in Point and Figure charting.
  • BREAK-EVEN
    A term used by accountants to indicate that a company has reached the point where it is not making a loss or a profit.
  • BRENT
    North Sea oil controlled by the UK and Norway. This type of oil is generally traded at a slight premium to West Texas light sweet crude. The price of brent - minute-to-minute can be seen at: http://www.euroinvestor.com/exchanges/gtis-energy/brent-oil/2327059/chart. Oil is a key component of world inflation because almost all products are moved by an oil-fired engine at some point before they reach the consumer. Rising oil tends to cause rising gold because gold is a hedge against inflation.    
  • BRETTON WOODS AGREEMENT OF 1944
    An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at U.S. $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
  • BRICS
    Brazil, Russia, India, China and South Africa have formed an economic alliance as emerging economies to promote economic growth and co-operation. The BRICS block is seen as opposing the European Economic Community with a combined population of 2,5 billion people and Gross Domestic Product of around $10 trillion.
  • BRIDGING FINANCE
    This is a loan obtained by a company to tide it over a short temporary cash flow problem.
  • BROADENING FORMATION
    A technical analysis formation which is the opposite of an asymmetrical triangle. The broadening formation occurs when there is uncertainty and high volatility in the market. The formation takes place when a series of higher highs and lower lows are evident in a range of candles over a period of time. Drawing trendlines above and below these highs and lows shows a widening pattern which resembles a megaphone, another name for this formation. Although rare, this formation can give a strong signal as to the continuation of the trend, depending on which side of the megaphone the trend breaks. [caption id="attachment_11632" align="alignnone" width="547"] Broadening Formation[/caption]
  • BROKER’S DECK
    Orders physically held by the floor broker in the trading pit. Today, with the advent of computerised trading the stock exchange’s computer system shows the best bids and offers as soon as stockbroking firms enter them onto the system.
  • BROKER’S NOTE
    A contract document sent to the buyer or seller of shares by his stockbroker to act as confirmation of the transaction. It shows the name of the client, the share or stock in question, the dealing price, handling charges, brokerage, UST and the net proceeds of a sale, or amount owing for a purchase.
  • BROKER-DEALER
    A firm that handles transactions for its customers and also purchases securities for its own account, selling them to customers.
  • BROKERAGE
    The stockbroker's fee for completing a share transaction. Brokerage is usually calculated on a sliding scale depending on the total value of the transaction. Since deregulation of the JSE in November 1995 stockbrokers now set their own individual rates, for example the highest brokerage is paid on the first R5 000 or R10 000 of any transaction - whereas amounts over R1, 5 million are charged at a much lower rate.
  • BUDGET
    Every year, at the end of February, the Minister of Finance presents the budget to parliament. In the budget he puts forward an estimate of how much money will be raised through taxes, customs duty and other sources and describes a plan for spending that money by allocating it to various government departments and projects. Any shortfall is made up by borrowing on the open market. The budget is probably one of the most important events of the year for the private investor. In it the Minister will indicate whether any taxes are to be increased or decreased.
  • BULL
    This term describes an investor who believes that market trends are rising or that a particular share is rising. In the share market the bulls and bears (people who think that the share or market is falling) are always at loggerheads. The Japanese believe that each trading day's action is a battle between the bulls and the bears. In general, most markets over time go up - because of the growth in the economy and because of inflation - so it is safer to be a bull than a bear.
  • BULL MARKET
    A market where the average of all shares is rising such that each high is higher than the previous high and each low is higher than the previous low. Bull markets generally last for between 3 and 10 years. A “bull” is a person who is expecting the market to rise.
  • BULL TREND
    A long period of consistently rising share prices, or index levels. Usually such trends last from 2 to 4 years. During a bull trend you should be 100% invested in the share market, because about 80% of shares will be going up. The best way to determine whether the stock markets of the world are in a bull trend is to look at a long-dated (like 250 days) moving average of the S&P500 index from Wall Street. If that moving average is rising, then the high probability is that you are in a bull trend. The following chart of the S&P500 hows a number of bull and bear trends:  
  • BULLION
    Any precious metal (most commonly gold), which has not been processed into jewellery, coins, or used for any other manufacture. It is normally kept in bars known as ingots.
  • BULLISH COUNTER ATTACK
    A bottom reversal candlestick pattern comprising of two candlesticks: first a red candle, then a green candle opening well below the close of the preceding red candle and closing at near the previous candle's open. This candlestick formation is said to be of a similar nature to the bullish piercing and engulfing patterns, implying the beginning of an upward trend.
  • BULLISH ENGULFING PATTERN
    A bottom candlestick reversal signal, this is a two candlestick pattern consisting of a large green candle enveloping a preceding red candle. This pattern implies that the trend is likely to change from bearish to bullish and is only valid if found at the bottom of a trend. In order for the pattern to be valid, the opening price of the green candle must be at or below that of the red candle, and the closing price must be at or above that of the red candle. This reversal signal is stronger if there are no shadows on either candle and also if the green candle engulfs the previous two candles. [caption id="attachment_10362" align="alignnone" width="200"] Bullish Engulfing Pattern[/caption]
  • BULLISH FLAG
    A bullish candlestick signal, formed in the progress of an established uptrend, and used to predict the continuation of the current trend. This formation begins with a long green candle within a strong uptrend. Following this is a series of descending small red candles which occur as a result of price taking. After this a strong green candle will appear and reach a new high, confirming the continuation of the already established trend. The significance of this formation is that the bears do not have the stamina to reverse the trend. This formation is also used by some investors to add to their positions. Also called a bullish flag. [caption id="attachment_11425" align="alignnone" width="250"] Rising Three Methods[/caption]
  • BUSINESS CYCLE
    The overall upward-peak-downward-trough pattern that is followed by business activity. There are a number of theories about the causes of these cycles, but no real explanation for this. The share market tends to anticipate major changes in the direction of the cycle by about 6 months. The cycle normally lasts about 3 to 5 years.
  • BUST
    This describes a stage in the business cycle when economic activity is low. A bust in the economy results in lower inflation, or even deflation, high unemployment, lower income and a lower general demand in the economy for goods and services.
  • BUY AND HOLD
    A strategy of buying a tradable such as a share for the long term rather than buying it with the idea of making a quick profit.
  • BUY LINE
    A horizontal line drawn on a line indicator (such as the OB/OS, Momentum or MACD) below which there is historically a much lower probability of being wrong in buying than elsewhere on the chart. The great benefit of oscillators as a technical analysis tool is that they reduce price data to a mathematical construct that moves above and below zero consistently. If you have sufficient history you can then assess the probability of being right when buying a share based on its past performance. For example, if the share has only gone below its buy line on 2% of occasions over the past 35 years, then your statistical probability of being wrong in buying at that level is extremely low. You can set the buy line – so the lower you make it the less buy signals you will get, but the better your chances will be of being right.
  • BUYER’S PRICE
    The price at which someone is prepared to buy the shares at a certain time. On the price page of your daily newspaper this is shown at the close of the session reported on, usually under the heading “buy”. It means that at the close of trade there was someone prepared to buy the shares at the price shown – but no seller was found at that price.
  • BUYING PRESSURE
    A high demand for a particular share or class of shares which exceeds the supply and so causes the price to rise.
  • BUYING SIGNAL
    A technical term which refers to a specific event or occurrence which signals to a chartist that it is the correct time to go long (i.e to buy in). The simplest example of a buying signal is where the price of a share breaks up through its moving average – but almost every charting method and trading strategy offers buying signals at points in the chart which are deemed to offer the best opportunity to make a capital gain as the price rises. For example, it is good to buy when the slow stochastic breaks up through 20 at the same time as its two-thirds moving average is rising. With the relative strength index (RSI), a buy signal is given when the RSI breaks up through 30. With the On Balance Volume (OBV) a buy signal is given when the OBV line rises almost vertically. Consider these three charts: [caption id="attachment_12823" align="alignnone" width="200"] Buy Signal - Chart by ShareFriend Pro[/caption] The top chart is a candlestick chart of a share, the second chart shows it’s OBV and the third chart is a volume histogram. You can see how the OBV chart suddenly takes off vertically just before the price moves up strongly. That is a classical OBV buy signal.
  • CALL OPTIONS
    The purchased right to buy (call) specified securities at a specified price (strike price) within a specified period (American) or on a specified date (European). By the payment of a premium per share, the investor buys the right to demand a delivery of the shares at any time during the currency of the contract, at the ruling price when the call was purchased. This is useful when a sharp rise is anticipated, as the only immediate capital required is the call money, thus gearing the investment.
  • CALMAR RATIO
    The average rate of return for the last 36 months divided by the maximum drawdown for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the last three years. The ratio is also used to determine return relative to drawdown (downside) risk in a hedge fund. Generally speaking, the higher the Calmar ratio, the better. Some funds have high annual returns, but they also have extremely high drawdown risk. This ratio helps determine return on a downside risk adjusted basis. Most people use data from the past 3 years.
  • CANCEL ORDER
    To abort a pending or working order. Occasionally, a trader may attempt to cancel an order that has already been executed but not yet reported as having been filled. In such a case, when the order is reported as filled, it will be "too late to cancel."
  • CANDLE VOLUME CHART
    A candlestick chart where the width of the candles is determined by the volume traded during the day. Obviously this leads to an irregular X-axis which can create some problems with the application of trendlines and other indicators. However, candle volume charts highlight heavily and thinly traded days – which can give a good indication of the significance of price movements. For example, a 10c move in a share’s price with 1000 shares traded has a completely different significance from the same 10c move with a million shares traded.
  • CANDLESTICK
    An individual display of the high, low, open and close of a specific security over a period of time. A candlestick chart is composed of multiple candles, each of which represent the sentiment of bulls and bears over the period chosen. The body of the candle shows the opening and closing prices of the security: a red/black candle is displayed when the closing price is below the opening price for the period; a green/white candle is displayed when the opening price is above that of the closing price for the period. The shadows on the top and bottom of a candle express how high and how low the price went during the period, and comparing this to the open and close is important to determine investor sentiment. There are many candlestick formations - refer to lecture module 27 and 28 for more on candlestick charting and the formations worth knowing when getting into and out of a share.
  • CANDLESTICK CHARTING
    A charting method which offers an alternative to the bar chart method of displaying daily weekly or monthly data. This method originated in Japan. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. The high and low are plotted as single lines above and below the body and are referred to as shadows. If the close is above the open, the body is green. If the close is below the open, the body is red. [caption id="attachment_11503" align="alignnone" width="270"] Candlestick Charting[/caption]
  • CAPEX
    An abbreviation for capital expenditure. It is often used when referring to gold mines. It refers to expenditure of a capital nature – in other words, used to purchase some sort of fixed asset.
  • CAPITAL
    Money which is used to supply “working” capital or to purchase capital goods, which are to be used to generate the income of the company. Capital can also include the reserves of undistributed profit retained by the company. Share capital refers to the money raised as a result of the sale of company shares. Working capital is used to buy stock and finance debtors.
  • CAPITAL ACCOUNT
    An element of the Balance of Payments (BOP) which shows the movement of capital into and out of a country. For example, it shows overseas investors investing into and disinvesting out of South Africa. Similarly, it shows South African investors investing overseas and disinvesting from overseas investments and repatriating the money.
  • CAPITAL GAIN
    When a gain is made when an investment is sold for more than its purchase price, it is called a capital gain. This must not be confused with the definition of Capital Gains Tax (CGT), as certain specific requirements must be met before SARS will class a gain as a capital gain for CGT purposes. A dividend is an income gain, or the natural return on an investment. Capital appreciation occurs when shares or other investments are at a higher market price than when they were purchased. Until the shares are sold, no capital gain has been realised.
  • CAPITAL GAINS DISTRIBUTION
    A distribution to investment company shareholders from net long-term capital gains realised by a regulated investment company on the sale of portfolio securities.
  • CAPITAL GAINS TAX
    A tax levied on the sale of an asset at a profit. For example, if you buy a piece of land and then later sell it for a profit of R100 000, you will have to pay tax on that gain. The first R30 000 of capital gain in any tax year is tax free and then 40% of the remainder is added to your taxable income. This obviously also has an effect on share transactions. If you are in the marginal tax bracket then the net effect is that you will have to pay 16,4% of any capital gain above R30 000 in any tax year.
  • CAPITAL INTENSIVE
    A term which describes those businesses which use huge amounts of capital to make a profit. Maybe they have plant, machinery and land tied up in their production process. Obviously, having all this money tied up in capital items increases the risk of the business because it will have to pay interest on that money – whether it is profitable or not. Service companies have the great advantage that they are usually not capital intensive. It is said of service companies that their “assets get into their cars at night and go home”.
  • CAPITAL LOSS
    Losses resulting from selling at a loss.
  • CAPITAL STRUCTURE
    This is the way in which a company has raised the capital needed to establish and expand its business activities or, more specifically, the number of shares and long-term loans in each class that have been authorised and issued.  
  • CAPITALISATION ISSUE
    Also called ‘bonus issues”, these do not involve transfer of cash between the company and its members. They occur when a company feels it desirable to convert part of its reserves (profits from earlier years which have not been paid out as dividends) into new shares. This often arises when the number of shares in issue is small in relation to the total value of the business. This makes them too scarce or highly priced to be easily traded. From a member’s (shareholder’s) point of view, the effect is to give him a greater number of shares than he already has. As the company itself has not grown any larger or smaller in the process, the percentage of his holding has remained unchanged; his stake therefore consists of more shares, each representing less of the company.
  • CAPITALISING LOANS/INTEREST
    This is the process when loans or interest payable are converted to capital. This alters the gearing or borrowing ratio of the company by shifting loans into permanent capital. It also improves the operating performance of a company, whereas a loan usually carries obligatory interest charges (although many inter-company loans are interest-free) which must be deducted from operating income to arrive at net income. Shareholders are only paid dividends if there is sufficient net income. Banks will often capitalise loans outstanding from a borrower who is in trouble, by converting the loan into capital but only if they perceive that the chances of recovering the money would be improved by doing so. By allowing the company to continue operating without the burden of monthly interest repayments and provided that company liquidation is unlikely to result, the bank hopes to fully recover the outstanding amount through dividend payments or by selling their equity once the company is functioning well.
  • CARRY TRADE
    The movement of cash from a low interest country or area to a high interest country. Emerging economies typically have considerably higher interest rates than first world countries. This offers the opportunity to borrow at low rates in one country and then lend at much higher rates elsewhere. South Africa has had considerable investments as a result of its relatively high interest rates when compared to Europe, America or Japan. Against this, South Africa has considerably higher risk, especially political risk, which tends to deter investors. Money which comes in on the carry trade tends to be short-term and can leave as quickly as it arrived. This makes the rand vulnerable to sudden outflows.
  • CARRYING BROKER
    A member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades.
  • CARRYING CHARGE
    The cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. Also referred to as Cost of Carry.
  • CARTEL
    A group of companies that together have a sufficiently large share of a particular product or industry so that they can force prices up by not competing with each other. An agreement is reached not to compete on price and what is effectively a monopoly is established. For example, the Organisation of Petroleum Exporting Countries (OPEC) controlled prices in the oil industry from 1973. A cartel is a type of monopoly and may be prevented by legislation, e.g. anti-trust laws in the USA.
  • CASH ASSET / SHELL
    A company which has cash or near-cash as its only asset. Besides the income derived from investing this cash, these companies have no income-producing assets and are not conducting normal business in any industry. When a company becomes a cash shell (i.e. all the assets are sold off or transferred out leaving only cash in the company), it remains listed for a period of six months, during which time it must acquire viable assets and comply with the initial listing requirements of the JSE. The shares can be traded during this six-month period, but if at the end of this period the company has not acquired any viable assets, the share is suspended for a further three months. After this period, if it is still not compliant, its listing is terminated. They are often the subject of take-over bids by companies wishing to obtain a listing. Take-overs like these are often accompanied by considerable insider trading (which is illegal). This shows in the volume of shares traded before the take-over is announced to the general public. These high volumes are a good indicator of an impending take-over, but sometimes reflect a wild rumour in the market.
  • CASH COMMODITY
    The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as Actuals.
  • CASH FLOW
    This is the amount of cash coming into a company less the amount going out. Cash flow is important because a profitable company can easily go bankrupt if its profits are tied up in stock or debtors, leaving it with insufficient money to pay its creditors by the due date. Cash flow can be improved by reducing the "working capital" of the company.
  • CASH MARKET
    A place where people buy and sell the actual commodities (i.e., grain elevator, bank, etc.) also often known as a “spot” market to distinguish it from any futures market which may also be operating.
  • CASH SETTLEMENT
    A method of settling certain futures or options contracts whereby the market participants settle in cash (rather than delivery of the commodity). This is typical of a financial future where there is no underlying physical commodity.
  • CAUTIONARY ANNOUNCEMENT
    This is a publicly advertised announcement made by a listed company to urge shareholders to exercise caution when trading in its shares. These announcements appear on SENS (Stock Exchange News Service) and in the newspapers whenever a company is involved in any activity (such as negotiating a take-over), which would materially affect the price of the shares. One of the reasons for publishing this information is to ensure that investors are protected from undue share price fluctuations when price sensitive information is imminent.
  • CBOT
    Chicago Board of Trade. The CBOT is a global commodity futures exchange trading treasury bonds, corn, soybean, wheat, mini-sized Dow, gold, silver and more. The CBOT was founded in 1848 by a group of 83 merchants. In 2005 a record 674 million contracts were traded. Go to www.cbot.com for more information.
  • CENSURE
    The JSE has very strict rules about what listed companies can and cannot do. If these rules are ignored or broken the JSE sometimes issues a public censure. Sometimes, a director of a listed company fails to report transactions that he may have made in the company’s shares, or a company fails to produce audited financial statements within three months of its financial year-end. This type of breach of the rules would typically result in a censure – and a warning.
  • CENTRAL BANK
    A government or quasi-governmental organization that manages a country's monetary policy. For example, the U.S. central bank is the Federal Reserve, and the ECB (European Central Bank) manages monetary policy for the European Union. In South Africa the central bank is known as the Reserve Bank. It has two primary functions – to ensure monetary stability (which basically means controlling inflation) and to maintain the growth of the economy. These two objectives are to some extent mutually exclusive in that efforts to control inflation (such as increasing interest rates) inevitably result in a reduction in economic growth. To achieve its objectives the Reserve Bank holds a monetary policy committee (the MPC) meeting every two months to consider whether interest rates should be increased, decreased or left unchanged.
  • CENTRAL SECURITIES DEPOSITORY
    The role of a central depository is to maintain records of all purchases and sales of securities on organised exchanges within the country. In South Africa, this function is performed by STRATE (which stands for Share Transactions Totally Electronic). STRATE also settles all transactions – which means they ensure that the seller gets his money and the buyer gets his securities.
  • CEO
    The leader of a company’s board of directors. The CEO is in charge of and responsible for everything that happens in the company. However, to the Companies Act, he is just another director and carries no additional responsibilities or obligations than the other directors (even the alternate and non-executive directors). The CEO is normally the most highly paid director – because of his authority and responsibility.
  • CFD
    A derivative contract that is not guaranteed by any organised exchange – which means that the counter-party risk is carried by the person buying or selling the contract. CFD’s are a kind of bet – where one party bets that a certain instrument (like a share) will go up and the other bets that it will go down. Whoever is right takes money away from whoever is not. They are highly leveraged and very risky. We would advise you to stay away from all derivative instruments, including CFD’s.
  • CGT
    A tax levied on the sale of an asset at a profit. For example, if you buy a piece of land and then later sell it for a profit of R100 000, you will have to pay tax on that gain. The first R30 000 of capital gain in any tax year is tax free and then 40% of the remainder is added to your taxable income. This obviously also has an effect on share transactions. If you are in the marginal tax bracket then the net effect is that you will have to pay 16,4% of any capital gain above R30 000 in any tax year.
  • CHAIKIN OSCILLATOR
    An oscillator created by subtracting a 10-day EMA from a three-day EMA of the accumulation /distribution line. This technical analysis tool compares the day's closing price to the intraday high and intraday low through this calculation: volume x [(close-low)- (high-close)] / (high - low). The figure is calculated daily and then a running total is kept. The oscillator is created by comparing the three-day moving average to the ten-day moving average.
  • CHAIRMAN OF THE BOARD OF DIRECTORS
    The chairman of the board of directors of a company is usually appointed by the directors. His position is in no way different from the other directors unless he is given a special mandate in the company’s articles. In some companies this position is merged with that of the managing director, however with the issue of the King 2 report on corporate governance this practice is totally discouraged. Normally the articles provide that he should preside at directors’ meetings and general meetings and give him a casting vote at directors’ meetings.
  • CHAIRMAN’S REPORT
    Most annual financial statements contain a Chairman's report, although this is not a requirement of the Companies Act. It is worth reading the chairman's report, especially for South Africa's largest blue chip companies because the chairman is usually very well informed about the South African economy generally and his industry in particular.
  • CHANNEL
    In charting, a price channel contains prices throughout a trend. The trend is bounded by upper and lower trend lines. A break through either of these usually indicates a change in the direction of the trend. There are three basic ways to draw channels: parallel, rounded and channels that connect lows (bear trend) or highs (bull trend).
  • CHART
    A display or picture of a security that plots price and/or volume (the number of shares sold) over time. The art of finding and exploiting patterns in charts is known as “technical analysis”, and over the years, many different types of charts have been developed. Fundamentalists believe that there is no merit in charting and that the only worthwhile analysis is the analysis of fundamental data such as the company’s financial statements and industry. Technicians believe that there is no point in studying fundamentals because all that information has already been discounted into the price and volume pattern.
  • CHEAP
    The meaning of the word “cheap” in the share market is not the same as it is in common parlance. When a share is regarded as cheap, then it is perceived to be trading in the market for less than its true value. This has nothing to do with the absolute price of the share – thus a share trading at R10 can be regarded as being very expensive while another trading for R100 might be very cheap. The point it that a share’s value is related to the company’s ability to generate consistently rising profits and dividends over time. The directors of a company can issue more shares or reduce the number of shares in issue whenever they feel it is necessary – and this obviously changes the price that they trade in the market, but shares represent a business – which is either expected to be profitable or not – and that profitability in relation to the share’s price determines whether it will be regarded as cheap or not.
  • CHICAGO MERCANTILE EXCHANGE
    The Chicago Mercantile Exchange (CME). The CME is the largest futures exchange in the United States and also owns and operates the largest futures Clearing House in the world. CME products fall into five major areas: interest rates, equities, foreign exchange, agricultural commodities and alternative investments. Two forums are available for trading CME products: the long-standing open outcry trading floors and the CME® Globex® electronic trading platform. The CME Clearing House guarantees, clears and settles every contract traded through the Exchange. Founded as a not-for-profit corporation in 1898, CME became the first publicly traded U.S. financial exchange in December 2002 when the Class A shares of its common stock began trading on the New York Stock Exchange under the ticker symbol CME. Go to www.cme.com for more information.
  • CHIEF EXECUTIVE OFFICER
    The leader of a company’s board of directors. The CEO is in charge of and responsible for everything that happens in the company. However, to the Companies Act, he is just another director and carries no additional responsibilities or obligations than the other directors (even the alternate and non-executive directors). The CEO is normally the most highly paid director – because of his authority and responsibility.
  • CHINESE WALL
    A communications barrier between members or departments of a financial institution to prevent the transfer of price sensitive information. Chinese walls are imaginary but are taken seriously in an attempt to minimise conflicts of interest.
  • CIPC
    Established by the Companies Act, this commission is responsible for registering companies in South Africa and maintaining a register of all companies. It has the power to issue “compliance notices to companies who are not complying with the requirements of the Companies Act and to undertake search and seizures. The CIPC replaces the old Registrar of Companies.
  • CIRCUIT BREAKER
    A system of limiting trading highs and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines. Thus when a market falls sharply it can go “limit down” meaning that it has fallen by the maximum allowed by the rules of that exchange. Trading below that level is then disallowed until the following trading day. The purpose is to allow the market time to absorb negative information and to avoid a crash.
  • CLASS
    Some listed companies may issue a variety of different shares with different risk profiles to entice investors to support them. For example, there are ordinary and preference shares – two different classes with different characteristics. And there can be many different preference shares and even different ordinary shares. The exact composition of a company’s different classes of shares is known as its capital structure and you can find it in your Stock Exchange Handbook.
  • CLEAR
    The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing members.
  • CLEARING MEMBER
    A member of an exchange clearinghouse responsible for the financial commitments of its customers. All trades of a non-clearing member must be registered and eventually settled through a clearing member.
  • CLEARINGHOUSE
    An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.
  • CLOSE
    This is the price at which the last transaction of a particular share took place during the trading session being reported on. The uncrossing prices calculated during the closing auction call phase will form the closing prices for the day.
  • CLOSE OF TRADE
    When the share market stops trading at the end of each trading day.
  • CLOSED PERIOD
    The time between the end of a company’s financial year and the publication of its audited financial statements. For JSE companies, this period cannot be more than three months and is usually closer to two months. During this period, the company’s directors and senior management are not permitted to make any disclosures about how the company did during its recently-completed financial year. This is to prevent insider trading.
  • CLOSED TRADES
    Positions that have been either liquidated or offset.
  • CLOSED-END FUNDS
    A mutual fund that does not sell unlimited shares; one with a specific number of outstanding shares.
  • CLOSING DAY OF OFFER
    Last day on which an offer made by a company to its shareholders may be accepted (e.g. in the case of a rights offer or an offer to purchase a shareholder's shares in a take-over bid).
  • CLOSING PRICE
    This is the price at which the last transaction of a particular share took place during the trading session being reported on. The uncrossing prices calculated during the closing auction call phase will form the closing prices for the day.
  • CLOSING RANGE
    A range of prices at which futures transactions took place during the close of the market.
  • CLOSING STOCK
    At the end of the accounting period, stock (also called “inventory”) must be valued to determine the company’s “cost of sales”. The usual calculation for cost of sales is: Opening Stock plus Purchases minus Closing Stock. There are a variety of methods for calculating closing stock and the method chosen can have a major impact on the company’s cost of sales and hence on its profit. First In First Out (FIFO) makes the assumption that the oldest stock in the warehouse is the stock that is used first. This means that the stock which remains at the end of the financial year is the more-recently purchased stock which is usually also the most costly stock. The opposite is true for Last In First Out (LIFO) which assumes that the most recently purchased and usually the most expensive stock is used first, leaving the older less expensive stock for the closing stock figure. The method itself does not matter that much, but if the company changes from one method to another, then that can impact profits either positively or negatively. Check the notes to the accounts to ensure that the method has not been changed.
  • CM42
    The form which must be completed and signed by both the purchaser and seller of shares for a transfer of shares to take place. In practice, since shares on the JSE were dematerialised, stockbroking firms have nominee companies which own your shares on your behalf. This means that share transfers can take place without requiring you to sign all the paperwork. CM42 forms are still, however, required for the transfer of shares in private unlisted companies.
  • CME
    The Chicago Mercantile Exchange (CME). The CME is the largest futures exchange in the United States and also owns and operates the largest futures Clearing House in the world. CME products fall into five major areas: interest rates, equities, foreign exchange, agricultural commodities and alternative investments. Two forums are available for trading CME products: the long-standing open outcry trading floors and the CME® Globex® electronic trading platform. The CME Clearing House guarantees, clears and settles every contract traded through the Exchange. Founded as a not-for-profit corporation in 1898, CME became the first publicly traded U.S. financial exchange in December 2002 when the Class A shares of its common stock began trading on the New York Stock Exchange under the ticker symbol CME. Go to www.cme.com for more information.
  • CODES
    An abbreviation for securities traded on an organised exchange. Share codes on the JSE are between 3 and 6 letters long – so, for example, the code for Sasol is “sol”. Most stockbroking trading platforms and other software dealing with the share market (like your charting software) require that you know the share’s code to access it. The codes, together with the short name and long name of each listed company are contained in your Stock Exchange Handbook.
  • COINCIDENCE
    In Gann theory, a projected reversal point.
  • COLLECTIVE INVESTMENT SCHEMES CONTROL ACT
    This Act replaces the Unit Trust Control Act and the Participation Bonds Act and it came into effect in 2003. It regulates any scheme where members of the public invest in a portfolio and share in its risks and returns. It ensures proper disclosure and protects the investor. In terms of the Act, unit trust management companies no longer have to disclose a buying and selling price. Instead consumers are told what their commissions and other fees are. The price paid for a unit trust will then be its net asset value. On-going management fees and marketable securities tax on trades in the unit trust portfolio must be deducted in the calculation of net asset value. There is also some relaxation of the restrictions applied to fund managers.
  • COMBINED FORECAST
    The weighted average of two or more forecasts.
  • COMMERCIAL
    An entity involved in the production, processing, or merchandising of a commodity.
  • COMMISSION
    A fee charged by a broker or agent to a customer for executing a transaction.
  • COMMODITY
    Basically these are raw materials such as gold, silver, soya beans, sugar, coffee, steel, etc. Many commodities (such as gold) are traded in markets around the world. The gold price is set in these markets, so they affect any supplier of gold such as South Africa.
  • COMMODITY CYCLE
    Commodity prices tend to move in cycles lasting several years. For example, the aluminium price bottomed at $1100 a ton in late 1993 and peaked at $2000 a ton in early 1995, before declining slowly. Commodity cycles are dictated by world demand and global economic growth rates. They are critical in evaluating the earnings potential of commodity-based companies listed on the JSE.
  • COMMODITY POOL OPERATOR
    An individual or organisation which operates or solicits funds for a commodity pool. A CPO is generally required to be registered with the CFTC.
  • COMMODITY SHARES
    Shares of companies in the resource sector.  Commodity shares are shares of those companies which manufacture, extract or sell commodities.  These shares are usually very volatile and we recommend that you stay away from them as their prices depend upon the prices of commodities that they sell which in turn fluctuate due to international markets. Thus gold, platinum and coal mining companies are commodity shares whose share prices are determined by the prices of the commodities which they produce. Those commodity prices are usually set on international markets and can be very volatile. Sasol is also a commodity share because 60% of its profits are derived from oil. Commodity shares are generally rand-hedge shares because the commodity they produce is sold overseas in a hard currency. They do badly when the rand strengthens and vice versa.
  • COMMODITY TRADING ADVISOR
    A person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling futures or commodity options. Providing advice includes exercising trading authority over a customer's account. A CTA is generally required to be registered with the CFTC.
  • COMMON STOCK
    A term used in America to describe their equivalent of ordinary shares.
  • COMPANIES ACT
    This Act (71 of 2008) contains the law concerning the formation and management of companies in South Africa. It can be viewed at http://www.acts.co.za/companies-act-2008/. It sets out the requirements for the issuing of a prospectus, the maintenance of records at a company's registered office, the issue of share capital, the financial accounts and other information which is required to be disclosed and the termination and conversion of companies.
  • COMPANIES AND INTELLECTUAL PROPERTY COMMISSION
    Established by the Companies Act, this commission is responsible for registering companies in South Africa and maintaining a register of all companies. It has the power to issue “compliance notices to companies who are not complying with the requirements of the Companies Act and to undertake search and seizures. The CIPC replaces the old Registrar of Companies.
  • COMPANY BUY-BACK
    The new Companies Act (71 of 2008) allows a company to buy back its own shares in the open market, provided it can pass a solvency and liquidity test. Shares which are bought back by a company are known as “treasury shares” and are normally destroyed. For this reason, buy backs reduce the number of shares in issue – which means that the value of the remaining shares increase. This is, in effect, a dividend and is treated as such by the Income Tax Act.
  • COMPANY WEBSITE
    These are an immensely valuable source of information for private investors. Almost every listed company maintains a website on which it posts all useful information about the company. Usually there is a heading like “Investor Relations” and when you click on that you will get access to the latest financial statements, the latest media publications and much more information. You should certainly read through everything on the web sites of the companies which interest you and which have been included in your “watchlist”.
  • COMPARATIVE RELATIVE STRENGTH
    A technical indicator which compares the price movement of a stock with that of its competitors, industry group or the entire market. This technique enables you to determine whether a share is out-performing or under-performing its sector or the market as a whole. This is distinct from J. Welles Wilder's Relative Strength Index, which compares current price movement to previous price movement of the same instrument.
  • COMPARATIVE RSI
    A comparison of the price performance of a stock to a market index such as Standard & Poor's 500 stock index. A relative strength is calculated by simply dividing one data stream (such as a share) by another (like the market index). The result is then charted daily or weekly. If the share rises faster than the index then the chart will rise and vice versa. Relative strength enables the investor to determine the “relative strength” of a share versus its index – or indeed any data stream versus any other data stream.
  • COMPETITION
    The capitalist economic system is based on competition. Manufacturers produce a product which they perceive to be in demand and they compete with each other on quality, price and service. This competition ensures a constant supply of alternatives for consumers at the best possible price. Most capitalist economies have anti-trust legislation to break up monopolies and ensure competition. South Africa is no exception. Our Competition Commission is constantly on the lookout for collusive pricing, and other anti-competitive practices.
  • COMPETITION ACT
    This Act sets up the Competition Tribunal, Appeal Court and Commission. Together these three organisations prosecute breaches of the Act and require notification from all companies making acquisitions of a certain size or larger. They also look into anti-competitive activities and have achieved a number of high-profile convictions and out-of-court settlements in certain industries – like the construction industry.
  • COMPLIANCE OFFICER
    These days, companies, and especially listed companies have a host of rules and regulations that they must comply with – from the Companies Act to the JSE Rules and the King 3 report on corporate governance.  A compliance officer is trained to ensure that the company he works for complies with everything that it is supposed to.
  • COMPOUNDING
    Compounding occurs where the return from an investment is added to the original capital and then itself earns a further return which is further added to the capital and so on. Over time the compounding effect of returns can be very significant.
  • CONDITIONAL OFFER
    An offer made to the shareholders of a company conditional to the occurrence of some event. Typically, where a take-over bid is being made, the predator will make an offer to shareholders conditional to its being accepted by more than 50% of the shareholders.
  • CONFIRMATION
    Indication that at least two indices, in the case of Dow theory the industrials and the transportation, corroborate a market trend or a turning point. In technical analysis, this term is used where two or more different indicators give a buy or sell signal thus increasing confidence in the correctness of the signal.
  • CONFIRMATION SIGNAL
    The next candle in a candlestick formation which confirms the previous reversal signal, confirming that a change in the direction of the trend is likely and giving confidence to the dominating market pressure. No candlestick formation should be considered individually. It is always recommended that the investor wait until the next candlestick is present, to ensure that the reversal pattern was not brought about by noise in the market.
  • CONGESTION AREA OR PATTERN
    A series of trading days in which there is no visible progress in price either upwards or downwards. This is also known as a “sideways” market or a period of “consolidation”.
  • CONGLOMERATE
    These are massive, sometimes multi-national, holding companies involved in a wide variety of industries.
  • CONSOLIDATION
    1. Technically, where a chart moves up and down within a narrow range, bounded by a support and resistance level. This is called a sideways market of a period of consolidation. A period of consolidation usually occurs at the top or bottom of a trend when the bulls and the bears are temporarily equally matched. It ends with a “break-out” when one or other gains ascendancy. 2. Financially, the adding together of the balance sheets, income statements and other financials of a group of companies to arrive at their group financial accounts. Consolidations can be very complex because they involve the elimination of inter-company loans and the separate reporting of minority interests in profits and equity. 3 With shares, a consolidation occurs where a listed company’s shares fall to the level where they become the plaything of speculators – causing significant trading and making it difficult to maintain their share register. The company might then consider consolidating their shares on a ten-for-one basis. Then their issued share capital would include one tenth of the number of shares, but trading at ten times the price.
  • CONSUMER GOODS
    Anything which is normally bought by consumers as the end user. This differs from industrial goods, which are bought with the objective of producing some other product or service.
  • CONSUMER PRICE INDEX
    The measure of the degree to which the currency of a country is losing purchasing power over time through inflation. In South Africa, the Reserve Bank has chosen the CPIX as its target measure of inflation (it is different from the CPI in that it excludes interest and bond rates) and strives to keep this rate between 3% and 6% by using monetary policy.
  • CONTANGO
    A futures market in which prices in succeeding delivery months are progressively higher. The opposite of “backwardation”.
  • CONTINUATION CHART
    A derivatives chart in which the price scale for the data for the end of a given contract and the data for the beginning of the next contract are merged in order to ease the transition of one contract to the next. Derivatives generally have short lives and are rolled over into the next contract period. A continuation chart shows the data from a number of contracts so that a continuous picture can be obtained of the movement of that derivative’s pattern.
  • CONTINUATION SIGNAL
    A pattern in technical analysis which suggests that a chart is diverging slightly from it's trend however will eventually continue in the general direction as seen before. These patterns, recognised mostly in candlestick charting, are more accurate in long term established trends and can be seen in both uptrends and downtrends.
  • CONTRACT FOR DIFFERENCE
    A derivative contract that is not guaranteed by any organised exchange – which means that the counter-party risk is carried by the person buying or selling the contract. CFD’s are a kind of bet – where one party bets that a certain instrument (like a share) will go up and the other bets that it will go down. Whoever is right takes money away from whoever is not. They are highly leveraged and very risky. We would advise you to stay away from all derivative instruments, including CFD’s.
  • CONTRACT MONTH
    The month in which delivery is to be made in accordance with the terms of the futures contract. Also referred to as Delivery Month.
  • CONTRARIAN
    An investor who believes that to beat the market you have to be right when the market is on average wrong. Contrarians delight in buying when everyone else is selling and vice versa. They take the attitude that it is "darkest before dawn". There are dangers in this approach since it is difficult to determine when a bear trend or a bull trend has run its course. However, contrarians do have one benefit - they generally avoid buying at the top and selling at the bottom. So they are doing better than some investors.
  • CONTROL PREMIUM
    The additional cost which an acquiring company must pay in order to obtain control of a subsidiary. This cost is incurred because control is seen as conferring an added benefit.
  • CONTROLLING SHAREHOLDER
    A shareholder who owns more than 50% of a company's voting share capital and can therefore control the company's activities.
  • CONVARIANCE
    Multiplies the deviation of each variable from its mean, adds those products and then divides by the number of observations. The objective is to provide a measure of the volatility of the data.
  • CONVERGENCE
    When futures prices and spot prices come together at the futures expiration. Futures contracts expire at the end of each quarter – in other words at the end of March, June, September, and December. The further away they are from their expiry date the greater will be the “time value” associated with the future and hence the gap between the spot price and the future price. On expiry these two prices converge until they are the same on the day that the contract expires.
  • CONVERSION ARBITRAGE
    Traders buy and sell two different securities (or synthetic securities), forcing equivalent prices for equivalent securities.
  • CONVERTIBLE PREFERENCE SHARES
    This is a preference share which can be converted into an ordinary share on a specified future date.  This gives a higher degree of security than buying ordinary shares directly because the progress of the company can be ascertained before a decision is made on whether to give up their preferential dividend for the less secure but potentially more profitable ordinary dividend. Convertible preference shares are often called “near-equities” because as they approach their conversion date, they behave more and more like the ordinary shares they will become.
  • CONVERTIBLE SECURITIES
    These are shares, debentures or other securities which are convertible either voluntarily or compulsorily into ordinary shares at some future specified date. Most commonly, preference shares are convertible. This gives their owners a higher degree of security than buying ordinary shares because they can wait to see the progress of the company before deciding whether or not to give up their preferential dividend for the less secure but potentially more profitable ordinary dividend.
  • COPPOCK CURVE
    A long-term price momentum indicator. For example, a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the Dow Jones Industrial Average (DJIA).
  • CORE BUSINESS
    The primary business of any company. You will often hear of companies selling off their non-core businesses in order to focus on their most profitable core businesses. The board of directors are continuously trying to determine what business they are in – and so by subtraction what business they are not in. This is because there are significant benefits to focusing on core business.
  • CORNER
    This is when a share, which has been short -sold, falls into the hands of a few investors who are unwilling to sell and who thus cause a bear squeeze. Also where one or a group of investors gain control of the supply of a product or commodity and can then influence the price to the industry.
  • CORPORATE ACTION
    Any action taken by a company that has a major effect on its shareholders. Corporate actions are divided into those which require the shareholder to do something (like take up a right) and those which do not. A good example of a corporate action would be the payment of a dividend or a share buy-back. A rights issue is a voluntary corporate action because the shareholder is not obliged to take up his rights – and they are often sold in the open market.
  • CORRECTION
    This term is used quite loosely to mean any short-term change in the direction in which a share or market is moving. More strictly, it refers to a temporary downward move in a bullish trend.
  • CORRECTION WAVE
    A wave or cycle of waves moving against the current impulse trend's direction.
  • CORRELATION COEFFICIENT
    This is the degree to which two continuous data streams (such as two share price graphs or currencies) are the same – i.e. the degree to which they “correlate”. When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and Y to the square root of the product of the variance of X and the variance of Y.
  • COST BASIS
    The cost of a given share or group of stock shares. This is used as a bench-mark to establish whether the investment is profitable or not and by what percentage.
  • COST OF SALES
    An accounting measure which endeavours to measure the cost the goods sold during the accounting period. The method is to value the stock at the start of the period (the opening stock) and at the end of the period (the closing stock). Then add opening stock to the purchases during the period and subtract the closing stock. Normally, prices of purchases will rise during the period so that stock purchased towards the end of the period will be more expensive than stock bought at the start of the period. For this reason, the method of valuing the closing stock will have an impact on the cost of sales figure.
  • COUNTER-PARTY RISK
    The risk that the other party to a securities transaction will not fulfil their obligations. In other words, if you are buying and the seller will not supply the scrip or if you are selling and they will not pay. These days, the counter-party risk is largely absorbed by all organised exchanges. Only those instruments which are not traded on an organised exchange (like Contracts For Difference) still run counter-party risk.
  • COUNTERMOVE
    A price bar showing movement opposite to the direction of the prior time period. Also called a “retracement”.
  • COUNTERPARTY
    One of the participants in a financial transaction. This term is typically used when speaking of foreign exchange (FX) transactions.
  • COVER
    Purchasing back a contract sold earlier. For example, if a share is sold short, the short seller is exposed until he buys back sufficient shares to “cover” his short sale delivery.
  • COVERED OPTION
    A short call or put option position which is covered by the sale or purchase of the underlying futures contract or physical commodity.
  • COVERED WRITE
    Writing a call option against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock. For example, if an institution such as a pension fund or insurance company owns a block of Anglo American shares and they believe that the share will generally fall over the next year they can sell call options to investors who believe that Anglos will appreciate during that period. In this way they can increase their return on their Anglo shares by the price of the call option less dealing costs. The risk is that they are wrong and the call is exercised.
  • CPI
    The measure of the degree to which the currency of a country is losing purchasing power over time through inflation. In South Africa, the Reserve Bank has chosen the CPIX as its target measure of inflation (it is different from the CPI in that it excludes interest and bond rates) and strives to keep this rate between 3% and 6% by using monetary policy.
  • CPI-X
    The consumer price index excluding the effect of interest rate changes. This is the number that the Reserve Bank uses in their inflation targeting. They strive to keep this rate between 3% and 6%. If it is expected to rise above 6% then the Reserve Bank will tend to raise interest rates to avoid future inflation.
  • CPO
    An individual or organisation which operates or solicits funds for a commodity pool. A CPO is generally required to be registered with the CFTC.
  • CRASH
    A sudden fall in stock market prices, sometimes in a single trading day, and which is usually followed by a bear trend.  This happens generally because market prices have risen to unrealistically high levels, but also because of economic conditions and a growing panic in the market.  The crash of 1929 (Black Tuesday) saw the markets fall by more than 9% in just one day. Subsequently, in the bear trend which followed, the Dow Jones industrial index lost 89% of its value over 30 months and the market did not return to its 1929 peak until 1954.The 1987 crash saw the Dow Jones industrial index fall by 23% in one day.
  • CREDITORS
    This is an item on the balance sheet, which is part of current liabilities. Creditors (more often called accounts payable) are all people and organisations to which the company owes money which must be paid within normal commercial periods of 30, 60 or 90 days. This is different from its long-term liabilities, which appear on the liabilities side of the balance sheet.
  • CROSS RATE
    The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the United States, a GBP/JPY (British pound against the Japanese yen) quote would be considered a cross rate, whereas in both the United Kingdom or Japan, it would be one of the primary currency pairs traded.
  • CROSSED MARKET
    Where a quoted bid price is higher than the offer price for a security.
  • CSD
    The role of a central depository is to maintain records of all purchases and sales of securities on organised exchanges within the country. In South Africa, this function is performed by STRATE (which stands for Share Transactions Totally Electronic). STRATE also settles all transactions – which means they ensure that the seller gets his money and the buyer gets his securities.
  • CTA
    A person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling futures or commodity options. Providing advice includes exercising trading authority over a customer's account. A CTA is generally required to be registered with the CFTC.
  • CUM DIV
    Shares are said to be "cum div" in the period between declaration of the dividend and the last day to trade. A sale of shares while they are "cum div" passes on the right to the next dividend to the transferee (or buyer). Once the shares are "ex-div", after the last day to trade, the dividend no longer accrues to the buyer.
  • CUMULATIVE PREFERENCE SHARE
    A preference share accumulates its dividend in the event of the preferential dividend being passed for one or more years. Preferential dividends are paid out before ordinary dividends, but sometimes, when the company makes a loss or too small a profit to meet the preferential dividend fully, then if the "prefs" are cumulative they will pay out any backlog before ordinary shareholders receive another dividend. This puts these preferential shareholders in a more secure position than normal preferential shareholders and ordinary shareholders.
  • CUP AND HANDLE
    An accumulation pattern observed on bar charts. The pattern lasts from seven to 65 weeks; the cup is in the shape of a "U" and the handle is usually more than one or two weeks in duration. The handle is a slight downward drift with low trading volume to the right-hand side of the “cup”. Used to recognise buying opportunities, the cup an handle formation is a bullish continuation pattern which signals renewed buying pressure in an established trend.
  • CURRENCY
    A medium of exchange used as a store of value or in the commercial exchange of value between persons or organisations. Historically, currencies were physical commodities that actually had the intrinsic value that they were exchanged for, but today most currencies are fiat currencies which have value because of a government decree or “fiat” and because they are widely accepted. The exception is the various precious metals coins that are minted throughout the world. Those are still valued at the value of the metal which they contain. A country’s currency is measured against other currencies. These exchange rates are between all major currencies and are determined in mostly open currency markets, which runs continuously.  A country’s currency is similar to the shares of a company. If a company is expected to do well and make profits, then it shares will rise and vice versa. The same is true of a country’s currency. If the country is expected to do well and prosper economically, its currency will strengthen in relation to the currencies of other countries – and vice versa.
  • CURRENCY BACKING
    A hard asset, usually gold, that is used to back a national currency. Originally when paper money was first used, these were certificates certifying a deposit of gold at what were to become banks. In other words, it was fully backed by gold. Gradually all countries in the world have abandoned fully gold backing of their currencies and moved to partial backing in one form or another.
  • CURRENT ASSET
    An item on a balance sheet which includes any assets which can easily be turned into cash (have high liquidity) and which will only be held for a short time. Most commonly, these are stock, debtors and bank and cash balances. Pre-payments of expenses may also be included.
  • CURRENT LIABILITY
    Any liability that must be paid within a year from the date of the balance sheet. These are mainly amounts owed by the company, which must be repaid within the normal commercial periods (30, 60 or 90 days). Typically, on the balance sheet you would find accounts payable (or creditors), overdrafts and provisions. Once a dividend has been declared, but before it is paid, it becomes a current liability.
  • CURRENT RATIO
    The ratio of current assets to current liabilities. The objective of this ratio is to determine whether the company can meet its short-term obligations out of its short-term assets (as these have the highest liquidity). If a company’s current assets are less than its current liabilities then it probably has cash flow difficulties.
  • CUSIP
    The number assigned by the Committee of Uniform Security Identification Procedure that appears on all securities documents. Each security is given a number so that it is easily identifiable. This process was initiated in 1962 by the New York Clearing House Association. Today cusip numbers are accepted as unique and identifiable through the financial world. South African companies that are listed overseas such as Telkom (879603108) and MTN (62474M108) all have cusip numbers for their securities.
  • CUTOFF FREQUENCY
    A point where higher frequency cycles will not pass through a filter (e.g., a 10-day SMA will eliminate cycles of 20 days or less).
  • CYCLE
    Shares, industries and markets move in cycles. There are three types of cycles: primary, secondary and daily fluctuations. Primary trends last from 2 to 5 years, secondary trends from 2 to 6 months and so-called daily fluctuations from 1 to 10 days. If you observe the movement of a share you will probably be able to see certain definite cycles, especially if you draw a graph. You can take advantage of these cycles to fine-tune your buy and sell decisions.
  • CYCLICAL
    A cyclical share is one which is heavily impacted by the business cycle. When the economy is going through a slow growth period (a recession) then consumers tend to put off buying big-ticket items and luxuries. This means that sales of new motor vehicles will decline in a recession, as will the sales of “white goods” like fridges, washing machines, and microwave ovens. Furniture is also very sensitive to the business cycle. Listed companies which sell these types of goods are known as “cyclical shares” because their shares tend to go up and down with the business cycle. Conversely, “defensive shares” are shares whose business is not much impacted by the business cycle, like pharmaceutical and medical companies.
  • CYCLICAL SHARES
    A cyclical share is one which is heavily impacted by the business cycle. When the economy is going through a slow growth period (a recession) then consumers tend to put off buying big-ticket items and luxuries. This means that sales of new motor vehicles will decline in a recession, as will the sales of “white goods” like fridges, washing machines, and microwave ovens. Furniture is also very sensitive to the business cycle. Listed companies which sell these types of goods are known as “cyclical shares” because their shares tend to go up and down with the business cycle. Conversely, “defensive shares” are shares whose business is not much impacted by the business cycle, like pharmaceutical and medical companies.
  • DAILY DEALS
    One of the pieces of information supplied by the JSE for each listed company after each trading day. There are no indicators which utilise this piece of information, but it can be useful to distinguish between days where a single large book-over deal dominates trade and days where trade is made up of thousands of smaller deals.
  • DAILY FLUCTUATIONS
    Charles Dow in his “Dow Thoery” proposed that share prices, and especially indexes, move in three distinct patterns – bull and bear trends which can last from about 18 months to five years or longer, rallies and corrections which usually last from 1 – 5 months and “daily fluctuations” which can last from one day to a week. So the daily fluctuations (which can be either up or down) are the “noise” in the chart which tends to obscure the underlying trends.
  • DAILY RANGE
    The difference between the high and low price during one trading day. This range shows the degree of uncertainty prevailing among the investors interested in a particular share. A large range indicates a wide diversity of opinion about the future direction of the share and vice versa.
  • DARK CLOUD COVER
    A top reversal candlestick formation which consists of a long green candle followed by a red candle. Confirmation to this signal would be the appearance of another red candle with an open that is much lower than the preceding red. The dark cloud cover must have a closing price which is below the mid-point of the preceding green candle's body. This signifies a dark cloud over the previous day's bullish sentiments, and implies that the trend is likely to change.
  • DATA MINING
    The process of using super-computers to sift through the massive quantities of data produced every day by the securities markets to establish potentially profitable correlations. This process has become more prevalent in recent times as computers have become more powerful and is part of quantitative analysis, usually connected to sophisticated arbitrage transactions.
  • DATA PREPROCESSING
    Altering data to some extent to be more accurately analysed; smoothing, reducing unwanted data, removing trend. Processing data is mathematically transforming the data from one form into another with the goal of turning it into pertinent information for traders.
  • DATA STREAM
    A data stream is any continuous daily flow of data. The most common form of this is the end-of-day high, low, open, close and volume for each listed equity share. But there are many others included in the ShareFriend Pro software like commodity prices (oil, copper, gold, lead, nickel, platinum, etc.), currencies exchange rates (like the rand/US dollar, euro/dollar, yen/pound etc), unit trusts, futures, options, ETF’s, preference shares and many others. Altogether, the software can show charts of about 1200 data streams.
  • DATE OF DECLARATION
    The date on which a dividend is declared by a company’s board of directors once they have seen the results from the interim or final accounting period. This date is usually followed by the last day to register, the record date, the ex-div date and, finally, the date of payment.
  • DATE OF PAYMENT
    The date on which a dividend is paid. These days, dividend payments are mostly paid directly into shareholders’ stockbroking accounts automatically. There are five dates associated with dividend payments – the date of declaration, the last day to register, the record date, the ex-div date and the payment date.
  • DAY ORDER
    An order that if not executed expires automatically at the end of the last trading session on the day it was entered.
  • DAY’S MOVE
    The extent to which a share moves during the course of the trading day on the Stock Exchange. You will find the day's move quoted as a separate column in the newspapers, both in cents and as a percentage. In essence this shows the difference between one day's closing price and the next.
  • DCM
    A division of the JSE which was folded into the Alt-X. This division was originally for smaller companies requiring less capital and no history of profits. The Alt-X has taken over this function.
  • DE-LISTING
    The removal of a security from an organised exchange – after which it can no longer be traded. This typically happens in the share market when a company has been taken over by another company and so no longer needs a separate listing. It can also happen because the company can no longer see the benefit of the listing in relation to the cost of maintaining it.
  • DEAD CAT BOUNCE
    A rebound in a market that sees prices recover from a very sharp fall and come back up somewhat. Usually this occurs at the start of a bear market where the extent of the initial fall is beyond the belief of some traders who then attempt to average down by buying in further in the belief that the bear trend is over – to their cost. The most important point about a dead cat is that it is dead! Almost all bear trends and crashes have a midway recovery which sees the share or market recover roughly half of what it has lost, but it will then continue down to complete the bear trend.
  • DEALER
    An individual or firm acting as a principal or counterparty to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
  • DEALING COSTS
    The costs of trading in shares are brokerage – which varies according to the stockbroker you are dealing through, STRATE settlement costs (0,005% of the value of the transaction) and securities transfer tax (0,25% of the value of the transaction only on purchase). A good rule of thumb is that your turn-around dealing costs will be around 3%.
  • DEBENTURE
    This is a form of long-term loan. A company issues debentures, usually at R100 each, at a fixed percentage return. Debentures are then redeemable at a certain specified date, but in some cases may be convertible into ordinary shares. Debentures are not part of the equity of the company. They differ from redeemable preference shares in that the interest is paid whether the company is profitable or not. Dividends on redeemable prefs need not be paid if the company is not profitable.
  • DEBIT BALANCE
    A stockbroking account with no positions and a negative adjusted total equity. A debit balance typically arises as a result of a trader losing more money in the marketplace than was available in his account. In financial accounts, a debit balance indicates that more money has been paid into an account than out of it.
  • DEBT/EQUITY RATIO
    The ratio of shareholders' equity in the company (share capital and reserves) to the company's borrowing. The company has two primary sources of capital: shareholders' equity (consisting of the money raised when the shares they hold were issued, plus any profits which have not been distributed as dividends), and money obtained in the form of loans from banks and other lending institutions. The debt/equity ratio shows who owns what in the business. For example if shareholders had only R1 for every R1,50 of the bank's shares the company would be "highly geared" and in danger of going beyond its creditworthiness. This means that the bank would effectively control the company by being able to close it down by simply calling in its loan.
  • DEBTORS DAYS OUTSTANDING RATIO
    The average number of days that it takes for a company to collect its debts. This can be calculated by dividing the debtors figure and then multiplying by 365 (the number of days in the year). If the number of days increases from one financial period to the next, then this is an indication that the management of the company’s debtors book is deteriorating.
  • DECLARATION DATE
    The date on which the board of directors declare their dividend. This date is worth noting for the shares which you are following.
  • DEEP-IN-THE-MONEY
    A deep-in-the-money call option has the strike price of the option well below the current price of the underlying instrument. A deep-in-the-money put option has the strike price of the option well above the current price of the underlying instrument.
  • DEFAULT
    The failure to perform on a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.
  • DEFENSIVE SHARES
    Some JSE-listed companies perform well even in a recession and they are known as “defensive shares”. Typically they are in sectors which the consumer cannot do without – like medical care. Even in a recession you have to pay for that operation – because otherwise you may die…
  • DEFERRED DELIVERY MONTH
    The distant delivery months in which futures trading is taking place, as distinguished from the “nearby” futures delivery month which refers to the next futures contract to mature.
  • DEFERRED TAXATION
    When a company computes income tax expense, it bases that computation on taxable income per the Income Statement. The income taxes payable, a current liability account, reflects only the amount of taxes owed to the IRS in the next year according to taxable income per the tax return. The difference between income tax expense and income tax payable is recorded in a long-term liability account called Deferred Taxes.
  • DEFLATION
    The opposite of inflation. A period where the purchasing power of money increases in terms of a basket of goods and services.
  • DELAYED QUOTES
    Market quotations which are delayed by the various futures exchange's required time period, usually 10-20 minutes.
  • DELINQUENT DIRECTOR
    This refers to a director of a company that has done something in contradiction of the Companies Act. Directors are expected to act in the “utmost good faith” and to act in the best interests of the company at all times. Section 162 of the Companies Act makes provision for a director to be declared delinquent if he is negligent or dishonest or took personal advantage of his position at the expense of the company.
  • DELIVERY
    The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Most futures (about 97%) are closed out before they expire. Some futures contracts, such as stock index contracts, are cash settled.
  • DELTA
    The amount by which the price of an option changes for every dollar move in the underlying instrument.
  • DEMAND INDEX
    An index that shows the buying and selling power of markets and stocks from mathematical calculations of volume and price ratios.
  • DEMATERIALISATION
    The replacement of physical share certificates with an electronic record. In South Africa this record is maintained by STRATE (Share TRAnsactions Totally Electronic). STRATE is the South African Central Securities Depository (CSD) and it keeps an electronic database of every issued share and who owns it. This database is updated every trading day as shares change hands. It is still possible to get a physical share certificate, but it is more expensive. An advantage of dematerialisation is that it has virtually eliminated all forms of lost and stolen scrip. Failed trades have also disappeared.
  • DEMATERIALISED SCRIP
    The elimination of certificates or documents of title which represent ownership of securities, so that securities exist only as electronic records.
  • DEPENDENCE
    In modern portfolio theory the central concept is that share prices are impossible to predict because there is no “dependence” between today’s price and yesterday’s price. In other words share prices move at random. The problem with this is that, by definition, a random series is impossible to predict and if this is true all forms of share market analysis are a waste of time. Technicians or chartists believe that there are extensive patterns in share prices and volumes which have their origin in the behavioural characteristics of investors as a group.
  • DEPRECIATION
    The process of charging the value of a fixed asset against the company’s profits at the same rate at which it is expected to wear out or become obsolete. It would not be reasonable to charge the full value of a motor vehicle against the profits of one year when the vehicle is expected to last for 5 years. Therefore a system of changing 20% of the purchase price per annum could be employed (this is called the straight-line method of depreciation). Depreciation is sometimes applied on a “reducing balance method” where the percentage is charged against the balance remaining after the depreciation of previous periods. For example, if an asset cost R10 000 and was to be depreciated at 20%, the first year would be based on 20% of R10 000, but the second year would be 20% of the remaining book value of the asset (R8 000) and so on. Different assets may be depreciated at different rates using the straight-line or reducing balance method for tax purposes. Depreciation also helps to build up cash in the business to replace the asset when it is worn out.
  • DEPTH OF THE MARKET
    The depth of the market for a particular share is a display of the best three bids and the best three offers for that share which have not yet been fulfilled. Stockbrokers, on their trading platforms, typically display the depth of the market for each listed share on the JSE.
  • DERIVATIVE
    A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement. Derivatives involve the trading of rights or obligations based on the underlying product but do not directly transfer property. They are used to hedge risk or to exchange a floating rate of return for a fixed rate of return. There are two main types of derivative – futures and options.
  • DESIGNATED ADVISOR
    When a company wishes to list on the Alt-X market it must appoint a designated advisor. The main role of a Designated Adviser is to competently, professionally and impartially advise the applicant company on all its responsibilities during the application process and it's responsibilities to maintain its status once listed. The Designated Adviser is the guardian of the listed company's compliance with the JSE Listings Requirements and other applicable regulation as defined.
  • DETREND
    To remove the general drift, tendency, or bent of a set of statistical data as related to time.
  • DEVELOPMENT CAPITAL MARKET
    A division of the JSE which was folded into the Alt-X. This division was originally for smaller companies requiring less capital and no history of profits. The Alt-X has taken over this function.
  • DIFFERENCE-IN-MEANS TEST
    A statistical test that indicates the likelihood of observing the difference if the true difference were zero. A large value of this statistic leads to non-acceptance of the null hypothesis that the true difference is zero.
  • DIFFERENCING
    Subtracting previous from current values to obtain a stationary (detrended) time series: P stationary = Pt - Pt-1.
  • DIFFUSION EQUATION
    A partial differential equation, used in solving a random walk problem.
  • DIFFUSION INDEX
    An index that measures the percentage of individual series that are positive compared with the aggregate group that is, the percentage of S&P groups that are above their 30-week moving average.
  • DIRECTIONAL MOVEMENT INDEX (DMI)
    Developed by J. Welles Wilder, DMI measures market trend. The concept of Directional Movement is based on the assumption that in an upward trend today’s highest price is higher than yesterday’s highest price, and in a downward trend today’s lowest price is lower than yesterday’s lowest price. If this is the case, it is a matter of the so-called Outside Days. The difference between today’s high and yesterday’s high corresponds to the Plus Directional Movement (+DI). The difference between today’s low and yesterday’s low is the Minus Directional Movement (-DI). These Outside Days consist of a +DI as well as an -DI.
  • DIRECTOR
    All public companies are required to have at least two directors and all private companies at least one. The directors are appointed (with their consent) by the shareholders at a shareholders' meeting. Until the directors are appointed the incorporators are deemed to be the directors. The primary duty of a director is to always act in the best interests of company.
  • DIRECTOR DEALINGS
    The directors of a company are allowed to deal in the shares of their company, but in terms of the JSE rules, they must disclose the details of their transactions on the Stock Exchange News Service (SENS). Failure to do so can result in a “censure” from the JSE. It is always interesting to look at whether the directors are buying or selling shares in their company since they supposedly are the best informed investors.
  • DIRECTORS’ REPORT
    The Companies Act requires companies to put before the Annual General Meeting (AGM) a directors' report with respect to the state of affairs, the business and profitability of the company. The report has to deal with anything which materially affects the profitability and business of the company, and it must contain AT LEAST the information required by Schedule 4 of the Companies Act.
  • DISCLOSURE
    The concept of disclosure is entrenched in the Companies Act. The Act is concerned to ensure that shareholders are properly informed of all the information that they need to make good investment decisions. Thus the annual and interim financial statements disclose a huge amount of information in accordance with the Companies Act and Generally Accepted Accounting Practice. The prospectus new shares being issued has much information about the company, its prospects and the people behind it (the “incorporators”). The King 3 report on corporate governance requires listed companies to disclose even more information to ensure that the company is properly run and shareholders are fully informed.
  • DISCOUNTING
    The price of a share is the average of all investors’ discounted cash flows of the future dividends of the company. If the profits and hence the dividends of a company are expected to fall then investors will tend to adjust the price which they are prepared to pay for the share downwards - and vice versa. This process is known as discounting. All events which impact the profitability of a company are “discounted” into its share price sooner or later.
  • DISCRETIONARY STOCKBROKING ACCOUNT
    An account opened with a stockbroker where the client has entered into an arrangement with the stockbroker that authorises the stockbroker to conduct transactions on the client's behalf with full discretion and no prior reference to the client. It has been well said, however, that “Nobody cares about your money except you”. The point being that you should really manage your own money for best results. At a stockbroking firm, a discretionary account is also called a managed account, since the stockbroker is authorised to place the funds as he sees fit. The opposite of a non-discretionary account.
  • DISSENTING SHAREHOLDER
    In terms of the Companies Act, a dissenting shareholder is one who disagrees with a fundamental transaction being contemplated by the majority shareholders. A fundamental transaction is a major transaction which changes the nature of the company’s business or the control of the company. Dissenting shareholders can insist that the company buys their shares back for a “fair value”. The fair value can be decided by the court if necessary. Essentially, the idea of dissenting shareholders deals with the old concept of a “fraud on the minority”.
  • DISTRIBUTABLE RESERVES
    A concept from the old Companies Act which aimed to preserve the capital of companies. In terms of that Act, dividends could only be paid out of a company's profits and not out of its asset base. The new Companies Act (71 of 2008), which has been in force since May 2011, has a solvency and liquidity doctrine in terms of which dividends can be distributed provided the company can pass a solvency and liquidity test. So the distinction between distributable and non-distributable reserves has fallen away.
  • DISTRIBUTION
    The payment of a dividend. Any set of related values described by an average (that is, mean), which identifies its midpoint, a measure of spread (that is, standard distribution) and a measure of its shape (that is, skew or kurtosis).
  • DISTRIBUTION AREA
    A sideways to downward market, usually at the top of a bull trend where shares are being sold off by the "smart money" in anticipation of a downward trend.
  • DIVERGENCE
    When two or more averages or indices fail to show confirming trends.
  • DIVERSIFICATION
    The process whereby a company (or individual) spreads its investments among a number of different enterprises so as to reduce its exposure through one of them. Research conducted in America has shown that diversification of a portfolio reduces risk until approximately 15 different shares are held. Thereafter, the reduction in risk is immaterial while the effort of following additional shares remains the same. This is the reason why students are advised to hold between 5 and 15 shares.
  • DIVIDEND
    That part of the company’s profits which is paid out to shareholders. Most companies pay out two dividends per annum - an “interim” after six months of the financial year and a “final” at the end of the year. In terms of the Companies Act, dividends can only be paid out of the profits of a company (although not necessarily this year’s profits). The directors decide on how much of the profit to pay out and this is known as the company’s “dividend policy”. The number of times that the dividend could be taken out of the profits is known as the “dividend cover”.
  • DIVIDEND COVER
    The number of times the dividend could be taken out of the earnings. For example, if a company has earnings (profits) of R50 000 and pays out a dividend of R5 000 then the dividend cover is 10 times. If a dividend of R20 000 is paid then the dividend is covered only 2,5 times.
  • DIVIDEND EQUALISATION RESERVE
    A distributable reserve which is specifically set up to ensure that dividends remain stable despite changes in earnings. If a company normally pays a dividend of 10 cents per share, the directors might establish a dividend equalisation reserve so that this dividend level is protected in unprofitable years.
  • DIVIDEND POLICY
    Most of the larger listed blue chip companies pay two dividends each financial year – an interim and final. They also usually have a dividend policy – which means that they pay out a set percentage of their headline earnings per share – like 30% or 50%. Obviously, profits which are not paid out as dividends are retained to bolster the company’s cash flow or to help it grow. The directors make a decision about the dividend, once they have seen the financial results. Some companies pay out all or even more than all their profits in dividends, while others (typically growth companies) prefer to pay no dividend and keep the cash to help with the future growth.
  • DIVIDEND REINVESTMENT PLAN
    A program offered by a publicly held company in which dividends are used to buy more shares of the company. This process reduces the number of shares in issue since the shares which are bought back are then destroyed. The result is that the remaining shareholders have a greater percentage of the company – but this obviously reduces the returns as the company’s value is reduced by the amount which they spent to buy the shares.
  • DIVIDEND WITHHOLDING TAX
    A 20% tax (as per the 2017 budget speech) on dividends paid by all South African taxpayers, but withheld by the company paying the dividend. DWT obviously reduces the returns which you will get from your share investments – but is in line with international best practice.
  • DIVIDEND YIELD
    Dividends per share expressed as a percentage of the current market price. For example, if a company pays a dividend of R10 000 and it has 10 000 ordinary shares in issue (sold to the public) then the dividend per share will be 100 cents. If the current market price is 2 000 cents per share, then the dividend yield will be 5%. This shows that if you bought the share at its current price, and it continued to pay the same dividend you would receive a 5% return per annum.
  • DIVIDENDS PER SHARE
    A company’s ordinary dividend divided by the number of ordinary shares in issue, usually expressed as cents per share.
  • DJIA
    Various indices are compiled daily of the prices of securities on the New York Stock Exchange. The industrial average measures changes in the un-weighted arithmetical average of the thirty leading industrial shares. There are similar indices for utilities, transportation, composite and bond averages.
  • DOJI
    A candlestick charting term which describes a trading session in which the opening price and closing price for a share are the same (or almost the same). Different varieties of doji lines (such as a gravestone or long-legged doji) depend on where the opening and close are in relation to the entire range and have different interpretations. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.
  • DOJI STAR
    A Doji Star is a trend reversal pattern which is composed of a long black body followed by a doji (a pattern with the same opening and closing price). It may be recognized because it consists of a long black day followed by a doji where the doji gaps down from the prior black body – and vice versa. [caption id="attachment_5015" align="alignnone" width="80"] Bearish Doji Star[/caption] [caption id="attachment_5016" align="alignnone" width="80"] Bullish Doji Star[/caption]
  • DOT COM
    Technology shares, specifically those which deal with internet based products or telecommunications. From 1997 to 1998, these shares did particularly well during the hype and excitement over the internet. This has become known as the dot-com boom. Following this, in June 1998, the bubble burst and most of these companies disappeared off of the JSE, a period termed the dot-com crash. These shares are usually found on the Nasdaq index on Wall Street. Most of this index is made up of technology shares.
  • DOUBLE BOTTOM
    The price action of a security or market average where it has declined twice to the same approximate level, indicating the existence of a support level and a possibility that the downward trend has ended.
  • DOUBLE SMOOTHING
    Double smoothing in the context of the share market and technical analysis simply means making a moving average of a moving average. This has the effect of smoothing the trend even further. The result is a very smooth, undulating moving average that often avoids sideways markets better than a simple moving average. You should experiment with the different types of moving average and different periods to establish which is best for the share (or other data stream) that you are interested in.
  • DOUBLE TOP
    A price pattern seen on a chart at the top of a trend. The pattern occurs when prices rise to a resistance level on significant volume, retreat to a support level, and subsequently return to the resistance level on decreased volume. Prices then decline and break through the support level, marking the beginning of a new downtrend in the price of the stock.
  • DOUBLE-SMOOTHED
    A price series that has been smoothed by a mathematical technique such as a moving average. This first series of smoothed price data is then smoothed a second time.
  • DOW JONES INDUSTRIAL AVERAGE
    Various indices are compiled daily of the prices of securities on the New York Stock Exchange. The industrial average measures changes in the un-weighted arithmetical average of the thirty leading industrial shares. There are similar indices for utilities, transportation, composite and bond averages.
  • DOW THEORY
    The Dow Theory was the first technical analysis idea to be invented in Western markets (the Japanese invented candlestick charts much earlier). Charles Dow, working in the later 1800’s made an average of the 25 largest industrial shares trading on Wall Street which became known as the Dow Industrial index. To this he added the Dow Transport index, which at the time consisted mainly of railroad stocks. Dow said that a bull trend existed when both the industrial and the transport indexes were rising and making highs and lows which were above their previous highs and lows. The opposite was true for a bear trend.
  • DOWNWARD TREND
    A long downward trend in a share’s price, a sector’s index, the all-market index or other indicator. Bear trends and bull trends are interrupted by periods of sideways movement. Bear trends are generally shorter than bull trends. Consider the following chart of the JSE Overall index: Here you can see the four major bear trends of the past thirty years (since 1985). They were the famous 1987 crash which lasted just six months, the Dot-Com bear trend in 1998, the bear trend which followed the 9/11 attack on the World Trade Center in New York (from 2001 to 2003) and the bear trend which followed the sub-prime crisis of 2007/8.
  • DPS
    A company’s ordinary dividend divided by the number of ordinary shares in issue, usually expressed as cents per share.
  • DRAGONFLY DOJI
    A candlestick charting term used to describe a type of doji which signifies indecision. The dragonfly doji has a long lower shadow with no upper shadow, signifying either bullish or bearish sentiment depending on where it is found in a trend. This means that the open and close for the day occur at the high of the day. If found in a well established trend, this candlestick pattern can signify the end of the trend quite reliably.
  • DRAWDOWN
    The reduction in account equity as a result of a trade or series of trades.
  • DUAL CAPACITY TRADING
    Dual capacity trading was introduced following the deregulation of the JSE in 1995. It means that a stockbroker may act as a principal and as an agent in share dealing activities. In terms of the JSE rules, a broker must disclose to a client who wishes to buy or sell shares whether he is acting as a principal or agent, i.e. Is he purchasing shares for the client from his own account or selling the client shares from the firm's own stock. The broker must disclose whether he is acting as a principal or agent in the deal to prevent conflict of interest. Until 1995, stockbrokers were limited to acting as agents connecting buyers and sellers on the market. This is known as single capacity trading.
  • DUMPLING TOP
    A cycle top on a chart which drifts out and down in a gradual loss of momentum. This is as opposed to a “V” top which is very sharp and sudden. Also called an Umbrella Top, a Frying Pan Top, a Dumpling Top and a Rounded Top. [caption id="attachment_11642" align="alignnone" width="409"] Saucer Top[/caption]
  • DWT
    A 20% tax (as per the 2017 budget speech) on dividends paid by all South African taxpayers, but withheld by the company paying the dividend. DWT obviously reduces the returns which you will get from your share investments – but is in line with international best practice.
  • DY
    Dividends per share expressed as a percentage of the current market price. For example, if a company pays a dividend of R10 000 and it has 10 000 ordinary shares in issue (sold to the public) then the dividend per share will be 100 cents. If the current market price is 2 000 cents per share, then the dividend yield will be 5%. This shows that if you bought the share at its current price, and it continued to pay the same dividend you would receive a 5% return per annum.
  • EARLY ENTRY
    A large price movement in one direction within the first 15 minutes after the open of the daily session.
  • EARNINGS
    The profit of the company after taxation has been deducted. This figure is shown in the income statement and is used for calculating the return on shareholders’ funds. The company tax rate in South Africa in 2016 was 28% of taxable income – calculated as total income less expenses used in the generation of that income.
  • EARNINGS ESTIMATES
    The estimated earnings projected for a company for a fiscal year. Estimating future earnings is an art. It depends on both internal factors within the company such as working capital management, and external factors such as the level of competition, the regulatory environment and technological developments. The future earnings of blue chip shares are constantly estimated by institutional analysts well in advance of their announcement.
  • EARNINGS MULTIPLE
    The market price of a share divided by its most recent average annual earnings per share. This gives the reciprocal of the earnings yield, and is used by some investors to compare shares. The PE ratio, also known as the “earnings multiple”, is not much used in South Africa but is common overseas where the earnings yield is unknown. The P:E gives a good idea of the share's "rating". Highly rated shares are those which have had steadily rising earnings for many years. Investors (especially institutional investors) are willing to pay much more for 100c of their earnings than for the same 100c in earnings from a company whose profits are erratic and unreliable. This means that their share price will be higher in relation to their profits. We say that the earnings are of "good quality".
  • EARNINGS PER SHARE
    A company’s earnings (profit) divided by the number of ordinary shares usually expressed as a number of cents per share.
  • EARNINGS YIELD
    Earnings per share expressed as a percentage of the current market price of the share. For example, a company with 25 cents earnings per share and a market price of 250 cents would have an earnings yield of 10%.
  • EBITDA
    Earnings Before Interest, Taxation, Depreciation and Amortisation. This is a figure used by accountants to assess the performance of a company at the operational level. Because it leaves out interest, it does not take into account the level of indebtedness of the company. It can be a useful tool to compare companies in the same sector.
  • ECB
    The Central Bank for the European Union.
  • ECONOMIES OF SCALE
    Achieving economies of scale is the objective of every manufacturing business, because it substantially reduces costs and increases profitability. There is a distinct advantage to size in manufacturing, because overheads can be spread more effectively over greater production.
  • ECONOMY
    The economy of a country is the aggregate of all economic activity within that country. It is measured in various ways to determine whether it is growing or shrinking. The most commonly used measure is Gross Domestic Product or GDP. This measures the total of all productivity within the economy. Obviously the real growth in the economy can only be established after allowing for inflation. Very productive and efficient economies tend to have strong currencies in relation to the currencies of other countries.  The South African economy is primarily an exporter of raw materials in various forms – thus its strength is largely dependent on the other countries of the world that buy those raw materials.
  • EFFICIENT MARKET THEORY
    The basis of modern portfolio theory, the efficient market hypothesis, maintains that all information is already discounted by the market and reflected in share prices due to market participants acting upon the information. In reality, markets tend to be inefficient because information dissipates slowly through the market and because not all investors act on the information that they receive correctly. Patterns in share prices also arise because of group investor psychology which tends to give a “herd” effect to market movements.
  • ELASTICITY
    The ability to recover an original configuration. The elasticity of demand or supply refers to the degree to which demand or supply responds to changes in price. For example, some products (such as salt or maize meal) are very price sensitive because there is not much room for beneficiation and because the industry is competitive. Other products, like luxury motor cars are relatively insensitive to price changes. The degree of competition within an industry has a major impact on price sensitivity. Monopolies are traditionally price insensitive while highly competitive industries are very price sensitive. Most manufacturers try to give their product an “edge” by stimulating brand awareness because this enables them to add a premium to the price.
  • ELECTRONIC ORDER
    An order placed electronically (without the use of a broker) either via the Internet or an electronic trading system.
  • ELECTRONIC SETTLEMENT
    Settlement of securities transactions on a T+3 rolling contractual settlement cycle through STRATE, the electronic settlement system.
  • ELECTRONIC TRADING HOURS
    The U.S. after-hours markets during the evenings. Futures contracts trading during ETH do so on electronic trade matching platforms such as Globex or A/C/E.
  • ELECTRONIC TRADING SYSTEMS
    Systems that allow participating exchanges to list their products for trading after the close of the exchange's open outcry trading hours (i.e., Chicago Board of Trade's A/C/E, Chicago Mercantile Exchange's GLOBEX and New York Mercantile Exchange's ACCESS.)
  • ELLIOT IMPULSE WAVE
    The strong moves in Elliot Wave theory which move in the direction of the larger degree wave. In Elliot Wave theory there ware two types of waves: impulse and corrective. Impulse waves are the dominant moves in the trend, whereas corrective waves move against the trend. When the trend is moving upwards, the strong moves upwards are impulse waves and the declining waves are corrective. The opposite is true in a downward trend: the waves downward are impulsive and the positive moves upward are corrective.
  • ELLIOTT WAVE THEORY
    A pattern-recognition technique published by Ralph Nelson Elliott in 1939, which holds that the stock market follows a rhythm or pattern of five waves up and three waves down to form a complete cycle of eight waves. The three waves down are referred to as a "correction" of the preceding five waves up. Elliott suggested that this pattern existed in the minute-to-minute trading on Wall Street and also in what became known as the Grand Super-Cycle which is approximately 54 years long. More information is available on www.elliottwave.com
  • EMERGING MARKET
    An economy which is in a development phase – as opposed to a first-world economy which is said to be fully developed. Emerging economies generally enjoy more rapid growth than first world economies, but tend to suffer from greater political and economic instability. The BRICS economies – Brazil, Russia, India, China and South Africa have formed an alliance of emerging markets and established a joint bank to support member countries.
  • EMPHASIS OF MATTER
    An audit opinion which is specifically meant to draw attention to a particular point in the financials. Listed companies which have an emphasis of matter are marked with the letter “E” by the JSE.
  • EMPLOYEE SHARE INCENTIVE SCHEME
    Most listed companies use their shares to motivate their employees through an employee share option scheme. This usually involves the employee getting options to buy a certain quantity of shares (depending on seniority, length of service etc.) at a price which is well below the current market value of the shares. The existence of an employee share option scheme normally means that the number of shares in issue increases each year – which has an impact on per share statistics like NAV or EPS.
  • EMPLOYMENT EQUITY ACT
    This Act is aimed at redressing the wrongs of the Apartheid era and ensuring that employment is not racially based. It does this by trying to ensure that companies above a certain size (with more than 50 employees) employ people in direct proportion to their representation in the population. Designated employers are required to give the Department of Labour a plan by which they intend to achieve employment equity during the next five years. There are obviously complications with this since some areas have different numbers of black, coloured, Indian and white people – like the Western Cape.
  • ENCUMBERED
    The word “encumbered” is applied to assets which are bonded or otherwise used as security to cover a loan.
  • ENDOWMENT
    An endowment insurance policy is a type of savings/investment. A pure endowment offers no risk or term insurance. The problem with these policies is that they generally give a very low return and are difficult to get out of. Insurance companies usually add a term element to obscure the true return on the investment element. We do not advise the purchase of these policies.
  • ENGULFING GREEN
    A bottom candlestick reversal signal, this is a two candlestick pattern consisting of a large green candle enveloping a preceding red candle. This pattern implies that the trend is likely to change from bearish to bullish and is only valid if found at the bottom of a trend. In order for the pattern to be valid, the opening price of the green candle must be at or below that of the red candle, and the closing price must be at or above that of the red candle. This reversal signal is stronger if there are no shadows on either candle and also if the green candle engulfs the previous two candles. [caption id="attachment_10362" align="alignnone" width="200"] Bullish Engulfing Pattern[/caption]
  • ENGULFING PATTERN
    In candlestick terminology, a multiple candlestick line pattern; a major reversal signal with two opposing-color real bodies making up the pattern (also referred to as a tsutsumi). An engulfing pattern is either bullish or bearish, and is usually very easy to identify. The bullish engulfing pattern consists of a green candle engulfing its preceding red candle. The bearish engulfing pattern is the opposite to this, presenting a red candle engulfing it's preceding green candle. The pattern is found to be more accurate and reliable when the engulfing candle's high and low engulfs the previous candle's high and low.    
  • ENTREPRENEUR
    This is a “go-getter” who establishes and runs a business for his own account and shares in the risks and profits.
  • ENTRY
    The point at which a trader gets into a position in the market.
  • ENVELOPE
    Lines surrounding an index or indicator - that is, trading bands.
  • EPS
    A company’s earnings (profit) divided by the number of ordinary shares usually expressed as a number of cents per share.
  • EQUILIBRIUM MARKET
    A price region that represents a balance between demand and supply.
  • EQUITY
    That portion of share capital which carries risk, and shares in profits through dividends that are dependent on profitability. Ordinary shares are often called equity shares, and other types of shares which carry less risk, such as convertible or participating preference shares are known as "near-equity". Equity is the share capital and reserves of the company- which is the same as its net assets (net of liabilities). You should be careful because in many instances the book value of assets such as stock and real estate is very different from the market value.
  • EQUITY ACCOUNTING
    When a company owns more than 20% of another company, then in terms of IAS 28, that company is an associate company and it must be valued at its cost plus any increase in net asset value. Investments of more than 50% must be consolidated, while those less than 20% are shown at their market value or a directors’ valuation.
  • EQUITY INVESTOR
    A natural person (rather than a corporate entity) who invests on the stock market. Private investors make up only about 10% of the trades done on the JSE. The other 90% are done by big institutions like pension funds, insurance companies and unit trusts. This means that the approach of big institutions and their fund managers is of great interest to private investors.
  • EQUITY SHARE
    Also sometimes called “equity” shares, these are fixed shares, which share in the profits and risks of the company. Unlike the fixed dividend paid to preference shareholders, the ordinary dividend is decided by the directors, and is dependent on the company’s profits. If the company is liquidated, the ordinary shareholders share out the proceeds after the creditors and preferential shareholders have been paid out. For these reasons, ordinary share prices tend to be far more volatile than preference shares, giving opportunities for capital gains. Most of the shares published in the newspaper are ordinary shares.
  • EQUIVOLUME CHART
    Created by Richard W. Arms in 1963, a chart in which the vertical axis is the high-low range for each day, while the horizontal axis represents the volume of shares of stock or the number of contracts traded for the day. The purpose of the chart is to highlight the relationship between price and volume.
  • ESTIMATED EPS CHANGE
    Change in estimated mean earnings per share for the current fiscal year from the last month, last three months and last six months to the current month.
  • ETF
    Collections of stocks that are bought and sold as a package on an exchange. Essentially, buying an ETF means tracking a group or "basket" of shares, bonds or commodities, also referred to as an index. Bought in exactly the same way as an ordinary share, ETFs allow the investor to invest in a variety of securities, spreading risk and saving time. ETFs are a great way to start out in the market as they allow the investor to gain exposure to a wide range of sectors, asset classes, bonds, commodities and equity shares. There are roughly 57 ETFs listed on the JSE at any time, which the ShareFriend and PDSnet Online software supply data for.
  • ETN
    A debt security traded on a stock exchange. An exchange trade note (ETN) is similar to an exchange traded fund (ETF) in that they both track underlying assets and both are traded on a stock exchange just like any listed share. The difference between an ETN and an ETF is that an ETF is a listed investment product which holds the assets it tracks, such as shares, gold, futures contracts or commodities. An ETN is an unsecured debt security which is underwritten by an institution such as a bank. It is therefore much more risky, because if the underwriter gets downgraded the ETN will lose value, and if the underwriter goes bankrupt, the investor could risk a total default. ETNs track the performance of an asset, but do not hold the asset which they track. Their value is linked to the credit rating of their issuer. When an ETN matures, fees are deducted and then cash is paid out to investors based on the performance of the index followed.
  • EURODOLLAR
    Dollars deposited in foreign banks, with the futures contract reflecting the rates offered between London branches of top US banks and foreign banks.
  • EUROPEAN CENTRAL BANK
    The Central Bank for the European Union.
  • EUROPEAN UNION (EU)
    The principal goal of the EU has been to establish a single European currency called the Euro, to officially replace the national currencies of the member EU countries. On January 1, 1999, the transitional phase to introduce the Euro began, and as of July 1, 2002, only Euros became the legal tender for EU participants, and the national currencies of the member countries ceased to exist.
  • EUROSTOXX
    The Eurostoxx 50 index is an index (weighted average) of the 50 largest and most liquid stocks trading in the Eurozone. It is just one of the indexes offered by Stoxx – which is owned by the Deutsche Borse group.
  • EVENING STAR
    A candlestick formation which is the bearish counterpart of the morning star pattern; a top reversal, it should be acted on if it arises after an uptrend. The morning star and evening star formations do not refer to individual candlesticks, but rather to the position of the candles at the end of the trend, which can be either upward or downward. The evening star, symbolising the beginning of nightfall, suggests that a downward trend is about to start. Any candle formation can be found in an evening star position.
  • EX-DIV
    A share is “ex div” once the last day to trade has passed. Any sales after the last day to trade are done on the basis that the dividend accrues to the buyer, even if it has not yet been actually paid out.
  • EX-DIVIDEND DATE
    The day on which the right to receive a current dividend is not automatically transferred to a buyer. This is usually the Monday after the last day to register for the dividend. On this day the share price should fall by exactly the amount of the dividend since buyers on this day do not get the dividend.
  • EXCHANGE RATE
    An exchange rate is the rate at which one currency can be traded for another. Thus, for example, the rand trades against the US dollar at rates which fluctuate throughout the day. The same is true for many other currencies which trade against the rand and each other. These exchange rates are known as currency crosses and their charts can be seen in your software.
  • EXCHANGE TRADED FUNDS
    Collections of stocks that are bought and sold as a package on an exchange. Essentially, buying an ETF means tracking a group or "basket" of shares, bonds or commodities, also referred to as an index. Bought in exactly the same way as an ordinary share, ETFs allow the investor to invest in a variety of securities, spreading risk and saving time. ETFs are a great way to start out in the market as they allow the investor to gain exposure to a wide range of sectors, asset classes, bonds, commodities and equity shares. There are roughly 57 ETFs listed on the JSE at any time, which the ShareFriend and PDSnet Online software supply data for.
  • EXCHANGE TRADED NOTE
    A debt security traded on a stock exchange. An exchange trade note (ETN) is similar to an exchange traded fund (ETF) in that they both track underlying assets and both are traded on a stock exchange just like any listed share. The difference between an ETN and an ETF is that an ETF is a listed investment product which holds the assets it tracks, such as shares, gold, futures contracts or commodities. An ETN is an unsecured debt security which is underwritten by an institution such as a bank. It is therefore much more risky, because if the underwriter gets downgraded the ETN will lose value, and if the underwriter goes bankrupt, the investor could risk a total default. ETNs track the performance of an asset, but do not hold the asset which they track. Their value is linked to the credit rating of their issuer. When an ETN matures, fees are deducted and then cash is paid out to investors based on the performance of the index followed.
  • EXEMPT SUPPLIES
    South Africa has Value Added Tax of 14% which is levied on all products except  for what are known as “exempt supplies” – which include education, after-care for children, rentals, and certain basic food stuff.
  • EXERCISE
    The process by which the holder of an option makes or receives delivery of shares of the underlying security.
  • EXHAUSTION GAP
    When a share’s price has been falling for some time and is falling quickly, it will sometimes have a day where the highest price is less than the previous day’s lowest price – this shows on the chart as a gap – called an exhaustion gap.
  • EXIT
    The point at which a trader closes out of a trade.
  • EXPANSIONARY POLICY
    A policy of the Reserve Bank’s Monetary Policy Committee (MPC) to stimulate the economy by reducing interest rates and other expansionary monetary policies such as buying back government bonds to inject money into the economy.
  • EXPENSIVE
    A term used by analysts and investors to describe a share which is trading above what they perceive to be its real value. Obviously, this is a value judgement and each analyst and investor will have a different opinion. An expensive share is not necessarily a high-priced share – thus a share trading for R10 can be considerably more “expensive” than another trading for R100. The value of the share is determined by its ability to generate consistently rising dividends over time.
  • EXPIRATION DATE
    Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.
  • EXPONENTIAL MOVING AVERAGE
    An exponential moving average (EMA) is one in which the latest prices in the moving average are weighted much more heavily than the oldest prices. The weighting varies over the period of the moving average exponentially rather than linearly.
  • EXPONENTIAL SMOOTHING
    A mathematical-statistical method of forecasting that assumes future price action is a weighted average of past periods; a mathematic series in which greater weight is given to more recent price action.
  • EXPONENTIAL WEIGHTING
    Moving averages are the most basic form of line chart in technical analysis. They are more commonly used in conjunction with other indicators than as indicators in their own right. One of the major criticisms of moving average is that they assign the same weight to the most recent share price as to the oldest share price in the average. Technicians argue that older prices should be assigned less weight than the most recent prices. To achieve this they have developed a range of weighting mechanisms. Exponential weighting means that as you move forward to the most recent prices, they are accorded an exponentially greater weight in the moving average – and vice versa. The following example includes both 65-day exponential (black) and a simple (red) moving averages to enable you to see the differences: [caption id="attachment_11956" align="alignnone" width="435"] Exponential Weighting[/caption] What you will notice is that the exponential moving average tends to follow the share’s price more closely than the simple (i.e. unweighted). This means that the exponential will tend to give more signals earlier – which, of course, means that it will be more whip-lashed.
  • EXPORT LED
    A term used by economists to explain the fact that economic booms in South Africa are generally caused by a strong recovery in commodity exports and prices. This is because South Africa is primarily an exporter of raw materials – like gold, platinum, coal, chrome, iron and other minerals. When world-wide demand for these raw materials increases, our mining companies make bigger profits and expand, employing more people – which, in turn, stimulates the retail sector and so on.
  • EXPOSURE
    The degree to which a portfolio or other investment is susceptible to risk from certain factors. For example, a share in a company whose main business is importing would be highly “exposed” to the Rand/Dollar exchange rate.
  • EXPROPRIATION OF LAND
    The compulsory taking over of land by the government of a country. In most capitalist countries the right of citizens to own land is protected by the constitution. There are certain exceptions. For example, if the government wants to build a road through your land, it can ”expropriate” which means forcing you to sell it for a market-related valuation. If you did not like that valuation, you would have recourse to the courts. In South Africa, many pieces of land are seen as having been unfairly taken away from black people and the government is intent on expropriating those areas and returning them to their original owners in order to redress the wrongs of the past. This process has been achieved by the government buying the land back at market-related rates. The problem is that the government cannot afford to buy more than a very small amount of land each year, which means that there is a lengthy backlog of properties which are being considered for expropriation. Some political parties have called for the law to be changed so that the government can expropriate land without paying any compensation at all – but this would require a change to the constitution and that would need a two-thirds majority in parliament. Much of the productive agricultural land which has been expropriated in South Africa has been handed over to inexperienced and under-capitalised farmers resulting in it not being efficiently used for food production. This threatens the food security of the country.
  • EXTRAORDINARY ITEM
    An Income Statement item which shows an expense or income which is not part of the company’s normal business. For example, if a supermarket chain sells a piece of land and makes a profit, then that profit is not a normal part of its business and so in terms of the Companies Act and GAAP, that profit must be shown as an “extraordinary Item” usually on the face of the income statement or by way of a note.
  • EY
    Earnings per share expressed as a percentage of the current market price of the share. For example, a company with 25 cents earnings per share and a market price of 250 cents would have an earnings yield of 10%.
  • FACE OF THE ACCOUNTS
    The actual income statement and balance sheet – as opposed to the notes to those accounts. Certain information is always shown on the face of the accounts – like fixed assets or turnover – while other information like depreciation on those fixed assets is usually shown by way of a note to the accounts.
  • FACE VALUE
    The dollar value of a U.S. Treasury Bill at maturity. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date.
  • FADE
    Selling a rising price or buying a falling price. A trader fading an up opening would be short, for example.
  • FAILED TRADE
    With the advent of dematerialisation and the guarantees provided by most organised exchanges, failed trades where one of the parties to a trade fails to honour his/her side of the trade are almost unheard of. The JSE has not recorded a failed trade since it moved over to electronic securities trading.
  • FAILURE
    In Elliott wave theory, a five-wave pattern of movement in which the fifth impulse wave fails to move above the end of the third, or in which the fifth wave does not contain the five subwaves.
  • FAILURE SWINGS
    The inability of price to reaffirm a new high in an uptrend or a new low in a downtrend.
  • FAIR VALUES
    The theoretical prices generated by an option pricing model (i.e. the Black-Scholes option pricing model).
  • FAIS
    This Act (37 of 2002) tries to protect the public from financial advisors and those who sell financial/investment products. It substantially increases the accountability and disclosure of financial advisors and protects the public against bad advice and unfair practices. Financial advisors are required to obtain a license to practice and to register with the Financial Services Board - which means that they have to be "fit and proper" and have minimum qualifications. People with criminal records are precluded.
  • FALLING THREE METHODS
    A candlestick formation which occurs in an established bear trend and which is used to predict the continuation of that trend. This formation begins with a long red candle within a downtrend. Following this is a series of small ascending green candles and finally a very long red candle which reaches a new low in the trend. This formation is significant because is shows the failure of the bulls to drive prices upward and change the trend. Also called a bearish flag. [caption id="attachment_11417" align="alignnone" width="250"] Falling Three Methods[/caption]
  • FAST MARKET
    A declaration that market conditions in the futures pit are so disorderly temporarily to the extent that floor brokers are not held responsible for the execution of orders.
  • FDI
    All investment into South Africa by foreigners. FDI is a very important factor in the South African economy. We have some tremendous successes and some dismal failures. The successes include our efforts in the motor industry and our failures are in the mining industry. The more capital that flows into South Africa the stronger the economy becomes and the more jobs are created.
  • FEDERAL DEPOSIT INSURANCE CORPORATION
    A self-sustaining, independent executive agency established to insure deposits of all US banks entitled to federal deposit insurance, as stated by the Federal Reserve Act.
  • FEDERAL OPEN MARKET COMMITTEE
    The policy making committee of the Federal Reserve Bank. They meet on a regular basis, every other Monday to make decisions on US economic policy. These meetings are open to the public. Specifically they decide whether to increase interest rates, decrease them or leave them unchanged. These decisions are much anticipated on Wall Street where rising interest rates are seen as bad for shares leading to falling profits and share prices – and vice versa.
  • FEDERAL RESERVE BANK
    The governing central bank of the US. There are twelve regional federal reserve banks in America, located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas and San Francisco.
  • FIA
    The US national trade association for Futures Commission Merchants. The FIA is the only association representative of all organisations that have an interest in the futures market in the US. FIA has more than 180 corporate members, reaching thousands of industry participants. Regular Members are futures commission merchants. Regular members are responsible for more than 80% of the customer business transacted on U.S. futures exchanges. Through these members the FIA represent the needs of futures industry customers. Members include the top 20 firms in terms of customer equity. Associate Members include international exchanges, banks, legal and accounting firms, introducing brokers, commodity trading advisors, commodity pool operators and other market users, and information and equipment providers headquartered in the U.S.A. and abroad.
  • FIAT CURRENCY
    All currencies were originally commodity currencies – which means that they had the value inherent in the commodity which they were made of. Thus, a gold coin was worth the value of its gold content and so on. A fiat currency has value only because of a government fiat or decree. It is usually made of paper which, without that government fiat, would be worth nothing. It is worth its face value because the government says it is and because everyone accepts that.
  • FIBONACCI RATIO
    The ratio between any two successive numbers in the Fibonacci sequence, known as phi (f). The ratio of any number to the next higher number is approximately 0.618 (known as the Golden Mean or Golden Ratio), and to the lower number approximately 1.618 (the inverse of the Golden Mean), after the first four numbers of the series. The three important ratios the series provides are 0.618, 1.0 and 1.618. The ratio underlies many natural phenomena such as the number of seeds on a sunflower and the spiral of the galaxy.
  • FIBONACCI SEQUENCE
    The sequence of numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...), discovered by the Italian mathematician Leonardo de Pisa in the 13th century and the mathematical basis of the Elliott wave theory, where the first two terms of the sequence are 0 and 1 and each successive number in the sequence is the sum of the previous two numbers. Technically, it is a sequence and not a series.
  • FIFO
    The “first in first out” method of valuing stocks. The assumption is made that the oldest stock is sold first when valuating what remains at the end of the accounting period.
  • FILL
    An executed order; sometimes the term refers to the price at which an order is executed.
  • FILL OR KILL
    (FK) means the full order must be executed immediately or otherwise cancelled.
  • FILL ORDER
    An order that must be filled immediately (or cancelled).
  • FILTER
    A device or program that separates data, signal or information in accordance with specified criteria. So a charting program typically contains a filter of some sort which allows the user to search for specific shares which conform to criteria which he or she has set.
  • FILTER POINT
    The time at which a portfolio insurance program makes an adjusting trade.
  • FINAL DIVIDEND
    The dividend paid when the directors know what the final profit for the year will be. Added to the interim dividend, this gives the total dividend for the year.
  • FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT
    This Act (37 of 2002) tries to protect the public from financial advisors and those who sell financial/investment products. It substantially increases the accountability and disclosure of financial advisors and protects the public against bad advice and unfair practices. Financial advisors are required to obtain a license to practice and to register with the Financial Services Board - which means that they have to be "fit and proper" and have minimum qualifications. People with criminal records are precluded.
  • FINANCIAL DIRECTOR
    One of the directors of a company who is responsible for the company’s finances. The Companies Act makes no distinction between the various directors of a company – they all have the same responsibilities and obligations. However, directors have an employment contract with the company which specifies their duties. The financial director is responsible for producing the financial statements of the company and for ensuring that it can meet its financial commitments – like passing a solvency and liquidity test before paying a dividend.
  • FINANCIAL INDEPENDENCE
    The first level of financial independence is defined as: The point at which your income from your investments is equal to or exceeds your income from your salary. It is only at that point that you begin to become independent of the need to work for a living. If you can save 10% of your gross monthly salary and invest it at a return of 30% per annum or more, you will achieve the first level of financial independence in less than ten years. To make these calculations for yourself, go to our Financial Freedom Calculator at: http://www.pdsnet.co.za/index.php/financial-freedom-calculator/
  • FINANCIAL INSTITUTION
    A financial institution is one which makes its profits by dealing with other people’s money. Perhaps the best example is a commercial bank, but there are many other types – like insurance companies and various asset managers. Normally they have to comply with a special Act of Parliament – like the Banks Act or the Insurance Act. Mostly these financial institutions invest funds for ordinary people who are saving for their retirement. They gather small amounts of money from hundreds of thousands or even millions of individuals every month and then pool that into great lump sums which they place on the JSE and in other markets. In South Africa there are basically three types of institutional fund managers – pension funds, insurance companies and unit trusts. Together the institutions account for about 90% of all the trades done on the JSE. Private investors make up the other 10%.
  • FINANCIAL MARKETS ACT
    This Act which came into force in the middle of 2014 brings our legislation into line with international norms. Its objective is to tighten up control over the financial markets and it aligns the law with the Consumer Protection Act and closes various loopholes in the sale of shares in unlisted public companies, which were previously the mechanism through which most financial scams in South Africa were perpetrated. The Act replaced the Securities Services Act.
  • FINANCIAL SERVICES BOARD
    The Financial Services Board is a unique independent institution established by statute (The Financial Services Board Act 97 of 1990) to oversee the South African Non-Banking Financial Services Industry in the public interest. The FSB is involved in monitoring asset management in all its forms and is inter alia responsible for the administration and enforcement of the Collective Investment Schemes Control Act, The Financial Services Board Act and the Financial Advisory and Intermediaries Services Act.
  • FINANCIAL SERVICES CHARTER
    The major sectors of the South African economy are governed by sets of rules known as charters which establish specific objectives for Broad-based Black Economic Empowerment (BBBEE) in terms of the BBBEE Act 53 of 2003. Section 12 of that Act established the Financial Sector Charter which applies to banks, insurance companies, retirement pensions and collective investment schemes brokerage and financial intermediation, investment management and underwriting. It was the result of negotiations between National Economic and Development Council (NEDLAC) and the financial services sector. The charter establishes codes to ensure a move towards the inclusion of previously disadvantaged people through ownership of equity in corporations in the financial services sector, employment in that sector and access to finance from that sector. Essentially, like all attempts to legislate to redress the wrongs of the apartheid system, this charter constitutes an interference in the operation of the free capitalist system in the hope that greater inclusion will ultimately result in a more equitable and even a more productive society. All JSE-listed companies in the financial services sector are subject to its requirements.
  • FINANCIAL SERVICES PROVIDER
    The Financial Advisory and Intermediary Act provides for the registration of persons (natural or corporate) to give investment advice to investors. The Act requires that such persons are people of integrity and competence with the correct knowledge and experience to give proper advice. Obviously, these FSPs charge for their advice. In our view you are far better off learning how to make your own share selections and timing decisions than relying on anyone else’s advice (registered or not).
  • FINANCIAL STATEMENTS
    Sometimes known as an Annual Report, this is a document required by the Companies Act to be produced once a year for presentation to the Annual General Meeting. These statements must consist of a balance sheet, income statement, directors’ report and auditors’ report in terms of section 29 of the Act. These must be prepared in accordance with Generally Accepted Accounting Practices (GAAP), and must fairly present the state of the company and its profit or loss for the year.
  • FINANCIAL TIMES INDUSTRIAL INDEX
    A share price index calculated hourly during business hours from an unweighted average of thirty leading blue chips listed on the London Stock Exchange. Until recently this index was the best known barometer for the stock market but this has now been superseded by the Financial Times Share E 100 Share Index (FTSE 100).
  • FINANCIAL YEAR
    The period of time over which the financial affairs of a company are being accounted for. The matching principle ensures that the incomes for the accounting period are off-set against the expenses for the same period in order to arrive at the profit or loss. The balance sheet shows the asset and liability position at the end of the accounting period. In terms of the Companies Act, companies are required to have an annual accounting period, but this may vary (i.e. be more or less than 12 months) if they have elected to change their financial year-end – usually because they have been the subject of a take-over and wish to align their financial year-end with that of their new parent company.
  • FINANCIAL YEAR-END
    In terms of section 27 of the Companies Act (71 of 2008), every company is required to have a financial year-end which is the end of its accounting period. By paying a fee and lodging the prescribed form with the Companies and Intellectual Properties Commission, a company can change its financial year to six months earlier or later. Usually this is done after a merger or takeover so that the accounting periods of the two companies coincide.
  • FIRST NOTICE DAY
    The first day on which notice of intent to deliver a commodity in fulfilment of an expiring futures contract can be given to the clearinghouse by a seller and assigned by the clearinghouse to a buyer. Varies from contract to contract.
  • FIRST WORLD ECONOMY
    These are the larger and better established economies that have substantial capital bases and a long track record of effective management. Their currencies are generally far more stable than those of emerging economies and their level of interest rates is lower. This is because they are seen as having less risk than emerging economies.
  • FIRST-IN-FIRST-OUT
    This is a method of valuing stock which assumes that the oldest stock in the warehouse is used before the more recently purchased stock. Since the price of stock purchased will usually go up because of inflation through the year, the method chosen to value stock can have a significant impact on the company’s cost of sales and hence on its profit. You should carefully examine the note on financial policies in the financial statements to see whether the method of valuing stock has changed during the financial year.
  • FISCAL POLICY
    Every government spends money and levies taxes to finance its expenditure. Every government must therefore regularly decide how much to spend, what to spend it on and how to finance its expenditure. It must therefore have a policy in respect of the level and composition of government spending and taxation. This is called fiscal policy . The main instrument of fiscal policy is the budget, presented annually by the Minister of finance to Parliament. In the budget the Minister outlines government's spending plans for the financial year, which runs from 1 April of the current year to 31 March of the following year, and also outlines how government proposes to finance its expenditure (through taxes, loans etc.).
  • FISCUS
    This is another term for the national treasury which controls the finances of the country. The national treasury is part of the Ministry of Finance and it is instrumental in producing the budget and determining the level of taxes and government expenditure. These “fiscal policies” can have a major impact on the economy and also on listed companies.
  • FITCH
    One of the three internationally recognised rating agencies (along with Standard and Poors and Moodys). Ratings agencies rate governments, companies and para-statals – anyone who issues and sells debt instruments which are traded in organised exchanges around the world. Their ratings are important because they impact on the interest that will have to be paid when borrowing money.
  • FIXED ASSET
    An asset which is expected to last and be useful for a number of years, and which is held for use in the production or supply of goods or services, for rental to others or for administrative purposes. Such assets are depreciated over their expected lives. Examples are land and buildings, vehicles, furniture and fittings, office equipment, plant and machinery, etc.
  • FIXED COSTS
    These are costs which a company has to pay whether or not they sell anything. So expenses like rent, telephone, salaries and so on. This is as opposed to “variable costs” which go up and down with sales – like sales commissions and the cost of sales.
  • FIXED INCOME
    These are investments which give a set return, such as preference shares, bonds, debentures and savings accounts.
  • FLASH FILL
    Order filled immediately by hand signal on an “open outcry” trading floor.
  • FLEDGLING INDEX
    Consisting of ordinary shares which comply with all listing requirements, but are too small to be included in the All Share Index and which are not tested for liquidity.  There are five JSE indices – the All Share Index, the Top 40 Index (the 40 largest companies on the JSE), the Mid-Cap Index (which consists of the next 60 listed companies by free-float market capitalisation), the Small Cap Index (which is all shares not in the top 40 or the mid-cap) and the Fledging Index (the smallest 1% of listed shares excluding free float).  Most of the fledging shares are included in the Alt-X, which is a market for small to medium companies in the growth phase and has less stringent listing requirements.
  • FLIGHT TO QUALITY
    The movements of capital in the international investment world are dominated by the perceptions of large investors about the level of risk or the lack of it in the world economy. Thus, when the perception of risk is high (known as “risk-off”), there can be a “flight to quality” as these international investors quickly move their money to safe havens like the US Treasury Bills or even gold. On the other hand when they feel safer (“Risk-on”) they move their money out of safe havens and into investments which offer a better return. For this reason, South Africa benefits from a risk-on perception because some of that money finds its way to our high-risk, high-return bonds and equities – and vice versa.
  • FLOAT
    The number of shares currently available for trading.
  • FLOOR BROKER
    An individual who executes orders on the trading floor of an “open outcry” exchange for any other person. They are independent members of the various futures exchanges who typically handle customer orders for a number of brokerage companies.
  • FLOOR TRADER
    An individual who is a member of an exchange and trades for his own account on the floor of the exchange.
  • FLOW OF FUNDS STATEMENT
    In terms of the Companies Act (71 of 2008), a company must include a consolidated cash flow statement with its annual financial statements. The cash flow statement showing cash generated by operations; investment income; changes in the non-cash components of working capital; cash effects of finance costs and taxation; cash effects of dividends paid; cash effects of investing activities; and cash effects of financing activities.
  • FLYERS
    Speculative or high-risk trades.
  • FORECAST ORIGIN
    The most recent historical period for which data is used to build a forecasting model. The next time period is the first forecast period.
  • FOREIGN DIRECT INVESTMENT
    All investment into South Africa by foreigners. FDI is a very important factor in the South African economy. We have some tremendous successes and some dismal failures. The successes include our efforts in the motor industry and our failures are in the mining industry. The more capital that flows into South Africa the stronger the economy becomes and the more jobs are created.
  • FOREIGN EXCHANGE
    The foreign exchange market. This is the cash or “spot” market for foreign currencies. Trade does not occur on centralized contract markets but rather, over-the-counter in an international network of dealers. Often abbreviated to “forex”. Forex is part of the country’s reserves. The other part is gold. Together they make up total reserves and according to IMF recommendations, this should not be less than 3 months worth of national exports.
  • FOREIGN RESERVES
    A reserve of precious metals and foreign currencies kept by the Reserve Bank.
  • FOREX
    The foreign exchange market. This is the cash or “spot” market for foreign currencies. Trade does not occur on centralized contract markets but rather, over-the-counter in an international network of dealers. Often abbreviated to “forex”. Forex is part of the country’s reserves. The other part is gold. Together they make up total reserves and according to IMF recommendations, this should not be less than 3 months worth of national exports.
  • FORMATION
    The discipline of “technical analysis” or “charting” as it is sometimes called consists of studying chart patterns with a view to establishing patterns that can be used to improve prediction of future price movements. This subject can be broken into three areas: Formations Line Charts Wave and cycle theories There are many different types of formations which occur commonly in financial charts. For example, double tops and double bottoms usually signal a change in the direction of the trend. The head-and-shoulders formation and its opposite, the reverse head-and-shoulders formation usually indicate respectively a protracted downward or upward move. To get a clearer understanding of the various formations and how to interpret them you should refer to Lecture Module 20.
  • FORMATION ANALYSIS
    The study of technical analysis can be divided into three primary areas – Formation Analysis, Line charts and Wave and Cycle Theories. Formation analysis is the study of the various patterns which come up again and again in charts. These patterns are well-known to investors who use charts. Most formations are patterns which come up between support and resistance lines or in temporary sideways markets. Examples include double tops and bottoms, head-and-shoulders, cup-and-lip, flags, pennants, triangles and many others. As a private investor you need to familiarise yourself with the various formations and how to interpret them.
  • FORWARD (CASH) CONTRACT
    A contract which requires a seller to agree to deliver a specified cash commodity to a buyer sometime in the future. All terms of the contract are customised, in contrast to futures contracts whose terms are standardised. Forward contracts are not traded on exchanges.
  • FORWARD BOOK
    An account in the derivatives market that the Reserve Bank maintains to execute transactions in the currency market. There is always a temptation for the Reserve Bank to try to protect the rand when it is falling against international currency speculators. The problem with this is that if the deficit on the forward book gets too large it can itself undermine the currency.
  • FRAMING OR FRAME DEPENDENCE
    Behavioural finance. The tendency to evaluate current decisions within the framework in which they have been presented. Making decisions based on perceptions of risk/return rather than pure risk and return. The usual example is categorisation of where money comes from and what it is "assigned" to instead of recognising its fungibility. The alternative is to speak of frame independence, wherein behaviour is not influenced by how the decision is framed. Examples are loss aversion, hedonic editing, loss of self-control, regret, and money illusion.
  • FREE DEALING
    A term used to describe listed shares which trade in large volumes regularly and can be bought or sold freely on the Securities Exchange. You should be careful of shares which are "tightly held" because you may have trouble finding a buyer or seller, and in particular you should not short-sell them as you will have difficulty covering your position.
  • FREE FLOAT
    The proportion of a company’s shares which are held by the public at large. This excludes shares which are part of a lock-in or which are destined for the company’s employee share option scheme. It can also exclude the founder or founder’s family holdings. The FTSE/JSE indexes take into account only the free float of a share.
  • FREE FLOAT MARKET CAPITALISATION
    The free float of a company’s shares multiplied by their current market price. Also known as the free float market cap. This is used in the construction of JSE indices. The whole idea of free float is to focus on those shares that are available to be traded in the market.
  • FRONT MONTH
    The first expiration month in a series of expiration months. Futures contracts typically expire at the end of March, June, September and December.
  • FRONT-LOADED
    Commission and fees taken out of investment capital by an asset manager before the balance of the money is put to work.
  • FRONT-RUNNING
    The practice of trading ahead of large orders to take advantage of favourable price movements. Brokers are prohibited from this practice.
  • FRYING PAN BOTTOM
    This is the name that technicians give to the bottom formation of a share price where it drifts out slowly from a strong downward trend and then begins to tentatively move upwards into a new bullish trend. Consider the following example: [caption id="attachment_11952" align="alignnone" width="440"] Saucer Bottom Formation[/caption] Here you can see that this share had a sharp fall which then became a sideways movement and finally a new upward trend. The saucer was about a month long before the new upward trend began. Also called an Umbrella Bottom and a Frying Pan Bottom.
  • FRYING PAN TOP
    A cycle top on a chart which drifts out and down in a gradual loss of momentum. This is as opposed to a “V” top which is very sharp and sudden. Also called an Umbrella Top, a Frying Pan Top, a Dumpling Top and a Rounded Top. [caption id="attachment_11642" align="alignnone" width="409"] Saucer Top[/caption]
  • FSP
    The Financial Advisory and Intermediary Act provides for the registration of persons (natural or corporate) to give investment advice to investors. The Act requires that such persons are people of integrity and competence with the correct knowledge and experience to give proper advice. Obviously, these FSPs charge for their advice. In our view you are far better off learning how to make your own share selections and timing decisions than relying on anyone else’s advice (registered or not).
  • FTSE
    A group of indices which are developed and maintained by the JSE and the FTSE working together. These indices incorporate the free float of the securities which make them up. Thus only shares which are free-dealing will have a major impact on the index.The FTSE/JSE indices are used as an indicator of the performance of a sector on a continuous basis. It is a statistically representative group of shares to which a starting value of 100 was initially ascribed. Since the inception of the index it has measured rises and falls in the capital values of the shares represented by the index. There are indices for every sector of the JSE as well as overall indices for the total market or major segments, e.g. financial and industrial.
  • FTSE/JSE INDICES
    A group of indices which are developed and maintained by the JSE and the FTSE working together. These indices incorporate the free float of the securities which make them up. Thus only shares which are free-dealing will have a major impact on the index.The FTSE/JSE indices are used as an indicator of the performance of a sector on a continuous basis. It is a statistically representative group of shares to which a starting value of 100 was initially ascribed. Since the inception of the index it has measured rises and falls in the capital values of the shares represented by the index. There are indices for every sector of the JSE as well as overall indices for the total market or major segments, e.g. financial and industrial.
  • fully geared
    The relationship of a company's borrowings or debt to ordinary shareholders' funds. A company can obtain the finance it needs to conduct its operations from two sources: by the issuing of its ordinary shares and by borrowing from third parties. The ratio of the one to the other determines the company's gearing. This ratio is also sometimes called the debt/equity ratio. We say that a company is "highly geared" if the borrowings from external sources exceed the shareholders' capital by an excessive amount. A company is "fully geared" if no further credit can be obtained.
  • FUND MANAGER
    The JSE is dominated by institutional investments which account for as much as 90% of all trades. These institutions are pension funds, insurance companies and unit trusts. The funds which they gather from the public are managed by fund managers – who are normally highly paid and highly qualified individuals.
  • FUNDAMENTAL ANALYSIS
    The study of all factors which will impact the profitability of a company. Typically, the fundamental analyst is asking the question, “How good will this company be as a generator of dividends in the future?” To answer this question he must examine the financial statements of the company, its management, its industry, its markets and many other factors. Fundamentalists spend a great deal of time looking at the balance sheet and income statement, but these documents are always historical - they show you what has happened rather than what is going to happen. The analysis of management usually requires a visit to the company to see first-hand the style and dynamism of its leaders.
  • FUNDAMENTALIST
    A person who uses fundamental analysis, (rather than technical analysis) to select shares and time their transactions in the stock market. Fundamentalists are concerned with establishing the “real” value of a share as precisely as they can by forecasting its probable future flow of dividends and then discounting the result into a present value for the share today. Obviously, the result remains subjective because fundamentalists differ in their predictions of future earnings and also in the rate at which they discount their predicted dividend flow. In practice, only large institutional investors engage in this type of analysis. As a private investor it is useful to study the company’s financials and try to estimate what you think their next earnings and dividend are likely to be.
  • FUNDAMENTALS
    All factors which will tend to influence the future profits of a company. The most important of these is its past profitability – which is best discovered by a careful examination of the past annual financial statements. Other factors include the industry which it is in, including its competitors, the regulatory environment, technical developments, unionisation and so on.
  • FUNGIBLE INSTRUMENT
    Fungible instruments are securities which can be easily traded because they are homogenous (i.e. all the same). Organised exchanges deal in and guarantee trades in fungible instruments. Instruments which are traded over-the-counter (OTC) are non-fungible.
  • FUTURE VOLATILITY
    A prediction of what volatility may be like in the future. The volatility of a share’s price is determined by the degree to which it departs from its average. Obviously a straight line is the easiest chart to predict and the degree to which a share’s price chart departs from this determines how volatile it is. Thus, from a technical perspective, volatility, predictability and risk are synonymous.
  • FUTURES CONTRACT
    A legally binding, standardised agreement to buy or sell a commodity or financial instrument at a future date. Futures contracts are standardised according to the quality, quantity and delivery time and location for each commodity. The only variable is price. The standardisation of futures contracts enables them to be traded on an exchange.
  • FUTURES INDUSTRY ASSOCIATION
    The US national trade association for Futures Commission Merchants. The FIA is the only association representative of all organisations that have an interest in the futures market in the US. FIA has more than 180 corporate members, reaching thousands of industry participants. Regular Members are futures commission merchants. Regular members are responsible for more than 80% of the customer business transacted on U.S. futures exchanges. Through these members the FIA represent the needs of futures industry customers. Members include the top 20 firms in terms of customer equity. Associate Members include international exchanges, banks, legal and accounting firms, introducing brokers, commodity trading advisors, commodity pool operators and other market users, and information and equipment providers headquartered in the U.S.A. and abroad.
  • G7
    This was a group of 7 countries – America, Canada, United Kingdom, France, Germany, Italy and Japan. It was established in in 1975 and was formed from the “Group of 6” which excluded Canada. Obviously with the advent of the European Union. Together the G7 controlled about 65% of global GDP. Today the G7 have been replaced by the G20, which includes South Africa and other major emerging economies like China.
  • GAAP
    Section 19 of the Financial Advisory and Intermediary Services Act (FAIS) requires that “the financial statements be prepared in conformity with generally accepted accounting practice”. The auditor must examine the accounting records of the company and carry out such tests in respect of such records and such other auditing procedures as he considers necessary in order to satisfy himself that the annual financial statements or group annual financial statements fairly present the financial position of the company or of the company and its subsidiaries and the results of its operations and those of its subsidiaries, in conformity with GAAP applied on a basis consistent with that of the preceding year. In reality, GAAP is an enormous collection of accounting policies to cover every possible situation that the company’s accountant might come across, giving the proper accounting treatment. GAAP does contain areas where the accountant is free to exercise some discretion – particularly over how conservative he chooses to be. This can cause problems with comparisons between companies with different levels of accounting conservatism.
  • GAMMA
    The degree by which the delta changes with respect to changes in the underlying instrument's price.
  • GANN THEORY
    Various analytical techniques developed by legendary trader W.D. Gann. His first prophecy is believed to have happened during World War I when he predicted the Nov 9, 1918, abdication of the Kaiser and the end of the war. Then in 1927, he wrote a book entitled "Tunnel through the Air", which many believe predicted the Japanese attack on Pearl Harbor, and the air war between the two countries. His financial predictions were perhaps even more profound. In early 1929, he predicted that the markets would probably continue to rally on speculation and hit new highs… until early April. In his publication, The Supply and Demand Letter, he delivered daily financial forecasts focusing on both the stock and commodity markets. As this daily financial publication gained notoriety, Gann published several books - most notably "Truth", which was hailed by the Wall Street Journal as his best work. Finally, he began releasing the techniques that he used to make these forecasts: the Gann studies.
  • GANN’S SQUARE OF 9
    A trading tool that relates numbers, such as a stock price, to degrees on a circle. The Square of 9 is basically a spiral of numbers. The initial value can be found in the centre of the spiral. This value is then increased by moving in a spiral form. Normally the centre value is 1 and the step is one creating the spiral.
  • GAP
    A day in which the daily range is completely above or below the previous day's daily range. This term normally refers to a bar chart where the low for one day is considerably above the high for the previous day or vice versa. These are known as “breakaway” or “exhaustion” gaps respectively.
  • GDP
    The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. Until the 1980s the term GNP or gross national product was used. The two terms GDP and GNP are almost identical. The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption + investment + government spending + (exports - imports).
  • GEARING
    The relationship of a company's borrowings or debt to ordinary shareholders' funds. A company can obtain the finance it needs to conduct its operations from two sources: by the issuing of its ordinary shares and by borrowing from third parties. The ratio of the one to the other determines the company's gearing. This ratio is also sometimes called the debt/equity ratio. We say that a company is "highly geared" if the borrowings from external sources exceed the shareholders' capital by an excessive amount. A company is "fully geared" if no further credit can be obtained.
  • GENERAL OFFER
    An offer made to all shareholders of a company for the purchase of their shares. The purchase price could be in cash or in shares of a predator company or a combination of both.
  • GENERALLY ACCEPTED ACCOUNTING PRACTICE
    Section 19 of the Financial Advisory and Intermediary Services Act (FAIS) requires that “the financial statements be prepared in conformity with generally accepted accounting practice”. The auditor must examine the accounting records of the company and carry out such tests in respect of such records and such other auditing procedures as he considers necessary in order to satisfy himself that the annual financial statements or group annual financial statements fairly present the financial position of the company or of the company and its subsidiaries and the results of its operations and those of its subsidiaries, in conformity with GAAP applied on a basis consistent with that of the preceding year. In reality, GAAP is an enormous collection of accounting policies to cover every possible situation that the company’s accountant might come across, giving the proper accounting treatment. GAAP does contain areas where the accountant is free to exercise some discretion – particularly over how conservative he chooses to be. This can cause problems with comparisons between companies with different levels of accounting conservatism.
  • GENERIC SCORECARD
    In terms of the BBBEE (Braod Based Black Economic Empowerment) Act, companies over a certain size are required to maintain a scorecard in which black ownership, black management, black employment equity, black procurement and black enterprise development are rated. The scorecard results in one of 8 levels where 1 is the highest and 8 is the lowest. Partly based on this level, government contracts are awarded.
  • GEPF
    A pension fund for government employees, the GEPF is the single largest investor on the JSE owning about 12,5% of its market capitalisation and with about R1,8 trillion rand invested. The GEPF has recently become a much more active shareholder, taking positions on executive remuneration, transformation, climate control and corporate generally.
  • GIC
    A single lump-sum deposit that earns a guaranteed interest until a known maturity date. GICs are issued by insurance companies.
  • GIVE-UP
    When a broker executes an order for another broker's client and the two brokers split the commission; the client pays nothing extra.
  • GLOBEX
    The Chicago Mercantile Exchange's electronic trading platform. Some futures contracts are available for trading on Globex only during the U.S. evening hours, while others -- such as the very popular E-mini contracts -- trade electronically nearly around-the-clock. Today the CME Globex trading system operates at the heart of CME. It was introduced in 1992 as the first global electronic trading platform for futures contracts. This fully electronic trading system allows market participants to trade from booths at the exchange or while sitting in a home or office thousands of miles away. On 19 October 2004, the one billionth (1,000,000,000) transaction was recorded.
  • GOING CONCERN
    A profitable business which is expected to be able to continue in business because it has sufficient cash-flow to meet its commitments.
  • GOING PUBLIC
    A term used to describe the sale of shares of a privately-held company to the public for the first time.
  • GOLD INDEX
    A weighted average of all gold shares traded on the JSE.
  • GOLD SHARES
    South Africa has traditionally been a gold-producing country and gold shares used to make a large proportion of the JSE, but today, the gold industry has shrunk substantially and gold shares are no longer the force that they used to be. Gold is a commodity, the price of which is set in London and on international markets. An investment in gold shares is thus a play of the future price of bullion. Marginal gold shares have a cost of extraction which is very close to the current gold price – which makes them very sensitive. Heavy-weights have a cost of extraction which is comfortably below the current gold price and so they are not as much impacted by the daily and weekly fluctuations in the gold price. The strength of the rand can also be a major factor with gold shares as they receive their income in rands – so you should focus on the rand price of gold rather than the US dollar price.
  • GOLDEN MEAN
    The ratio of any two consecutive numbers in the Fibonacci sequence, known as phi and equal to 0.618; a proportion that is an important phenomenon in music, art, architecture and biology. The Fibonacci number series is the basis of the Elliott Wave method of share and index analysis.
  • GOLDEN RATIO
    The ratio of any two consecutive numbers in the Fibonacci sequence, known as phi and equal to 0.618; a proportion that is an important phenomenon in music, art, architecture and biology. The Fibonacci number series is the basis of the Elliott Wave method of share and index analysis.
  • GOLDEN SECTION
    Any length divided so that the ratio of the smaller to the larger part is equivalent to the ratio between the larger part and the whole and is always 0.618. See also the Fibonacci Sequence.
  • GOOD THRU DATE
    Good Thru Date order. This order works until executed or cancelled, or until the end of the trading session on the date specified by the trader.
  • GOOD TILL CANCELLED
    Good Till Cancelled order. This order works until executed or cancelled, unlike a Day order, which, if not filled, expires automatically at the end of the trading session on the day it was entered. It is dangerous to give a GTC order to your broker since market conditions can change and your order will be filled even in a bear market if the price that you stipulated is reached.
  • GOODWILL
    An intangible asset which arises when a holding company pays more for a subsidiary than its book value. Goodwill is also called a "premium arising on acquisition" and is normally written off against profits over a period of time.
  • GOVERNMENT UNEMPLOYEE FUND
    A pension fund for government employees, the GEPF is the single largest investor on the JSE owning about 12,5% of its market capitalisation and with about R1,8 trillion rand invested. The GEPF has recently become a much more active shareholder, taking positions on executive remuneration, transformation, climate control and corporate generally.
  • GRAND SUPER CYCLE
    First proposed by Russian economist Nicolai Kondratiev in his 1926 book, a very long cycle of around 54 years in commodity prices was identified. This was subsequently re-iterated by R. N. Elliott in his Elliott Wave theory and by other cycle theorists. The essential idea is that the economically active lifespan of mankind is around 54 years – from his early twenties until his late seventies and that this has an impact on average debt levels, economic activity and the stock market.
  • GRANTOR
    A person who sells an option and assumes the obligation to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price. Also referred to as an Option Seller or Writer.
  • GRAVESTONE DOJI
    A candlestick pattern with a long upper shadow, where the open and close for the day occur at the low for the day. This candlestick pattern signifies uncertainty in the market and can signify either bullish or bearish pressure depending on where it is found in the trend. When found in an established trend, this pattern can reliably signify the end of the trend.
  • GREEN CHIP
    Environmentally friendly companies which are usually in the JSE’s Socially Responsible Index.
  • GREEN ENGULFING PATTERN
    A bottom candlestick reversal signal, this is a two candlestick pattern consisting of a large green candle enveloping a preceding red candle. This pattern implies that the trend is likely to change from bearish to bullish and is only valid if found at the bottom of a trend. In order for the pattern to be valid, the opening price of the green candle must be at or below that of the red candle, and the closing price must be at or above that of the red candle. This reversal signal is stronger if there are no shadows on either candle and also if the green candle engulfs the previous two candles. [caption id="attachment_10362" align="alignnone" width="200"] Bullish Engulfing Pattern[/caption]
  • GREEN FIELDS OPERATIONS
    A business activity, usually in the mining industry, which is a completely new start-up. This is a high-risk, potentially high return undertaking compared to a “brownfields” operation where an existing business is acquired or expanded.
  • GROSS DOMESTIC PRODUCT
    The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. Until the 1980s the term GNP or gross national product was used. The two terms GDP and GNP are almost identical. The most common approach to measuring and understanding GDP is the expenditure method: GDP = consumption + investment + government spending + (exports - imports).
  • GROSS PROFIT
    A company’s profit after its direct or variable costs have been deducted. Typically, the gross profit is the final figure in the company’s trading account which begins with sales and subtracts variable costs like the cost of sales and sales commissions. The gross profit then goes to the profit and loss account where the fixed costs are subtracted.
  • GROUP
    The holding company of a number of subsidiaries. Such companies produce group consolidated accounts once per annum, showing the consolidated position and performance of the holding company and all the subsidiaries.
  • GROUP FINANCIAL STATEMENTS
    In terms of section 30 of the Companies Act, a company is obliged to produce group consolidated financial statements in such a way that inter-company loans are eliminated, the minority or outsider shareholders' interests are highlighted and where all the subsidiary companies' balance sheets, income statements and cash flow statements are included.
  • GROWTH FUND
    A more speculative mutual fund made up primarily of the growth or performance stocks that are expected to appreciate in price more than the broad market over an extended time period.
  • GROWTH SHARES
    A growth share is a share in a listed company which is expected to grow rapidly. This term is normally applied to companies which have recently listed on the JSE, have raised capital and intend to grow organically or by way of acquisition. This is as opposed to blue chip companies in mature industries which have been listed for years and have a long track record of making profits and paying dividends. Growth Shares usually do not pay dividends, preferring to plough back all their profits into growth.
  • GTC
    Good Till Cancelled order. This order works until executed or cancelled, unlike a Day order, which, if not filled, expires automatically at the end of the trading session on the day it was entered. It is dangerous to give a GTC order to your broker since market conditions can change and your order will be filled even in a bear market if the price that you stipulated is reached.
  • GTD
    Good Thru Date order. This order works until executed or cancelled, or until the end of the trading session on the date specified by the trader.
  • GUARANTEE FUND
    A fund which is built and sustained by the stock exchange to cover any counter party risks which may exist in securities trading. For example, the risk that a stockbroking firm might go into liquidation or that the other party to a stock market transaction might not fulfill their obligations. The JSE also maintains insurance policies beyond the guarantee fund for these risks.
  • GUARANTEED INVESTMENT CONTRACTS
    A single lump-sum deposit that earns a guaranteed interest until a known maturity date. GICs are issued by insurance companies.
  • HAMMER FORMATION
    A bullish reversal candlestick pattern implying the start of an upward trend is likely to begin. The hammer consists of a candle which has a lower shadow at least twice the length of the candle's body. The upper shadow for this candle should be small or non-existent. The colour of the candle is not important, however a green candle does add strength to the signal. The most important thing about this formation is the length of the lower shadow: the longer this is the stronger the signal and the more likely that an upward trend is likely to occur.
  • HANGING MAN
    A top reversal candlestick formation which signals the end of an upward trend, consisting of a candle with a small body and long lower shadow. This formation implies that the bulls are losing control, as the price is driven down significantly during the period. The longer the lower shadow is the more strength the formation has. This shadow should be at least double the length of the candle's body. The upper shadow should be small or non-existent, and the colour of the candle does not matter. This formation is more commonly found in intraday charts and is a sign that the trend is about to change. The hanging man looks just like the hammer formation except that it is found at the top of trend as opposed to the bottom. It's opposite is the inverted hammer which is also a bottom reversal signal, but unlike the hammer, it has a long upper shadow.
  • HARAMI
    Also called an inside day, the harami is a top or bottom candlestick reversal pattern which comprises of a small candle situated within the body of it's preceding candle. Harami means pregnant in Japanese. Therefore, this formation is likened to a pregnant mother and her baby - the harami's body must be contained within it's preceding candle's (the mother candle's) body. The body of the harami, or the baby, must be small, and the body of the mother must be average size. The shadows of the baby should not be extended further than the high and low of the mother candle. The theory behind is this candlestick formation is that the opposing market pressure has stopped the dominant market pressure in their tracks and is driving the price in the opposite direction. It is important to always look for a continuation pattern when you see a harami as it can be misleading.
  • HARAMI CROSS
    A top or bottom candlestick reversal pattern, very similar to the harami, comprising of two candles, one situated within the body of the other. The difference between the harami and the harami cross is that in the harami cross, the second candle's open and close for the day are exactly the same.
  • HARD ASSET
    A commodity such as a metal or mineral. Most paper assets reflect some sort of claim to or against a hard asset, either directly or indirectly. The ultimate hard asset is gold, but all hard assets are a hedge or a protection against the weakness of paper assets. But hard assets pay no interest or dividends and hence they tend to do well in periods of high inflation and badly when inflation is very low.
  • HARD CURRENCIES
    First world currencies, like the US dollar, the British pound, the Japanese yen or the Euro. Currencies from third world or emerging countries tend to carry considerable political risk and thus are generally weaker than hard currencies.
  • HARKISH POLICY
    The Central Bank of a country is tasked with maintaining price stability while simultaneously ensuring growth. Unfortunately, these two objectives are mutually exclusive because when there is growth inflationary pressures tend to grow while controlling inflation requires monetary policies which generally curtail growth. The monetary policy committee of a central bank usually meets every two months to assess the state of the economy and its likely future direction, after which they will either adopt a hawkish or a dovish policy. A hawkish policy means that they are tightening monetary policy in order to reduce inflation and a dovish policy means they are adopting a looser monetary policy to encourage growth.
  • HDSA
    The laws of South Africa are based on the constitutional requirement to remedy the imbalances of the past by benefiting historically disadvantaged South Africans. This generally means that the Black Economic Empowerment Act (BEE) and the Broadly Based Black Economic Empowerment Act (BBBEE) as well as the Employment Equity Act are designed to achieve “transformation” by bringing people who were disadvantaged during Apartheid into the economy. This is mostly done through the various “charters” in each industry and by the insistence that companies plan to employ various race groups in roughly the same proportions as they exist in the population. Through a complex system of scorecards and levels, companies are encouraged to achieve transformation in order to win government contracts. The modern trend is for HDSA’s to be defined more as just black people rather than blacks, coloureds, Asians, women and people with disabilities.
  • HEAD AND SHOULDERS FORMATION
    A charting formation at the top of a cycle. The price chart forms three peaks the middle one of which is the highest. The “left shoulder” is generally reckoned to be where the “smart” money sells – well before the highest point. The “right shoulder” is where the die-hard bulls make their final stand. Once the right shoulder is complete, the price falls through the “neckline” (the line which joins the bottom of the two shoulder cycles) and enters an extended bear trend. Also called a Three Buddha Top. [caption id="attachment_7757" align="alignnone" width="379"] Head and Shoulders Formation[/caption]
  • HEADLINE EARNINGS PER SHARE
    The earnings of a company derived from its normal core business divided by the company's average number of shares in issue during the accounting period. This figure excludes exceptional and once-off profits and losses. The objective is to give investors a clear perception of how the underlying business of the company is doing.  Headline earnings are a company’s earnings from its on-going, normal business activities – excluding any once-off incomes and expenses which are not part of its continuing business. Headline earnings per share are calculated by dividing the company’s headline earnings by the average number of shares which it had in issue during the accounting period.
  • HEADROOM
    This is the amount of financial space that a company has in terms of surplus available funds. Most companies have cash assets as well as pre-arranged financial facilities which are available for any project that they may want to undertake  - such as an acquisition. The combination of their existing cash and their facilities beyond what they need for immediate expenses and commitments is known as their headroom.
  • HEDGE
    Action taken by an investor or speculator to protect his business or assets against a change in prices. For example, if an investor holds a large number of listed securities in a particular company which are not readily traded on the JSE and he is apprehensive as to the possibility of a sharp decline in the price of such securities, he can buy a 'put option' to sell them at today's price, which for a fraction of their current value will protect him if the price does fall. The problem is that when you hedge out the downside on an investment, you also hedge out the upside.
  • HEDGE AGAINST INFLATION
    Any tangible or hard asset which can be used to protect the investor against depreciation in the value of paper currencies. Gold and other precious metals are typically the most popular hedges against inflation and this causes these metals to be closely related to the level of world inflation – the higher the rate of inflation, the higher the gold price. A word of caution – this does not refer to inflation in SA, but rather to inflation in America and the western world generally.
  • HEDGE FUND
    A mutual fund involving speculative investing in stocks and options.
  • HEPS
    The earnings of a company derived from its normal core business divided by the company's average number of shares in issue during the accounting period. This figure excludes exceptional and once-off profits and losses. The objective is to give investors a clear perception of how the underlying business of the company is doing.  Headline earnings are a company’s earnings from its on-going, normal business activities – excluding any once-off incomes and expenses which are not part of its continuing business. Headline earnings per share are calculated by dividing the company’s headline earnings by the average number of shares which it had in issue during the accounting period.
  • HERRICK PAYOFF INDEX
    An index requiring two inputs, one of which is a smoothing factor known as the multiplying factor and the other of which is the value of a one-cent move.
  • HEURISTIC METHOD
    Problem solving approached by trying out several different methods and comparing which provides the best solution.
  • HIGH
    The highest point in a price pattern over a specific period. For example, each day each listed share which is traded makes a “high” for the day which is quoted in the following day’s newspaper.
  • HIGH-TICKING
    To pay the offered price.
  • highly geared
    The relationship of a company's borrowings or debt to ordinary shareholders' funds. A company can obtain the finance it needs to conduct its operations from two sources: by the issuing of its ordinary shares and by borrowing from third parties. The ratio of the one to the other determines the company's gearing. This ratio is also sometimes called the debt/equity ratio. We say that a company is "highly geared" if the borrowings from external sources exceed the shareholders' capital by an excessive amount. A company is "fully geared" if no further credit can be obtained.
  • HIGHLY ILLIQUID
    A highly illiquid share is one which trades very seldom. Such shares can go for weeks or even months without a single trade. Their chart takes on the “lego-block” look. You should stay away from such shares because if you buy them you will almost certainly not be able to sell them when you want to. Be sure to apply the “Three Times Volume Rule” before considering a share.
  • HIGHLY LIQUID
    A highly liquid share is one which trades more than R1 billion worth of shares every trading day on average. A good example is Sasol . Such shares are the darlings of the institutional fund managers because they can buy or sell vast quantities of shares easily and quickly without impacting on the price.
  • HIGHLY RATED
    The rating of a company is dependent on the consistency with which it can grow headline earnings and dividends. If a company has a track record of growing its profits and dividends by 15% per annum for the past 10 years then its shares will be very highly-rated. On the other hand if it moves from profits one year to a loss then next, then its future earnings become much less reliable and its rating will be commensurately lower. The rating of a company is expressed in its price: earnings ratio (P:E) and its reciprocal, the earnings yield (EY). Companies with a high P:E and a low EY are highly rated by the investment community. Put in another way, investors will have to pay more for 100c of earnings from a highly rated company than for 100c of earnings from a poorly rated company.
  • HISTORIC VOLATILITY
    How much a contract price has fluctuated over a period of time in the past; usually calculated by taking a standard deviation of price changes over a time period.
  • HISTORICAL DATA
    A series of past daily, weekly or monthly market prices (open, high, low, close, volume, open interest).
  • HISTORICALLY DISADVANTAGED SOUTH AFRICAN
    The laws of South Africa are based on the constitutional requirement to remedy the imbalances of the past by benefiting historically disadvantaged South Africans. This generally means that the Black Economic Empowerment Act (BEE) and the Broadly Based Black Economic Empowerment Act (BBBEE) as well as the Employment Equity Act are designed to achieve “transformation” by bringing people who were disadvantaged during Apartheid into the economy. This is mostly done through the various “charters” in each industry and by the insistence that companies plan to employ various race groups in roughly the same proportions as they exist in the population. Through a complex system of scorecards and levels, companies are encouraged to achieve transformation in order to win government contracts. The modern trend is for HDSA’s to be defined more as just black people rather than blacks, coloureds, Asians, women and people with disabilities.
  • HOLDER
    The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. The opposite of a Grantor. Also referred to as the Option Buyer.
  • HOLDING COMPANY
    Any company which owns more than 50% of the voting capital of another company, or can be said to have effective control over the appointment of its directors.
  • HOMOGENOUS SECURITY
    Homogeneity means “sameness”. In the investment world it refers to the fact that every ordinary share of Sasol or any listed company is exactly the same as every other ordinary share – which makes it possible to draw a chart of that share’s daily closing prices from the JSE. Not all assets are homogenous. For example, no two properties are identical, even if they are situated right next door to each other. This means that while it may give an indication of a property’s value to look at the prices for which similar properties are selling in the same area it is only that – an indication. But if Sasol’s shares closed yesterday at R450 per share on the JSE, then it is highly likely that your Sasol shares are worth very close to that price.
  • HOOK DAY
    A trading day in which the open is above/below the previous day's high/low and the close is below/above the previous day's close with narrow range.
  • IDZ
    These are special business zones which enjoy tax and other benefits to encourage rapid industrialisation. They are often located in areas where business is depressed in order to encourage growth and job creation. A good example of this is the Coega IDZ near Port Elisabeth.
  • ILLEGAL MINERS
    These are informal miners who attempt to extract ore from a disused mine – usually at great risk to themselves. Known as “Zama-zama” (which means “people who try”), these miners have inadequate equipment and often mine in areas which are geologically unstable. There are as many as 4000 illegal miners operating in South Africa.
  • ILLEGAL STRIKE
    A labour strike which takes place outside the ambit of the Labour Relations Act. Such wildcat strikes entitle the employer to fire those who are involved. In South Africa, however, such strikes are usually resolved without any workers being fired. The famous Marikana massacre occurred during an illegal strike on the Marikana mine.
  • ILLIQUID
    Illiquid shares are those which trade less than R200 000 worth of shares every day on average. Such shares can be traded by private investors, but the big institutions (like pension funds, unit trusts and insurance companies) generally stay away from them.
  • IMPAIRED ASSETS
    Assets whose book value has been reduced by the board in order to reflect their true market value more accurately. Impairments result in a reduction in the profit of the company in the period when they occur. The mining industry has been engaged in a series of substantial impairments of assets since the drop in commodity prices which began in 2009.
  • IMPLIED ALPHA
    The excess return expected from a stock to justify its current weighting in the portfolio.
  • IMPLIED VOLATILITY
    The volatility computed using the actual market prices of an option contract and one of a number of pricing models. For example, if the market price of an option rises without a change in the price of the underlying stock or future, implied volatility will have risen.
  • IMPORT COVER RATIO
    A ratio which assesses the level of the country’s reserves in terms of how many months worth of imports they could cover. A healthy import cover ratio would be around 15 to 20 and South Africa has a ratio which hovers around six. The effect of having a low import cover ratio is that it makes the rand vulnerable to speculation by international currency dealers.
  • IMPULSE WAVE
    A wave or cycle of waves that carries the current trend further in the same direction.
  • IN PLAY
    A stock that is the focus of a public bidding contest, as in a takeover or bear raid.
  • IN-THE-MONEY OPTION
    An option that has intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract. With shares this simply means that the share has risen sufficiently to give a profit if sold – after the dealing costs have been paid.
  • INCLUSION RATE
    In Capital Gains Tax (CGT), the percentage of a capital gain which is included in taxable income. For companies and trusts this is 66% while for individuals it is 40%. Thus, if you are in the marginal tax bracket you will pay 45% of 40% of any capital gain after the first R30 000 which is tax free.
  • INCOME
    In accounting terms, this refers to all revenues received by a company, both as a result of its sales and other sources such as interest, dividends or rent.
  • INCOME DIVIDENDS
    Payments to mutual fund shareholders consisting of dividends, interest and short-term capital gains earned on the fund's portfolio securities after deduction of operating expenses.
  • INCOME STATEMENT
    A requirement of the Companies Act and Generally Accepted Accounting Practice (GAAP), the incomes statement must disclose the turnover of the company during the accounting period and certain, more important expenses, in order to arrive at a figure for that part of profits which was retained in the business – which should correspond with the change in the balance sheet figure for retained income. Certain expenses, like directors’ remuneration, finance charges, extraordinary items and taxation paid must be disclosed, either by way of a note or on the face of the income statement.
  • INCOME TAX ACT
    The Income Tax Act 58 of 1962 has had numerous amendments up to 2017. Its basic purpose is to consolidate the law relating to the taxation of incomes and donations, to provide for the recovery of taxes on persons, to provide for the deduction by employers of amounts from the remuneration of employees in respect of certain tax liabilities of employees, and to provide for the making of provisional tax payments and for the payment into the National Revenue Fund of portions of the normal tax and interest and other charges in respect of such taxes, and to provide for related matters.
  • INCORPORATOR
    Under the old Companies Act, the people who started a company were known as the subscribers, because they “subscribed” to the memorandum and articles of association. The new Companies Act which came into effect in May 2011 changed this name to “incorporators”. The details of a company’s incorporators must be contained in any prospectus that the company issues in order to raise capital from the investing public. Their names, address, experience and qualifications must be stated for the record.
  • INDEPENDENT ACCOUNTING PROFESSIONAL
    A type of accountant who is not necessarily a chartered accountant, but who is sufficiently qualified to undertake an independent review on behalf of a smaller company. In order to reduce costs and administration, the Companies Act allows smaller companies with a lower “public interest score” to have an independent review rather than an audit. The public interest score is determined by the company’s turnover, the number of employees it has and the size of its creditors book.
  • INDEPENDENT REVIEW
    An independent review is a lower level check of a company’s financial statements which can be conducted by an independent accounting professional. This type of check is open only to smaller companies that have a public interest score of less than 350 points – provided their financial statements have been prepared by an outside independent firm of accountants. Firms with a score above 350 require a more expensive audit.
  • INDEX
    A weighted or unweighted average of the prices or market cap of a group of shares. There are many types of indices for sectors, sub-sectors and entire markets. There are also a number of ways to weight the data, but essentially the idea is to allow for the fact that the market capitalisation of shares differs widely within the same sector. This is partly because each company has a different number of shares in issue. Over and above this, shares leave the sector, and new ones join it. The calculation of indices is done according to the FTSE/JSE ground rules. Indices are useful for determining the general direction of a sector and perhaps comparing individual shares with the group average. Sectors may also be compared, and a careful study of index trends will allow you to move your money around the market from one profitable sector to another. Securities may be linked to indices. The Satrix 40 tracks the performance of the underlying index (namely the ALSI). It falls under a sector called TIFS/IX37 (Traded Index Funds). test
  • INDEX FUND
    An index fund is a unit trust (collective investment scheme) which tracks a specific index – usually on the JSE. Thus an index fund which tracks the JSE Top40 index will buy exactly the same shares as are contained in that index in the identical proportions. The objective of this is for the fund to perform exactly in line with the index. Index funds arose because most unit trusts under-perform the indexes of the sectors in which they compete. After deducting their fees and keeping 5% of their funds in cash (a statutory requirement), it is very difficult for a unit trust to out-perform the index. In South Africa (and around the world) about 80% of unit trusts under-perform the indexes of the sectors in which they compete. So, an index fund does not have the same costs as a normal fund (which must employ expensive fund managers) and it is guaranteed to perform in line with the index. Looked at another way, the existence and popularity of index funds is a clear testament to the fact that unit trusts generally tend to under-perform the averages of their sectors consistently.
  • INDEX POINTS
    A measurement term for market indices. An index is an aggregate of the listed companies on an exchange, for example, the JSE Top 40 is an average of the top 40 companies trading on the JSE by market capitalisation. As a way of measuring the fractional gains in an index, its value of it's total is broken into points to better emphasise a move in direction during a single trading day. Most indexes these days are weighted for the market capitalisation of the shares which they include and on the JSE they are also adjusted for their "free float". Therefore, for example, instead of saying that the companies in the JSE Top 40 index have increased in value by R13 456 723 we say that it has moved up by 150 index points.
  • INDUSTRIAL DEVELOPMENT ZONE
    These are special business zones which enjoy tax and other benefits to encourage rapid industrialisation. They are often located in areas where business is depressed in order to encourage growth and job creation. A good example of this is the Coega IDZ near Port Elisabeth.
  • INDUSTRIAL SHARE
    A share in the industrial sector of the JSE. Industrials are preferable as an investment to commodity shares (companies which produce a commodity like gold or coal) because they are less volatile.
  • INDUSTRY
    A grouping of all shares in the same industry, usually represented by a sector index. If you look at the price page of your newspaper, you will see that the share market is divided into sectors. The market is divided into the following sectors: Materials, Energy, Industrial, Consumer Discretionary, Consumer Staples, Telecommunication Services, Financials, Healthcare, and Information Technology. These sectors are then further divided into sub-sectors. Each sector has an index which is an actuarially weighted average of the shares in that sector.
  • INDUSTRY CLASSIFICATION
    Securities markets all over the world adhere to a classification system for securities consisting of industry, super-sector, sector and sub-sector known as the industry classification benchmark or ICB.
  • INEFFICIENT MARKETS
    Behavioural finance. Driven by frame dependence and heuristic bias, when market prices stray from fundamental values. In simple terms, new and important information which affects the profitability of listed companies is dissipated slowly through the market. Usually the CEO of the company and some of his directors are the first to know (especially if it involves a takeover or some other action which they have initiated). From there it gets into the hands of some of the senior managers of the company or perhaps the company’s sponsoring stockbroker. Thereafter it might pass to a journalist of a financial newspaper or magazine and gets into the hands of those of his readership that read the article. Eventually Joe citizen may find out by word of mouth or because other news media bring it to his attention. The result of this slow process is that the share’s price begins to move well before everyone has the information – in other words, the market is inefficient. You should also take into account that investors have different levels of knowledge and understanding and so will interpret the information differently.
  • INFLATION
    Inflation is the degree to which a country’s currency loses value over one year. This is usually measured by the consumer price index (CPI), but it can also be measured at the producer level in the Producer Price Index (PPI). In South Africa, the Reserve Bank has set a target to keep the CPI-X rate between 3% and 6%. Over the long term, inflation is a result of increasing the money supply more quickly than the real growth of the economy.
  • INFLATION TARGETING
    The Reserve Bank, through its Monetary Policy Committee (MPC) strives to keep the inflation rate between 3% and 6%. They target the CPI-X which is the CPI without the effect of interest rates. If the MPC thinks that the CPI-X will move above 6% during the next six to nine months then they will tend to increase interest rates to cool the economy down. South Africa’s inflation rate is heavily impacted by external factors, like the oil price. However, the strength of the rand is a key component because, when it weakens, it makes the price of imported goods higher.
  • INITIAL MARGIN
    The amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract.
  • INITIAL PUBLIC OFFERING
    An American term which refers to a new listing on the stock exchange which involves an offer of shares to the public.
  • INSIDE DAY
    Also called an inside day, the harami is a top or bottom candlestick reversal pattern which comprises of a small candle situated within the body of it's preceding candle. Harami means pregnant in Japanese. Therefore, this formation is likened to a pregnant mother and her baby - the harami's body must be contained within it's preceding candle's (the mother candle's) body. The body of the harami, or the baby, must be small, and the body of the mother must be average size. The shadows of the baby should not be extended further than the high and low of the mother candle. The theory behind is this candlestick formation is that the opposing market pressure has stopped the dominant market pressure in their tracks and is driving the price in the opposite direction. It is important to always look for a continuation pattern when you see a harami as it can be misleading.
  • INSIDER TRADING
    The illegal dealing in shares by people who, because of their privileged position, have information that materially impacts on the value of the shares, before that information has been made public. This type of dealing is extremely difficult to control and is a constant feature of most share markets, especially where special situations such as take-overs are about to occur. The only protection is to keep a careful watch on the volume traded, because massive volumes are an indication that someone knows something that you don’t.
  • INSTITUTIONAL INVESTOR
    An organisation (as opposed to an individual), that invests funds arising from deposits, premiums, etc. Examples are insurance companies, mutual funds and investment trusts. Big institutions gather small amounts of money from hundreds of thousands or even millions of individuals every month which they then place on the JSE and other markets. They account for approximately 90% of all trades on the JSE. Private investors account for the rest.  
  • INSTRUMENT
    A very generalised term for any sort of security or debt claim. Thus instruments can include shares, debentures, bonds, derivative contracts and so on.
  • INTANGIBLE ASSETS
    Any asset which is not concrete. For example, goodwill or patents, which belong to the company, are not represented by any physical object, but refer to the company's rights to something or the reputation that the company has in its industry and market. These are very often not reflected in the financial accounts.
  • INTEGRATED REPORT
    The King 3 report on corporate governance requires that companies produce an integrated report which includes a “sustainability report”. Listed companies are required by the JSE Rules to adhere to King 3. An integrated report must report on the sustainability of the company’s various activities, including how they impact on the environment and the local communities where the company operates.
  • INTERBANK RATES
    The foreign exchange rates at which large international banks quote other large international banks. Because of the size of such transactions and creditworthiness of the counterparties, such bid/ask spreads are typically very tight.
  • INTEREST RATE
    The price of money. Money behaves in much the same way as a commodity, in the sense that when it is in short supply, it becomes more expensive and vice versa. The interest rate is the cost of borrowing it and the reward for lending money. There are a variety of different interest rates, which apply to different types of money.
  • INTEREST RATE SWAPS
    An arrangement that requires both sides of the transaction to make payments to each other based on two different interest rates. The most commonly traded requires one side to pay a fixed rate and the other to pay a floating rate.
  • INTERIM DIVIDEND
    A dividend paid out by the company when the directors have received the interim (half year) financial results. The final dividend is paid when the final profits are shown in the final accounts.
  • INTERMARKET ANALYSIS
    Observing the price movement of one market for the purpose of evaluating a different market.
  • INTERNAL RATE OF RETURN
    The rate of interest which an individual, or, more commonly, an investment company is willing to accept. To determine your IRR, you need to ask yourself what amount of money received in a year’s time would exactly compensate you for R100 lost now. For example, you might say R120 – and that would mean that your IRR was 20%. Obviously in making that calculation you would take into account the inflation rate and the opportunity cost of that R100 (i.e. what return could you get for it in other investments). Fund managers in big institutions have a carefully calculated IRR to guide them in making investment decisions.
  • INTERNATIONAL ACCOUNTING STANDARDS BOARD
    In March 2001, the International Accounting Standards Committee (IASC) Foundation was formed as a not-for-profit corporation incorporated in the State of Delaware, US. The IASC Foundation is the parent entity of the International Accounting Standards Board, an independent accounting standard-setter based in London, UK. On 1 April 2001, the International Accounting Standards Board (IASB) assumed accounting standard-setting responsibilities from its predecessor body, the International Accounting Standards Committee. The South African Institute of Chartered Accountants is an affiliated body.
  • INTERNATIONAL MONETARY FUND
    An organisation with over 185 member countries that aims to maintain international currency stability and maximise economic growth. The IMF regularly reports on world growth and economic developments. Member countries can borrow through its special drawing rights program.
  • INTERNATIONAL SECURITIES IDENTIFICATION NUMBER
    Each security trading on the main exchanges of the world has a 12-digit number which enables investors to identify it. The stock exchange handbook gives the ISIN number for each JSE-listed company.
  • INTRADAY
    Literally, “within the day” as opposed to inter-day. Intraday trades are those that occur during the trading day – i.e. where a security is both bought and sold on the same day. This is mostly restricted to the derivatives markets. Intraday prices are prices taken from the trickle feed of prices on each transaction that occurs on the JSE – as opposed to end-of-day prices which are the closing price at the end of the trading day.
  • INTRINSIC VALUE
    The perceived value of a natural object, e.g. a precious metal, regardless of its actual price at any given time. In economics, value is determined by demand and supply and is denoted by price.
  • INTRODUCING BROKER
    A firm or individual that solicits and accepts futures orders from customers but does not accept money, securities, or property from the customer. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through a Futures Commission Merchant on a fully-disclosed basis.
  • INVENTORY
    Another word for stocks of raw material, work in progress, consumable stores and finished goods. The valuation of the inventory is critical to the balance sheet.
  • INVERTED HAMMER
    The counterpart of the hammer, this is also a bullish bottom reversal candlestick formation which derives its significance from it's shadow and implies that an upward trend is imminent. The inverted hammer has a long upper shadow as opposed to the hammer which has a very long lower shadow. As is the case with the hammer, the inverted hammer's upper shadow must also be at least twice the length of the body of the candle. There is no or very little lower shadow, and the colour of the candle is immaterial, however green gives more strength to the signal. It is also quite common to have a few inverted hammers at the bottom of a trend. The long upper shadow shows an arising bullishness in the market place.
  • INVERTED THREE BUDDHA
    The opposite of a head-and-shoulders formation, this formation normally comes at the bottom of a long down-trend and signals the end of that down-trend. The market makes a left shoulder with a rally and then falls to a new low before rallying again (the head). Finally it falls back again on one last fall which does not take as low as the previous fall (the right shoulder). Also called an Inverted Three Buddha.
  • INVESTMENT
    An asset on the balance sheet that refers to the shares held in a company or loans granted to other companies, which do not amount to a controlling interest. The Act requires these to be split into listed and unlisted investments, and this is usually done in the notes to the company’s financial statements.
  • INVESTMENT ANALYST
    An investment analyst does research on listed shares in order to provide information to the fund manager to enable him to allocate funds to specific investments. Investment analysts have to have a university degree, usually a B.Comm or equivalent and most of them have higher level qualifications. Most investment analysts use fundamental analysis, which involves studying the financials statements of listed companies, looking for shares which are perhaps undervalued. An investment analyst should not be confused with a professional investor. A professional investor is someone who invests on the JSE for his own account and makes his living from his investments.
  • INVESTMENT CLUBS
    Small, private organisations in which a group of investors, usually novices, pool their time and resources to learn more than they could on their own about various forms of investments and then invest their own money as a group.
  • INVESTMENT HOLDING COMPANY
    A company which holds shares in other companies as subsidiary or associate companies.
  • INVESTOR
    A person, either natural or juristic, that purchases and holds an investment in a security. On the JSE, most of the investors are institutions (pension funds, unit trusts and insurance companies) who account for about 90% of all trades. The other 10% is private investors.
  • INVESTOR PROTECTION LEVY
    A levy charged by the JSE on all trades on the JSE consisting of 0,0002% of the value of the trade. This pays for insider trading investigations and prevents market manipulation.
  • IRA
    An American retirement vehicle called an Individual Retirement Account (IRA). An employer's retirement plan that, as specified by tax law, allows employees to elect to have their federal taxable income be deducted and set aside for retirement.
  • IRR
    The rate of interest which an individual, or, more commonly, an investment company is willing to accept. To determine your IRR, you need to ask yourself what amount of money received in a year’s time would exactly compensate you for R100 lost now. For example, you might say R120 – and that would mean that your IRR was 20%. Obviously in making that calculation you would take into account the inflation rate and the opportunity cost of that R100 (i.e. what return could you get for it in other investments). Fund managers in big institutions have a carefully calculated IRR to guide them in making investment decisions.
  • IRREGULAR FLAT
    A type of Elliott wave correction that has a 3-3-5 wave pattern, where the B wave terminates beyond the start of wave A. A "flat" is in progress, implying that a larger pattern is developing. It will contain waves of one higher degree than the A-B-C waves just completed.
  • ISIN
    Each security trading on the main exchanges of the world has a 12-digit number which enables investors to identify it. The stock exchange handbook gives the ISIN number for each JSE-listed company.
  • ISLAND FORMATION
    A period of sideways movement after a substantial fall, where the share moves up and down within a relatively narrow trading range. Eventually, there should be an up-side break-out from the island, signalling the new upward trend.
  • ISSUED CAPITAL
    The portion of the company’s authorised share capital which has been allocated to shareholders.
  • ISSUED SHARES
    The portion of the company’s authorised share capital which has been allocated to shareholders.
  • ITRIX
    A joint initiative by the JSE and Deutsche Bank to offer South African investors a method of investing in overseas markets using rands on the JSE. There are five Itrix ETF’s trading on the JSE:  the DJ EURO STOXX 50 Index, the FTSE®100 Index, the MSCI USA Index,  the MSCI Japan Index and the MSCI World Index ETF. These ETF’s allow you to diversify your investment away from South Africa and to protect yourself against any weakness in the rand. One of the advantages is that you don’t have to worry about exchange control restrictions. Of course, if the rand strengthens then these ETF’s will perform badly.
  • JANUARY EFFECT
    An American phenomena which means the tendency for securities prices to recover in January after tax-related selling is completed before the year-end.
  • JIBAR
    The interest rate which banks in South Africa charge each other for funds lent in the open market and it is agreed by the ten largest financial institutions in the country.
  • JOHANNESBURG INTERBANK AGREED RATE
    The interest rate which banks in South Africa charge each other for funds lent in the open market and it is agreed by the ten largest financial institutions in the country.
  • JOHANNESBURG SECURITIES EXCHANGE
    The primary securities exchange in South Africa. The Johannesburg Stock Exchange, the futures and options markets and the bond market are all part of the Johannesburg Securities Exchange.
  • JSE
    The primary securities exchange in South Africa. The Johannesburg Stock Exchange, the futures and options markets and the bond market are all part of the Johannesburg Securities Exchange.
  • JSE CODE
    An abbreviation for securities traded on an organised exchange. Share codes on the JSE are between 3 and 6 letters long – so, for example, the code for Sasol is “sol”. Most stockbroking trading platforms and other software dealing with the share market (like your charting software) require that you know the share’s code to access it. The codes, together with the short name and long name of each listed company are contained in your Stock Exchange Handbook.
  • JSE GOLD INDEX
    A weighted average of all gold shares traded on the JSE.
  • JSE INDUSTRIAL 25 INDEX
    A weighted average of the price of the 25 largest industrial companies trading on the JSE. This index is weighted for the market capitalisation of its component shares and it also only takes into account their free-float. The JSE Industrial index includes a much wider spectrum of industrial shares and gives a far broader picture of the state and prospects of the SA economy.
  • JSE INDUSTRIAL AND FINANCIAL 30 INDEX
    An index prepared by the JSE actuaries which is a weighted average of the 30 largest financial and industrial shares trading on the Johannesburg Stock Exchange. The JSE Fin30 is useful because it includes no resource shares (i.e. mining companies) – so it gives a very good idea of where the South African economy is headed. The industrial and financial indexes give a far broader average, and include much smaller companies.
  • JSE OVERALL INDEX
    All stock exchanges have indexes which provide averages of the prices of their listed shares. These averages are normally “weighted” so that larger companies are more important and smaller companies have less of an impact. The JSE Overall Index contains all the shares in the sectoral indexes.
  • JSE QUARTERLY MAGAZINE
    A three-monthly magazine sent to stockbrokers, fund managers and various other financial professionals. It is available at: http://www.jsemagazine.co.za
  • JSE RULES AND DIRECTIVES
    Rules and directives established by the JSE to govern all the workings of the exchange in terms of the Stock Exchanges Control Act (SECA).
  • JSE SETS
    The London Stock Exchange’s “Stock Exchange Trading Service” (SETS) electronic order book. The London Stock Exchange sold its Sets order-driven trading system to the JSE Securities Exchange South Africa in a deal worth a minimum of £11 million in additional revenue for the LSE over five years. The deal specified the provision of core technology services by the LSE to the JSE and aimed to achieve easier access to each other's markets for both member firms and issuers. The JSE boosted revenue potential from data distribution once the new platform was installed at the end of 2001. The tie-up with the LSE enabled the South African exchange to extend its reach and the services it can offer to local brokers and investors while at the same time retaining its independence and control over the operation of its market. In July 2012 the SETS system was replaced by the Millennium system.
  • JSE TRUSTEES (PTY) LTD
    A company formed by the JSE to hold, invest and safeguard the surplus funds belonging to a client and held by a broker who is operating a controlled account on behalf of the client.
  • JSE TRUSTEES RATE
    Stock Broking firms open accounts for their customers so that they can invest on the JSE. Any funds deposited into such accounts and not used to buy shares must be transferred to the JSE Trustees (Pty) Ltd., which is a private company owned by the JSE and those funds are then invested at a good rate of return. The investor is paid a rate of return – the JSE Trustees Rate – which is a competitive at-call rate of interest.
  • JSE-FIN30
    An index prepared by the JSE actuaries which is a weighted average of the 30 largest financial and industrial shares trading on the Johannesburg Stock Exchange. The JSE Fin30 is useful because it includes no resource shares (i.e. mining companies) – so it gives a very good idea of where the South African economy is headed. The industrial and financial indexes give a far broader average, and include much smaller companies.
  • JSE-IND25
    A weighted average of the price of the 25 largest industrial companies trading on the JSE. This index is weighted for the market capitalisation of its component shares and it also only takes into account their free-float. The JSE Industrial index includes a much wider spectrum of industrial shares and gives a far broader picture of the state and prospects of the SA economy.
  • JUDICIAL MANAGEMENT
    A term from the previous Companies Act to allow for a company to be wound up for financial reasons. It is sometimes the case that a company can be saved with good management. Judicial management was introduced to assist this type of company to overcome a temporary setback without going out of business. When the new Companies Act came into force in May 2011, judicial management was replaced with the concept of "business rescue".
  • JUMBO CERTIFICATE OF DEPOSIT
    A CD worth at least $100,000.
  • JUNK BOND
    A bond which has less than investment grade – usually a bond issued by a company rather than a government or quasi-government organisation.
  • JURISTIC PERSON
    An organisation which has a legal personality such as a company. This implies that it is responsible for its own management and debts (and not the investors who own the shares). The opposite of a natural person of flesh and blood.
  • KAGI
    One of three types of Japanese candlestick charts that does not have time on the horizontal axis.
  • KALMAN FILTERS
    A linear system in which the mean squared error between the desired and the actual output is minimised when the input is a random signal. The filter is named after Rudolf E. Kalman, though Thorvald Nicolai Thiele and Peter Swerling actually developed a similar algorithm earlier. The Kalman filter model is a statistical device designed to help locate funds that have potentially positive alphas over the next investment period. The model is based upon the underlying principle that funds can only produce positive alphas if they are run by talented people and those people happen to have valuable information at the moment. While talent may remain constant from period to period it is unlikely that information does as well. It seems a lot more likely that fund managers come across useful information only sporadically and that over time the value of this information ebbs and flows producing some periods of above market and others of ordinary returns. This differs from most other models that simply assume talented people will produce the same "bonus return" period after period.
  • KEY REVERSAL DAY
    A day with a much wider range of trade than usual which occurs at the top or bottom of a cycle. When a key reversal day occurs at the top of a cycle, prices open in new highs and then close below the previous day's closing price.  The opposite is true when a key reversal day occurs at the bottom of a cycle. The wide range of trade indicates the uncertainty among investors about the future direction. Once this uncertainty is resolved, the new upward or downward trend commences.
  • KING 3 REPORT
    A report on corporate governance and the duties of directors which has been accepted by the JSE as applying to all listed companies. The king report is now in its 3rd version and the 4th version is in preparation. The duties of directors and the company include social responsibility, transparency, accountability, fairness, discipline and independence.
  • KONDRATIEFF, NIKOLAI
    Developer of a wave theory. The Kondratieff Cycle is a theory based on a study of nineteenth century price behaviour which included wages, interest rates, raw material prices, foreign trade, bank deposits, and other data. Kondratieff was convinced that his studies of economic, social, and cultural life proved that a long term order of economic behaviour existed and could be used for the purpose of anticipating future economic developments. He observed certain characteristics about the growth and contractionary phase of the long wave. Among them, he detailed the number of years that the economy expanded and contracted during each part of the half-century long cycle, which industries suffer the most during the down-wave, and how technology plays a role in leading the way out of the contraction into the next up-wave. The fifty to fifty-four year cycle of catastrophe and renewal had been known and observed by the Mayans of Central America and independently by the ancient Israelites. Kondratieff's observations represent the modern expression of this cycle, which postulates that capitalist countries tend to follow the long rhythmic pattern of approximately half a century. In the idealized long wave model, the cycle (which averages 54 years in length) begins with the "up-wave" during which prices start to rise slowly along with a new economic expansion. By the end of a 25-30 year up-wave period, inflation is running very high. Its peak sets the stage for a deep recession that jolts the economy. The recession, which begins about the time commodity prices break from their highs, is longer and deeper than any that took place during the up-wave. Eventually, though, prices stabilize and the economy recovers, beginning a period of selective expansion that normally lasts nearly a decade. Referred to as the secondary plateau, the expansion persists, giving the impression that "things are like they used to be," but its anaemic nature eventually takes its toll as conditions within the economy never reach the dynamic state that occurred during the up-wave. The secondary plateau ends with a sudden shock (financial panic/stock market crash) and the economy rolls over into the next contractionary phase, which is characterised by deflation and the start of an economic depression. The current revolution of the Kondratieff Wave began after the global economy pulled out of a deflationary depression in the 1930s. Prices began to accelerate upward after World War II, and reached the commodity price blow-off stage in 1980. Since that time, and then after the recession of 1990 the global economy has been treading the secondary plateau. During this period, consumers and investors become aware that inflation is not accelerating the Kondratieff Wave upward, and deflation becomes the buzz word. Paper assets such as stocks and bonds do well since neither inflation nor deflation - both of which are damaging to stock investment returns - hurts the marketplace. The Kondratieff(...)
  • KRUGERRAND
    A gold coin containing exactly one ounce of gold in the form of “royal gold” which is 8,3% copper. The krugerrand is the most widely produced gold coin in the world with more than 50 million in circulation. It is an excellent store of value, but obviously pays no return beyond its natural capital gain. It has no collectors value since it is neither rare nor old. This applies even to the so-called proof krugerrands. But it is an excellent hedge against inflation or the weakness of paper currencies.
  • KST
    Indicator developed by Martin Pring. A weighted summed rate of change oscillator. Four different rates of change are calculated, smoothed, multiplied by weights and then summed to form one indicator. Price is determined by the interaction of a number of different time cycles at any given point in time. A momentum indicator that is constructed from only one time span, such as a 14-day relative strength index (RSI) or a 10-day rate of change (ROC) then will only reflect the cycles that are close to the defined parameter. The KST indicator was intentionally created using several time cycles that build a broader visual picture of the market. By including moving averages in the formula, you get an oscillator that is smooth, does not turn prematurely, and reflects the underlying cyclical waves.
  • KURTOSIS
    Descriptive measure of how flat or pointed a distribution is. In probability theory and statistics, kurtosis is a measure of the "peakedness" of the probability distribution of a real-valued random variable. Higher kurtosis means more of the variance is due to infrequent extreme deviations, as opposed to frequent modestly-sized deviations.
  • LABOUR BROKER
    A person or organisation that specialises in placing short-term workers. The union movement is strongly opposed to the existence of labour brokers, because, obviously, they make it possible for a company enduring a strike to replace the striking workers until the strike is over. The labour law has been changed to make it illegal to employ temporary workers for more than three months – thereafter they must be offered full-time permanent employment.
  • LABOUR RELATIONS
    A field of commercial activity which seeks to optimize the relationship between business and the labour force so as to ensure a minimum number of days work lost to strike action through contented well-paid employees. In practice, labour relations only effects those companies which have large unskilled or semi-skilled work forces. Companies whose labour force is well educated is usually not subject to unionism or strike action. When considering a share it is important to look at its exposure to union activity and its approach to labour relations.
  • LAG
    The number of data points that a filter, such as a moving average, follows or trails the input price data. So, for example, you can have a 65-day exponentially smoothed moving average which is lagged by five days.
  • LAGGING INDICATOR
    Certain economic indicators regularly lag behind the business cycle because of the nature of their business. For example, large construction contracts normally have a duration of three to five years and so agreements already in place will continue to impact on the sector long after the business cycle has turned down.
  • LAND REFORM
    Part of South Africa’s constitution is to remedy the imbalances of the past and part of this process is to restore land claims to those who were dispossessed during the colonial and apartheid eras. However, the cost of buying back farms at market-related rates to honour claims is expensive and so far has not been significant. Suggestions have been made that land should be expropriated and compensated for at a pre-set rate. The farms which have been repossessed have in general been badly managed and under-capitalised.
  • LAST DAY TO REGISTER
    The date by which you must be registered as a shareholder in order to participate in a corporate action such as the paying of a dividend or a rights issue. The last day to register is three days after the last day to trade. The last day to trade is usually a Friday and shares which are bought on that day must be registered within three trading days (T+3).
  • LAST DAY TO TRADE
    The last day to trade (LDT) in securities, which are subject to a corporate action (such as a rights issue or a dividend), in order to ensure settlement on record date (RD) and qualify for the entitlement.
  • LAST IN FIRST OUT
    In accounting, a method of valuing closing stock which assumes that the most recently-purchased stock is the first stock to be used – which leaves the oldest and usually the less-expensive stock in the warehouse at year-end. This has the effect of reducing the value of closing stock and hence increases the value of cost of sales and reduces profits. The opposite of LIFO is FIFO.
  • LAST TRANSACTION PRICE
    The price at which a certain share was last traded. This information is normally reported on the price page of your newspaper in a column headed “last”. It is sometimes called the “closing” or “ruling” price. Normally, papers report on the position at the end of the afternoon session.
  • LATEST QUARTERLY EARNINGS
    The percentage change from the latest earnings reported compared with the same quarter a year earlier.
  • LAZY BALANCE SHEET
    Occasionally, you will come across a listed company which is said to have a “lazy balance sheet” because they are carrying a lot of cash and cash equivalents – which could be used for profitable undertakings, or failing that returned to shareholders. Since the sub-prime crisis of 2008, many companies have thought it wise to hold unusually large quantities of cash to meet any possible economic melt-down. This has led to them being accused of not using their cash efficiently.
  • LEAD
    The number of data points that a filter, much as a moving average, precedes the input price data.
  • LEADING INDICATORS
    These are indicators which tend to anticipate movements in other indicators. For example, the paper and packaging industry tends to start experiencing better conditions before the rest of the economy because almost all products have to be packaged before they can be sold.
  • LEAPS
    Acronym for long-term equity anticipation securities, which are long-term listed options, with maturities that can be as long as two and a half years.
  • LEG
    One side of a spread.
  • LEG OUT
    In rolling forward in futures, a method that would result in liquidating a position.
  • LEGAL PERSONA
    This is a legal term that refers to the fact that, in addition to natural persons, companies are also considered by law to be persons independent of their owners or managers. Legal persona gives companies the two essential features that they need to attract capital from the investing public – separation of the ownership from the management of the company and limited liability. This ensures that shareholders (unlike partnerships and sole traders) are only liable up to the value of their shares.
  • LEVERAGE
    The American term for “gearing” on the balance sheet where debts exceed equity. The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.
  • LIABILITY
    An accounting term, which records monies owed by the company to outsiders. The most common forms of liabilities are share capital and reserves (which are money “owed” to the shareholders), long-term loans such as debentures, and short-term loans (normally called creditors). These amounts are added to the liabilities side of the balance side. They are credit balances in the ledger, and essentially they show the source of the company’s finance.
  • LIBOR
    The interest rate which British banks charge each other for inter-bank loans. Libor is used as a bench-mark rate to determine other interest rates.
  • LIFESTYLE TAX AUDIT
    The Receiver of Revenue sometimes undertakes a lifestyle audit of an individual who appears to be living beyond his taxed income and stated assets. The Income Tax Act allows for SARS to investigate how a person is living and to look at their personal expenses.
  • LIFO
    In accounting, a method of valuing closing stock which assumes that the most recently-purchased stock is the first stock to be used – which leaves the oldest and usually the less-expensive stock in the warehouse at year-end. This has the effect of reducing the value of closing stock and hence increases the value of cost of sales and reduces profits. The opposite of LIFO is FIFO.
  • LIMIT (UP OR DOWN)
    The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange. The purpose of limit up or limit down rules is to give the market time to recover during a crash. Once the index has reached the limit, all trading is stopped until the next day giving everyone time to get used to what has happened. This helps to prevent panic.
  • LIMIT MOVE
    A change in price that exceeds the limits set by the exchange on which the contract is traded.
  • LIMIT ORDER
    Limit order types are orders that stipulate both a volume to be bought or sold and a limit price. Limit orders will always execute at the specified limit or better. With on-line trading, all orders require that the investor provides a price at which he/she is willing to trade. Thus a "market order" is now really a limit order which is placed at a price at which the JSE computer will automatically and immediately execute.
  • LIMITED LIABILITY
    Corporate entities are juristic persons who have full legal persona. This means that they are responsible for their own debts separately from the people who own their shares. This is not true for a partnership or sole trader. In these types of organisations the business liabilities pass through the business to the owners – so a sole trader can be sued in his personal capacity for the debts of his business. Obviously, limited liability is very important for the formation of companies. No one would buy shares in a large listed company if by doing so they immediately became personally liable for all its debts to the full extent of their assets. So shareholders in a company enjoy limited liability – if the company is liquidated, they can only lose what their shares cost them and nothing more.
  • LINE CHART
    Technical Analysis, or charting as it is called, has three primary divisions – Formations, Line Charts and Wave and Cycle Theories. Line charts start with a simple chart of the closing price of a share, index or other financial data stream over a given period of time and they go on to a multitude of complex formulae to cover everything from Fourier transforms to regressions analysis. All of these formulae strive to establish some sort of pattern in price and volume data that can be used to predict the future. They seek to exploit some behavioural characteristic of investors as a group. For example, the moving average exploits the fact that investors generally have difficulty in adjusting their perceptions of the value of a share quickly – which means that share prices tend to move in broad sweeping trends. So while it is possible for a share to fall from a price of 2000c to 100c, it will not do so in a single day, but over a period of time. To the extent that shares move in broad sweeping trends the moving average will work and vice versa. It is exploiting a common human behavioural characteristic. Your software contains many different line indicators, the more popular ones are listed at the bottom of the screen for ease of use. Try to concentrate on a few key indicators that you like and become an expert in their use and interpretation. With the advent of computers, line charts have come to dominate charting because it is now simple and quick to produce highly complex formula and then back-test them on huge quantities of share price data. So line charts use the high, low, open, close and volume traded each day in a variety of formulae designed to optimise buying and selling opportunities.
  • LINEAR WEIGHTING
    The even weighting of a moving average so that older data has proportionately less impact than more recent data. In a standard moving average every price from the most recent to the oldest in the moving average period has exactly the same impact. The removing of the oldest price has as much effect on the position of the moving average as the adding of today’s price. Technicians feel that this is illogical and that the most recent prices should impact the position of the moving average more than the oldest data. To achieve this they weight each days price so that the older a price is the less impact it has. Thus in a 10-day moving average, the most recent price is multiplied by 1 and the previous day’s price by 0,9 and so on until the 10th days price is multiplied by only 0,1. These weighted figures are then added up and divided by the sum of the weightings.
  • LIQUID
    A liquid share is one which typically trades more than R5 million but less than R500 million worth of shares every trading day. A good example of this would be a share like Dischem or Coronation. Such shares are traded by the institutions, but they have to be careful when placing orders not to push the price of the share up or down. For the private investor, these shares are ideal, because you can always stop out of them.
  • LIQUID ASSETS
    Assets that can be readily converted into cash. Normally, these are current assets such as debtors, stock and obviously cash or bank balances. The "liquidity" of an asset is the speed and ease with which it can be turned into cash.
  • LIQUID MARKET
    A security or commodity market with enough units outstanding to allow large transactions without a substantial change in price.
  • LIQUIDATE
    To  settle the affairs of a company or firm by selling assets in order to pay creditors. When a company is liquidated, ordinary shareholders are entitled to receive their portion of remaining assets once creditors and preference shareholders have been paid. For the individual, this term can be used when selling a holding of shares (or another asset) and turning it back into cash. The liquidity of a share can be judged by the volume of shares traded on average each trading day. Thinly-traded shares can be difficult to liquidate – which makes them a more risky investment. As a general rule of thumb you should not invest in a share which has less than three times what you want to buy changing hands each day. For example, if you want to buy 1000 shares then you need to see 3000 shares changing hands in that share on average each day.
  • LIQUIDATING VALUE
    A money balance figure calculated by beginning with adjusted total equity, subtracting short option value, and adding long option value. This figure provides a critical snapshot of the financial state of a trading account.
  • LIQUIDATION
    The process whereby a company is dissolved. The court, the company itself, a shareholder, the Master of the court, the business rescue practitioner, a creditor, or the minister may initiate such dissolution. A business rescue practitioner is appointed, who, if the company cannot be rescued, arranges to sell off all the assets of the company and uses the proceeds to pay its creditors (firstly the secured creditors and then the unsecured ones). Once the creditors have been paid then the preferential shareholders are paid, and then finally the ordinary shareholders are paid.
  • LIQUIDITY
    The ability of a company (or person) to raise cash on short notice, usually with a view to meeting debts, unexpected expenses, or to take advantage of opportunities. It is wise to keep a portion of your wealth in cash so that you will be able to take advantage of unforeseen opportunities (or meet unforeseen expenses) without being forced to sell shares at a time which may not be advantageous. Excessive liquidity usually means that the company or individual is overly conservative and is not reaping the full benefit of investment opportunities. The Companies Act (71 of 2008) requires that a liquidity test be conducted and passed before a company may pay a dividend, lend money to its directors or buy back its own shares.
  • LISTING
    The right to trade a particular security on the exchange. The JSE has stringent requirements for companies seeking to have their shares and other instruments listed. Securities may be listed in the industrial, mining or financial sectors, etc. or on ALT X. In the industrial section, the company must have: a subscribed capital of at least R25 million in the form of at least 25 million shares a satisfactory profit history over the last 3 years audited profit of R8 million before taxation At least 500 equity shareholders (if issuing pref shares 50 shareholders and if issuing debs 25 debenture holders) and 20% of the shares must be held by the public.
  • LISTINGS BOOM
    This describes a surge in companies lising on the JSE over a period of time. As a company executive, having your company listed on the JSE is attractive, as capital can be generated to grow the business, and your shares are tradable through an organised exchange, increasing their value significantly. But listing is expensive to obtain and keep. Listings booms usually occur after a long bull trend, as executives are attracted by the high prices they can get for their shares. A listings boom will see anywhere from 3 to 6 companies listed per week on the JSE. Following a listing boom, the market will usually experience a bear trend during which most of the companies which listed during the boom disappear. An example of an occurrence of a listings boom is during the dot.com boom in 1998, when a lot of tech companies listed around excitement over the internet and advances in telecommunications.
  • LJUNG-BOX STATISTIC
    A chi-square test of significance of higher order correlation existence. The marginal significance level is the probability that a no more higher order correlation exists. There are a large number of tests of randomness (e.g., the runs tests). Autocorrelation plots are one common method test for randomness. The Ljung-Box test is based on the autocorrelation plot. However, instead of testing randomness at each distinct lag, it tests the "overall" randomness based on a number of lags. For this reason, it is often referred to as a "portmanteau" test.
  • LOAD
    Commission and fees taken out of investment capital; that is, the situation in which a front-loaded mutual fund takes commission and fees out of investment capital before the money is put to work.
  • LOCAL COUNTER-PARTY TRANSACTION
    A transaction where a member firm trades as a principal with a person in South Africa, other than a member firm in South Africa.
  • LOCKED IN
    A special arrangement whereby certain shareholders are prevented from selling their shares for a defined period of time. This is typically a condition of an acquisition where the major shareholders are locked into their shares for a period of two or three years. More recently some black empowerment deals have seen this type of lock in to prevent an erosion of the company’s empowerment level.
  • LOCKED LIMIT
    A market that, if not restricted, would seek price equilibrium outside the limit but, instead, moves to the limit and ceases to trade.
  • LOG CHARTS
    Long-term standard charts, especially of indexes, have the disadvantage that the older data cannot be compared with the most recent data. For example, the 40% collapse of the JSE Overall index in October 1987 looked insignificant when compared with the 40% fall in 2008  - although they were about the same size. In order to overcome this problem, technicians produced log charts where the percentage moves are always the same size on the chart. It is interesting to flip from log charts to standard charts and see the difference.
  • LONDON STOCK EXCHANGE
    The London Stock Exchange is one of the world's oldest stock exchanges and can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City's most important financial institution. In 1698 John Castaing began to issue "at this Office in Jonathan's Coffee-house" a list of stock and commodity prices called "The Course of the Exchange and other things". It is the earliest evidence of organised trading in marketable securities in London and stock dealers were expelled from the Royal Exchange for rowdiness and started to operate in the streets and coffee houses nearby, in particular in Jonathan's Coffee House in Change Alley. The LSE is famous for a wave of speculative fever known as the "South Sea Bubble" which burst in 1720. In 1748 a fire swept through Change Alley, destroying most of the coffee houses. They are subsequently rebuilt. Much later, in 1773, the brokers erected their own building in Sweeting's Alley, with a dealing room on the ground floor and a coffee room above. Briefly known as "New Jonathan's", members soon changed the name to "The Stock Exchange". In 1801, the first regulated exchange came into existence in London, and the modern Stock Exchange was born. In 1986 the LSE was deregulated in the "Big Bang" which meant that: Ownership of member firms by an outside corporation was allowed. All firms become broker/dealers became able to operate in a dual capacity. Minimum scales of commission were abolished. Individual members ceased to have voting rights. Trading moved from being conducted face-to-face on a market floor to being performed via computer and telephone from separate dealing rooms. The Exchange became a private limited company under the Companies Act 1985. In 2004 the LSE was moved to new headquarters in Paternoster Square, close to St Paul's Cathedral.
  • LONG
    Establishing ownership of the responsibilities of a buyer of a tradable; holding securities in anticipation of a price increase in that security. An investor who is “long of a stock” is a person who holds that share. He is said to have a “long” position.
  • LONG LEGGED DOJI
    A candlestick pattern which comprises of a very small or non-existent body and very long upper and lower shadows. The body of the candle is exactly in between the two shadows. The Rickshawman candlestick pattern is a definite signal of indecision in the market, as buying and selling pressure are exactly equal. The upper and lower shadows are also very long, showing the intense fight between the bulls and the bears during the period. Also called a Long Legged Doji.
  • LONG OPTION VALUE
    The current market value of all long options in a trading account. This amount of cash would flow into the account (less any commissions and fees) in the event that the options were offset (sold) at the prices used to compute long option value.
  • LONG-TERM LIABILITY
    A debt, which is to be repaid over years rather than months. A good example of this would be debentures, which carry a fixed percentage return and are redeemable by the company at some future date. Long-term liabilities are found on the liabilities side of the balance sheet immediately below share capital and reserves under the heading 'Non-current liabilities'.
  • LOOKBACK INTERVAL
    The number of periods of historical data used for observation and calculation. For example, a 50-day moving average has a lookback interval of 50 trading days.
  • LOOP STRUCTURE
    An illegal structure where a person resident in South Africa for tax purposes owns a company or trust overseas which then, in turn, owns assets in South Africa. Certain loop structures can be accepted and approved by the Minister of Finance.
  • LOT
    A unit of trading. In the futures market, one lot refers to one futures or options contract. In the forex market, one lot is equivalent to 100,000 units of a particular foreign currency. Originally on the stock exchange a “round” lot was 100 shares and anything less than that was called an “odd” lot and caused the investor to pay higher dealing costs. With the advent of electronic trading, however, it is possible to buy smaller numbers of shares without incurring additional costs, especially in companies whose shares trade at very high prices.
  • LOW
    The lowest point in a price pattern over a specific period.
  • LOW PASS FREQUENCY FILTER
    A data smoother or filter that lets pass low frequency trend sinusoids and rejects high frequency noise (see SMA).
  • LOW-TICKING
    To sell at the bid price.
  • LSE
    The London Stock Exchange is one of the world's oldest stock exchanges and can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City's most important financial institution. In 1698 John Castaing began to issue "at this Office in Jonathan's Coffee-house" a list of stock and commodity prices called "The Course of the Exchange and other things". It is the earliest evidence of organised trading in marketable securities in London and stock dealers were expelled from the Royal Exchange for rowdiness and started to operate in the streets and coffee houses nearby, in particular in Jonathan's Coffee House in Change Alley. The LSE is famous for a wave of speculative fever known as the "South Sea Bubble" which burst in 1720. In 1748 a fire swept through Change Alley, destroying most of the coffee houses. They are subsequently rebuilt. Much later, in 1773, the brokers erected their own building in Sweeting's Alley, with a dealing room on the ground floor and a coffee room above. Briefly known as "New Jonathan's", members soon changed the name to "The Stock Exchange". In 1801, the first regulated exchange came into existence in London, and the modern Stock Exchange was born. In 1986 the LSE was deregulated in the "Big Bang" which meant that: Ownership of member firms by an outside corporation was allowed. All firms become broker/dealers became able to operate in a dual capacity. Minimum scales of commission were abolished. Individual members ceased to have voting rights. Trading moved from being conducted face-to-face on a market floor to being performed via computer and telephone from separate dealing rooms. The Exchange became a private limited company under the Companies Act 1985. In 2004 the LSE was moved to new headquarters in Paternoster Square, close to St Paul's Cathedral.
  • MACD
    The crossing of two exponentially smoothed moving averages that are plotted above and below a zero line. The crossover, movement through the zero line, and divergences generate buy and sell signals. The MACD measures the gap between two smoothed moving averages to give an overbought/oversold zero oscillator.
  • MAIDEN DIVIDEND
    The first dividend paid by a company after listing on the JSE. A company’s first dividend is typically the subject of much speculation. The prospectus will give a five year projection of how the directors see things going, but the payment of a good first dividend is a major plus for the company.
  • MAIN BOARD
    To be listed on the main board of the JSE a company must have at least R1m in subscribed capital in the form of at least 1 m shares. It must have a satisfactory profit history over the past 3 years and an audited profit of at least R500 000. It must have at least 1 m shares in issue, with 30% of the 1st million shares held by the public.
  • MAINTENANCE MARGIN
    A set minimum margin (per outstanding futures contract) that a customer must maintain in his margin account to retain the futures position. See also Margin.
  • MAJOR AUCTION
    The overall trend of the market such as might be observed on a bar chart.
  • MAJORITY SHAREHOLDER
    The shareholder or group of shareholders who own a controlling interest in the company – usually 50% of the voting shares plus 1 share. Obviously, the identity of the controlling shareholder is of great interest to private investors. Sometimes no single shareholder has a majority and issues are resolved by the votes at meetings, especially the annual general meeting.
  • MANAGED ACCOUNT
    An account opened with a stockbroker where the client has entered into an arrangement with the stockbroker that authorises the stockbroker to conduct transactions on the client's behalf with full discretion and no prior reference to the client. It has been well said, however, that “Nobody cares about your money except you”. The point being that you should really manage your own money for best results. At a stockbroking firm, a discretionary account is also called a managed account, since the stockbroker is authorised to place the funds as he sees fit. The opposite of a non-discretionary account.
  • MANAGED FUTURES
    A fund that uses the futures market as its primary asset.
  • MANAGEMENT BUY-OUT
    The acquisition of all or part of the share capital of a company by its directors and senior executives. The management is usually assisted by loans from an institution.
  • MANAGEMENT RATIOS
    Financial ratios which are used to assess the management of a company’s working capital. These ratios include the stock turn ratio and the debtors collection period ratio each of which measure the management of a critical area of working capital management. So the stock turn ratio shows how many days on average the company takes to turn over its stock. Stock which is turned over very slowly can result in obsolescence or excessive capital tied up in stock. The debtors collection period shows the average number of days that it takes for a company to collect its debts. Bad debt collection results in a higher bad debt ratio and, again, more working capital tied up in the debtors book.
  • MANDATE
    When you open a stockbroking account you will be required to sign a mandate – which is an agreement between you and your broker which determines the extent of his control over your account. A discretionary mandate gives your broker complete control over your funds – he can buy or sell any shares without asking you. A non-discretionary account means that your broker never looks at your account and you make all the buy and sell decisions. We advise you to insist on non-discretionary mandate so that you get to make all your own decisions.
  • MANDATORY OFFER
    When one shareholder acquires more than 35% of a listed company, he is obliged by the Securities Regulation Panel to make an offer to all the shareholders of the company to acquire their shares. In other words, as soon as a shareholder buys that final share which gives him 35% it triggers an automatic mandatory offer to the other shareholders.
  • MARGIN
    In stock trading, an account in which a purchase of stock may be financed with borrowed money; in futures trading, the deposit placed with the clearinghouse to assure fulfilment of the contract. This amount varies daily and is settled in cash.
  • MARGIN CALL
    A call from a broker or firm to a customer, to bring margin deposits up to a required minimum level. A margin call essentially means that a customer's account equity is no longer sufficient to carry the positions which currently are held in the account. Immediate action to restore the account to a fully-margined status is required. Exchange rules state that margin calls must be satisfied by bringing your account equity back to the Initial Margin level. Failure to meet a margin call immediately may result in some or all of the trader's positions being liquidated by the firm without prior notification.
  • MARGINAL PRODUCER
    A term usually applied to gold-mining companies with a very high cost of extraction and therefore a low margin. If their cost of extraction is close to the gold price, then very small fluctuations in the gold price can easily increase or decrease their profitability substantially. This is reflected directly in their share price, which tends to fluctuate widely for relatively small changes in the gold price.
  • MARGINAL TAX BRACKET
    The tax bracket which individuals in South Africa with the highest incomes pay. In the tax year which ends on 28th February 2018, the marginal tax bracket for individuals resident in South Africa is 45% on all income above R1.5 million per annum – which is R125000 per month. The marginal rate was increased to 45% from 41% with effect from 1 March 2017.
  • marginal tax rate
    The tax bracket which individuals in South Africa with the highest incomes pay. In the tax year which ends on 28th February 2018, the marginal tax bracket for individuals resident in South Africa is 45% on all income above R1.5 million per annum – which is R125000 per month. The marginal rate was increased to 45% from 41% with effect from 1 March 2017.
  • MARKED TO MARKET
    Calculation of the difference between the contract price and the market price.
  • MARKET ACTION
    The price of trades and the volumes changing hands during the trading day. The best way to see this is to look at either a candlestick or a bar chart together with a volume histogram. These will show you the range of trade which is the gap between the highest and lowest prices reached during the day – which is a good indication of the level of uncertainty among investors. It will also show whether the share closed near to the upper or lower end of that range – which is an indication of bullish or bearish sentiment. If a share closes below its opening price, the bears are said to have won the day and vice versa. You should study the daily market action of the shares that interest you.
  • MARKET APPRECIATION
    The difference between what was paid for a share and its current market price. This is distinct from the realised profit, which can only occur if the share is actually sold and the money is in the bank.
  • MARKET BREADTH
    The extent or scope of change in share prices. Market breadth is most often measured by analysing the number of shares that advanced or declined during the period or by counting the number of shares in issue by their current market price.
  • MARKET CAPITALISATION
    The current market price of a share multiplied by the number of shares in issue. The market capitalisation of a company is the value which the market gives it at any point in time. It is also the basis for the weighting of most indexes.
  • MARKET CARPETS
    A feature of the ShareFriend Software. If you click “Scans” at the top of your screen you will see market carpets in the drop-down menu. Market carpets view the entire JSE, sector by sector, in the form of a matrix of squares with each sector represented by a square. The colour of the square indicates how well it has done over a period chosen by the user. A performance chart of the sector index is displayed on the right-hand side for whichever sector is highlighted with the mouse. It is interesting to look at the market carpet for various periods and compare them. You will find that the market carpet of the past five years is very different from the market carpet of the last six months. The small coloured boxes within each sector square show the individual shares which make up that particular sector index. If you click inside the sector square, you will get a carpet which just reflects the shares in that sector. This highlights which are the best and worst performers in the sector.
  • MARKET CRASH
    A sudden fall in stock market prices, sometimes in a single trading day, and which is usually followed by a bear trend.  This happens generally because market prices have risen to unrealistically high levels, but also because of economic conditions and a growing panic in the market.  The crash of 1929 (Black Tuesday) saw the markets fall by more than 9% in just one day. Subsequently, in the bear trend which followed, the Dow Jones industrial index lost 89% of its value over 30 months and the market did not return to its 1929 peak until 1954.The 1987 crash saw the Dow Jones industrial index fall by 23% in one day.
  • MARKET MAKER
    A broker or bank continually prepared to make a two-way price to purchase or sell for a security or currency.
  • MARKET NOISE
    An incorrect interpretation of the market due to daily price and volume fluctuations. Volatility in the market can be smoothed out with a moving average. Usually the smaller the time period under review the more noise there is.
  • MARKET ORDER
    An order given to a broker with no price limitation. The broker is instructed to obtain or sell a specific number of shares “at best” – as opposed to a limit order, where the instruction is only valid above or below a pre-determined price. In practice, the broker may inform you if the price has changed dramatically, and give you a chance to reconsider.
  • MARKET PERCEPTION
    The way in which the investing public in general feel about a share.  In other words, do they see the share is highly-rated or poorly-rated? Are they expecting its share price to go up or down?  Usually a company with a good track record is perceived as having quality shares. In other words, there is a positive perception. A company that realises consistent growth and profits, and which pays out regular dividends is usually perceived to be a quality share which will increase in value over time.  On the other hand, if a company does not have consistent earnings and or growth it is likely to have a negative or poor perception, as investors are not likely to see its shares as quality that will reliably increase in value.  The perceptions of the market are not always correct.  In fact, as a private investor, you want to look for shares which are perceived incorrectly, because then you will make money when the perception changes and the big institutions catch on to the opportunity which you have already identified. A similar point can be made for the market as a whole. Are investors generally bullish or bearish, optimistic or pessimistic? This general perception can have an enormous impact on share price movements. In a bull market about 80% of shares go up and vice versa.
  • MARKET PRESSURE
    The constraint on a share price brought about by either buying or selling pressure. Market pressure can be either bullish or bearish, depending on whether there is more buying or selling pressure. In candlestick charting, if buying pressure is stronger than selling pressure, you will have a green candle. If selling pressure is greater than buying pressure you will have a red candle. Overall market pressure determines the direction of the trend and is affected by the demand and supply for the share, as in any market.
  • MARKET RATING
    The value which the market places on a share. The price of a share in relation to its most recent earnings per share are reflected in the P:E ratio and it’s reciprocal, the earnings yield. Highly rated shares are those which have an extended track record of producing steadily increasing earnings per share. This rating is then reflected in a high P:E ratio and a low earnings yield. Conversely, poorly rated companies have erratic track records of earnings and are seen by the market as unreliable. This is reflected in a low P:E ratio.
  • MARKET RISK
    The uncertainty of returns attributable to fluctuation of the entire market as opposed to a specific share. The risk in the market as a whole is usually known as “systematic risk” while the risk in specific shares or other securities is known as “unsystematic” risk.
  • MARKET SENTIMENT
    Crowd psychology, typically a measurement of bullish or bearish attitudes among investors and traders. There is a definite “herd” effect in market sentiment where bullish or bearish sentiment, once it is strong enough, tends to feed on itself. For example, during a bear trend negative articles in the press are given front-page headline prominence while positive articles tend to be relegated to the middle pages and are largely ignored. One of the methods for determining whether sentiment is bullish or bearish is to study the movement of the market in response to breaking positive or negative information. When the market tends to ignore positives and over-emphasise negatives then you can be sure that sentiment is bearish.
  • MARKET SHARE
    The percentage of a particular market which a company controls. Companies, especially in the retail sector are constantly fighting to maintain or increase their market share. The goal is to have a dominant share of a particular market – and this usually depends on achieving a dominant brand which is well known to and favoured by consumers. Good market share can entrench a company’s turnover and profits, especially in the highly competitive grocery market. Unilever, a London listed company, dominates many South African consumer markets, but there are South African brands which have good market share. For example, Mr. Price has achieved strong market share in the highly competitive clothing market.
  • MARKET TIMING
    Using analytical tools to devise “buy” and “sell” signals. Market timing is the realm of technical analysis while fundamental analysis is better for share selection.
  • MARKET VALUE
    Company value determined by investors, obtained by multiplying the current price of company stock by the common shares outstanding – in other words, the market capitalisation of the share. The search for the company’s “real” value is the work of the fundamental analyst. What we can be sure of is that the market value oscillates from being above the “real” value to being below it as sentiment varies.
  • MARKET-IF-TOUCHED ORDER
    An order placed much like a Limit order (buy orders should be placed below the current market price; sell orders above the current market price), but when the market touches the specified price, the order immediately converts to a Market order. MIT orders are used by traders who definitely want to be filled if the market touches the specified order price. With a limit order it can only be filled if the limit price can be obtained. With an MIT order once the market reaches the limit price the trade will go through whether or not the limit price is obtained.
  • MARKET-ON-CLOSE ORDER
    An order to buy or sell a futures or options contract at the prevailing market price during the closing range (usually, the last 30-60 seconds of trading). Similar to a market order in that no price is specified during order entry. This order is ideal for a trader who wishes to offset an existing position by the close but doesn't wish to wait to the last minute to enter a market order.
  • MATCHING PRINCIPLE
    The accounting principle which requires that the expenses of a period are subtracted from the incomes of the same period in order to arrive at the profit or loss for that period. For example, if a motor vehicle is purchased for R100 000 cash and is expected to last for five years, then it is clearly incorrect to deduct the entire cost of the vehicle from the incomes of the year in which it was purchased. Accordingly, the vehicle is depreciated over the 5 years of its expected life with 20% of its cost or R20 000 being deducted from profits each year.
  • MATIF
    The Marche A Terme Des Instruments Financiers exchange in Paris. MATIF SA is France's futures exchange, absorbed in the merger of the Paris Bourse with Euronext NV to form Euronext Paris. Derivatives formerly traded on the Matif and other members of Euronext are traded on LIFFE CONNECT, the electronic trading platform of the London International Financial Futures Exchange. LIFFE is an affiliate of Euronext. Those products' interest rate futures and options on the Euro notional bond, five year Euro, and three month PIBOR (Paris Interbank Offered Rate), and futures on the 30-year Eurobond and two-year E-note; futures on the CAC 40 Index, Dow Jones Stoxx 50, Dow Jones Euro Stoxx 50; and futures and options on European rapeseed and futures on rapeseed meal, European rapeseed oil, milling wheat, corn and sunflower seeds (Wikipedia).
  • MATURITY
    U.S. Treasury Bills reach their face value on the maturity date. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date.
  • MAXIMUM ADVERSE EXCURSION
    A historical measurement of the closed losing trades versus the closed profitable trades of a trading system. Used to determine the stop-loss level that can be used that will allow winning trades to remain; the extreme unfavourable price level reached for both profitable and unprofitable trades.  
  • MAXIMUM ENTROPY METHOD
    More flexible than Fourier analysis, the maximum entropy method is both a tool for spectrum analysis and a method of adaptive filtering and trend forecasting. As a tool for spectrum analysis, the MEM system can provide high resolution spectra for identifying the dominant data cycles within relatively short time series, such as open, high, low, close, volume and open interest, or study results, such as RSI, TRIX, and so on. (Fourier analysis, in contrast, gives best results when applied to time series of six months or longer.) As a forecasting tool, MEM is used in conjunction with moving averages to forecast lower and upper trend channels in the data.
  • MEAN
    The mean of a set of numbers. Averages are used extensively in the share market for the determination of market indexes and economic data. The moving average in its various forms is the application of an averaging technique to share price (and other) data to reduce the “noise” in the chart and reveal the underlying trends.
  • MEAN DEVIATION
    The average absolute value of the difference between the population of numbers and the mean.
  • MEAN RETURN
    The average monthly total return of a stock. The total return is price change added to dividends.
  • MEAN REVERTING
    The term adopted in academic literature for one possible state of a price series: that state when price is oscillating randomly about some (unknown) mean value. That is, it is not trending.
  • MEDIAN LINE
    The line that is drawn from an extreme that bisects a line drawn through the next corrective phase after the pivot point. See Andrews Method.
  • MEGAPHONE
    A technical analysis formation which is the opposite of an asymmetrical triangle. The broadening formation occurs when there is uncertainty and high volatility in the market. The formation takes place when a series of higher highs and lower lows are evident in a range of candles over a period of time. Drawing trendlines above and below these highs and lows shows a widening pattern which resembles a megaphone, another name for this formation. Although rare, this formation can give a strong signal as to the continuation of the trend, depending on which side of the megaphone the trend breaks. [caption id="attachment_11632" align="alignnone" width="547"] Broadening Formation[/caption]
  • MEMORANDUM AND ARTICLES OF ASSOCIATION
    A document required in terms of the old Companies Act which was lodged with the Registrar of Companies and which set out the relationship of a company with the outside world. In terms of the new Companies Act (71 of 2008) the memorandum and articles of association are replaced by a single document called a “Memorandum of Incorporation” (MOI) which must be lodged with the Companies and Intellectual Properties Commission (CIPC) which replaced the old Registrar of companies.
  • MEMORANDUM OF INCORPORATION
    Introduced in May 2011, the Memorandum is a single document that, in terms of the new Companies Act, replaces the old memorandum and articles of association. The MOI includes details of the relationship between the company and its shareholders internally and with the rest of the world externally. It acts as a shareholders agreement and can define the powers, responsibilities and limitations of the directors.
  • MENTAL POSTURE
    Mental Posture is your emotional response to the share market in general and to your shares in particular. Objectively, investing in shares should be a very scientific process. The reality is that our emotions of fear and greed always tend to interfere with our decision-making process in the share market. For example, if you have bought a share for 1000c three months ago and it has fallen to 800c, what are you feeling inside?  You are feeling the pain of loss and you are trying to avoid facing that loss directly by holding onto the share in the hope that it will go up again in the future. You have made the price which you paid for the share three months ago the single most important factor in your decision to hold it rather than sell it. This is irrational because the price that you paid for the share is now completely irrelevant. The only thing that matters now is whether it will go up or down from this point. This example demonstrates how having a bad mental posture in relation to your shares can cost you dearly in the share market.
  • MENTAL STOP-LOSS
    A stop-loss order kept in your head instead of instructing your broker.
  • MERGER
    (Also called an amalgamation.) This occurs where two or more companies come under the control of one, whose shareholders then become the shareholders of the companies that were merged. Sometimes one of the two merged companies is used as a vehicle for the merger, and sometimes a totally new company is formed for this purpose. A merger is seen as distinct from a “take-over” or an “absorption”.
  • MID-CAP INDEX
    An index of the next 60 largest companies trading on the JSE after those included in the JSE Top 40 index. Many of these mid-cap shares are, in fact, high-quality blue chips and they are definitely worthy of your attention as a private investor. Some of them are commodity shares and hence more volatile than the financial and industrial components.
  • MINIMUM SUBSCRIPTION
    Section 108 (2) of the Companies Act requires the directors of a company to determine the minimum amount of capital necessary for a company to become viable. This is called the minimum subscription. The Act provides that no shares shall be allotted on any application made in pursuance of a prospectus for subscription unless the amount stated in that prospectus as the minimum amount. This in effect means that if the minimum subscription is not achieved the sale of shares is cancelled and all applicants must have the money returned. Of course, the directors have almost complete discretion over exactly how much this amount is. Many companies pay an underwriter to ensure that the minimum subscription is taken up.
  • MINIMUM WAGES
    These are set by the Minister of Labour in terms of the Basic Conditions of Employment Act for each industry in the economy. The problem with setting a minimum wage is that often it makes a particular industry uncompetitive in world markets and against cheap imported products. This has been particularly true in the clothing sector in Natal where clothing manufacturers cannot compete effectively with cheap Chinese imports if they are paying a minimum wage with the result that they go out of business and all their employees lose their jobs.
  • MINING CHARTER
    The constitution seeks to redress the racial imbalances of the past and in the mining industry this is achieved by the mining charter. The charter aims to have at least 26% of mining companies’ equity held by Historically Disadvantaged South Africans (HDSA) although recently there have been efforts to restrict this to just black people. It also seeks to enforce employment equity and to develop and train HDSA’s. In 2016 the constitution was asked to rule on the question of “once empowered always empowered” in terms of which the mining companies want previous BEE allocations of shares to be recognised, even if they have subsequently been sold to other groups. The draft mining charter currently disallows the effect of previous BEE schemes. In June 2017, the mining minister, Mosebenzi Zwane, confirmed plans to raise the minimum level of black ownership of South African mines from 26% to 30%, proportioned between entrepreneurs, employees and communities. This had a negative impact on the rand, which fell 2% to the dollar.  
  • MINOR AUCTION
    The latest trend of the market, i.e., what it is doing now.
  • MINORITY INTEREST
    A shareholding of less than 50% of the total issued share capital of a company. Companies work on the principle of majority rule – decisions are made by the majority of votes in the company. Because ordinary shares usually have one vote each (although there are sometimes voting and non-voting ordinaries), this means that whoever controls at least 50% of the shares controls the activities of the company. The Companies Act goes to considerable lengths to protect minority shareholders from any unlawful actions of the majority – or any actions, which are not in the interest of the company as a whole. Any such action could constitute what is called a “fraud on the minority”. When looking at the consolidated accounts of a company it is common to see a minority interest shown. This means that the holding company has subsidiaries in which it holds less than 100% of the share capital. The holding company is obliged by law to consolidate the whole of the subsidiary into its accounts, and therefore must itemise that portion which belongs to minority (or “outside”) shareholders.
  • MIS-MATCH FACTOR
    This is the gross profit margin which banks make on lending money to the commercial sector. It is the difference between the prime overdraft rate and the repo rate which the Reserve Bank charges commercial banks for money lent to them. Usually it is maintained at roughly 3,5% - so if the repo rate is at 6% the prime overdraft rate will be at 9,5% and so on.
  • MIT
    An order placed much like a Limit order (buy orders should be placed below the current market price; sell orders above the current market price), but when the market touches the specified price, the order immediately converts to a Market order. MIT orders are used by traders who definitely want to be filled if the market touches the specified order price. With a limit order it can only be filled if the limit price can be obtained. With an MIT order once the market reaches the limit price the trade will go through whether or not the limit price is obtained.
  • MOC
    An order to buy or sell a futures or options contract at the prevailing market price during the closing range (usually, the last 30-60 seconds of trading). Similar to a market order in that no price is specified during order entry. This order is ideal for a trader who wishes to offset an existing position by the close but doesn't wish to wait to the last minute to enter a market order.
  • MODERN PORTFOLIO THEORY
    Investing theory in which portfolio managers estimate and manage risk and return. Modern Portfolio Theory (MPT) is based on the “random walk hypothesis” which basically maintains that it is impossible to predict share prices because they move in a random walk. MPT maintains that there is no dependence between today’s price and that of yesterday. MPT then attempts to optimize the risk in a portfolio and to ensure that it has an overall beta as close as possible to the market – i.e. 1. MPT is no longer modern in that it has relatively few followers today since there is mounting evidence that markets contain considerable imperfections.
  • MODIFIED ENDOWMENT CONTRACT
    Life insurance in which funds such as policy loans, assignments, pledges, and partial surrenders are considered gross income and subject to income tax.
  • MOI
    Introduced in May 2011, the Memorandum is a single document that, in terms of the new Companies Act, replaces the old memorandum and articles of association. The MOI includes details of the relationship between the company and its shareholders internally and with the rest of the world externally. It acts as a shareholders agreement and can define the powers, responsibilities and limitations of the directors.
  • MOMENTUM
    A time series representing change of today's price from some fixed number of days back in history. The theory here is that when a share is going up it tends to move in a trajectory like a tennis ball thrown into the air – before it reaches its highest point it begins to slow down. Momentum indicators attempt to measure that slowing down process. Momentum indicators are the only indicators that can give advance warning of the top or bottom of the market.
  • MOMENTUM FILTER
    A measure of change, derivative or slope of the underlying trend in a time series. Implemented by first applying a low pass filter to the data and then applying a differencing operation to the results.
  • MOMENTUM INDICATOR
    A market indicator utilising price and volume statistics for predicting the strength or weakness of a current market and any overbought or oversold conditions, and to note turning points within the market.
  • MONETARISM
    An approach to economics developed by Milton Friedman in which he proposes that increases in the money supply have an almost direct impact on the inflation rate because the velocity of circulation is close to being constant. Friedman advocated that the money supply should be allowed to grow at a slow (2-3% per annum) but constant rate and not used as a policy instrument. This is as opposed to the Keynesian approach which encourages active intervention in the economy through manipulation of monetary policy.
  • MONETARY POLICY
    Monetary policy is the control of the economy by changes in the money supply, as a result of changes in the level of interest rates, and the percentage of money that banks are required to lodge with the Reserve Bank. This is as opposed to fiscal policy, which involves the level of government spending and taxation.
  • MONETARY POLICY COMMITTEE
    A committee formed by the Reserve Bank of South Africa which meets regularly to discuss and decide on interest changes within the country. This committee is chaired by the Governor of the Reserve Bank and has the function of managing monetary policy within South Africa to ensure economic growth and monetary stability. Almost every country in the world has a Monetary Policy Committee (MPC), whose function it is to manage the economy through monetary policy, which usually means adjusting the reserve rate to alternately decrease inflation or increase economic activity. The MPC is part of the Reserve bank and in South Africa it consists of 8 members – the Governor of the Reserve Bank, his three deputy governors and four senior members of the Reserve bank. The committee meets every two months to decide whether to increase the reserve rate, decrease it, or keep it at the same level. They can have interim meetings in exceptional circumstances. When the MPC increases the reserve rate (the interest rate which the Reserve Bank charges commercial banks) then all interest rates throughout the country go up – making it more expensive to service your bond, pay your credit card or maintain a bank overdraft. This tends to make consumers spend less and that tends to reduce inflationary pressure. Conversely, when rates are reduced, consumers gradually get more money in their pockets which leads to increased spending and stimulates growth in the economy.
  • MONEY FLOW
    A number of technical indicators that incorporate volume and price action to measure buying or selling pressure.
  • MONEY MARKET
    The money market does not take place at a central place; it is really a communications network which allows banks, money brokers, businesses, discount houses, the government and the Reserve Bank to deal with one another and arrange short term lines of credit with one another. Money brokers and discount houses conduct the market in a full time capacity, and in fact constitute the market.
  • MONEY MARKET FUND
    A mutual fund made up of money market instruments that are short term in nature.
  • MONEY STOP
    A fixed amount of money that a market participant would lose if a stop were hit.
  • MONEY SUPPLY
    The total amount of money in the country. There are various methods for measuring the money supply, itemised and defined as “M0, M1, M2 and M3”.
  • MONOPOLY
    The situation where one business controls enough of the supply of a product or service to be able to force the price up by being the only supplier. A good example of this is De Beers, which has a virtual monopoly in the diamond market. Monopolies are discouraged in most western capitalist countries because they tend to lead to artificially high prices and inferior products. In the USA anti-trust legislation attempts to prevent monopolistic mergers and take-overs.
  • MONOWAVE
    In Elliott wave theory, a single wave within a range of waves.
  • MORNING FIX
    A fixing of the gold price in London at a fixing session. This is done by five leading bullion houses, by matching supply and demand to equalise at a certain price. There is also an afternoon fix.
  • MORNING STAR
    A bottom reversal pattern in candlestick charting. According to Steve Nison, a signal that the bulls have seized control.
  • MOVING AVERAGE
    The most commonly-used technical indicator in the world, this is often used in conjunction with other indicators. To calculate a moving average on a data stream (such as a series of daily share prices), it is necessary first to decide on its period. The shorter the period the more sensitive the signals.
  • MOVING AVERAGE CONVERGENCE/DIVERGENCE
    The crossing of two exponentially smoothed moving averages that are plotted above and below a zero line. The crossover, movement through the zero line, and divergences generate buy and sell signals. The MACD measures the gap between two smoothed moving averages to give an overbought/oversold zero oscillator.
  • MOVING AVERAGE CROSSOVERS
    The point where the various moving average lines intersect each other or the price line on a moving average price or bar chart. Technicians use crossovers to signal price-based buy and sell opportunities.
  • MPC
    A committee formed by the Reserve Bank of South Africa which meets regularly to discuss and decide on interest changes within the country. This committee is chaired by the Governor of the Reserve Bank and has the function of managing monetary policy within South Africa to ensure economic growth and monetary stability. Almost every country in the world has a Monetary Policy Committee (MPC), whose function it is to manage the economy through monetary policy, which usually means adjusting the reserve rate to alternately decrease inflation or increase economic activity. The MPC is part of the Reserve bank and in South Africa it consists of 8 members – the Governor of the Reserve Bank, his three deputy governors and four senior members of the Reserve bank. The committee meets every two months to decide whether to increase the reserve rate, decrease it, or keep it at the same level. They can have interim meetings in exceptional circumstances. When the MPC increases the reserve rate (the interest rate which the Reserve Bank charges commercial banks) then all interest rates throughout the country go up – making it more expensive to service your bond, pay your credit card or maintain a bank overdraft. This tends to make consumers spend less and that tends to reduce inflationary pressure. Conversely, when rates are reduced, consumers gradually get more money in their pockets which leads to increased spending and stimulates growth in the economy.
  • MPT
    Investing theory in which portfolio managers estimate and manage risk and return. Modern Portfolio Theory (MPT) is based on the “random walk hypothesis” which basically maintains that it is impossible to predict share prices because they move in a random walk. MPT maintains that there is no dependence between today’s price and that of yesterday. MPT then attempts to optimize the risk in a portfolio and to ensure that it has an overall beta as close as possible to the market – i.e. 1. MPT is no longer modern in that it has relatively few followers today since there is mounting evidence that markets contain considerable imperfections.
  • N SHARES
    These are shares which rank in all respects equally to other ordinary shares except that they have an extremely low par value. Since the voting right of a share was in proportion to its par value, this allowed certain listed companies to be controlled by a very small proportion of their contributing shareholders. In effect it amounted to a pyramid scheme. The Companies Act (71 of 2008) phased out par values, but there are still some counters trading on the JSE which have “N” shares. Naspers has 419,6million shares in issue of which 397 million are N-shares. In effect the N-shares have only got 36% of the votes while the A-shareholders have 64%.
  • NAKED PUT
    The writer of a put option contract who is not short the underlying security.
  • NARROW RANGE DAY
    A trading day with a smaller price range relative to the previous day's price range.
  • NARROW-BASED STOCK INDEX
    Broad-based stock indices, such as the S&P 500, are defined as a basket of securities where the weight of any single constituent cannot be greater than 30% and the weight of the five largest components cannot exceed 60% of the index. All other indices are said to be narrow-based and are regulated identically to single stock futures.
  • NASDAQ
    National Association of Securities Dealers Automated Quotation System. This is an over-the–counter equity market in America. It provides a trading platform where mostly technology and communications company shares are traded.
  • NATIONAL CREDIT ACT
    This Act legislates the finding and providing of credit facilities to the public. It covers all aspects of the extension of credit including insurances, penalties, interest compounding. Essentially it makes the provider of credit responsible for establishing that the person taking the credit is not over-extended financially and can afford to repay what he is borrowing.
  • NATIONAL ENERGY REGULATOR
    The national Energy Regulator of South Africa (NERSA) is responsible for overseeing the various energy sources in the South African economy. This means that NERSA has to approve price increases for electricity, gas and petroleum products. NERSA is established by the National Energy Regulator Act (40 of 2004).
  • NATIONAL FUTURES ASSOCIATION
    Authorized by the US Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association," NFA is the industry-wide self-regulatory organization of the futures industry in America.
  • NATIONALISATION
    The taking over of privately owned assets, especially corporations, by the government. In a mixed capitalist society such as exists in most countries around the world today, control of the economy is divided between the private sector and government. Certain services are always better provided by governments – such as the roads system. Clearly it would be inefficient to have various different companies all building roads down to Durban which would then compete with each other. The same can be said of the electricity grid. So those types of services are supplied by a government agency. However, there is no reason why an airline like SAA should be owned and managed by the government. Governments are typically less efficient at running large organisations than the private sector. This led the father of economics, Adam Smith to say, “The least government is the best government”, meaning that the government should not perform those functions in the economy which can be run by the private sector. In South Africa, the government is too large and this has resulted in a series of tax increases – which make it even harder for our economy to compete on world markets. The EFF have made it one of their policies to nationalise the major banks and the mining industry if they get into power. Such a move will lead to a significant reduction in the efficiency of those sectors. Essentially, private enterprise is the only part of the economy which generates a surplus – and everyone else lives off that surplus. It therefore makes sense to increase the size of private enterprise as much as possible and to minimise the size of government.
  • NATURAL PERSON
    The law distinguishes between natural and juristic persons. A natural person is an individual of flesh and blood, while a juristic person is a corporation established in terms of the Companies Act or a trust. Juristic persons are treated as people by the law. They can sue and be sued, they can employ, they are responsible for their own debts and their own management – separately from the people who own them.
  • NATURE OF BUSINESS
    The type of business which a company conducts. The JSE divides listed companies into sectors and sub-sectors, but in truth it is difficult to categorise certain companies because they have a variety of businesses. They are often just called holding companies or groups. It is obviously beneficial to compare a company which you are interested in with other companies in the same industry. The Stock Exchange Handbook gives an abbreviated nature of business, but it is better to read the company’s latest financial statements to get a really thorough understanding of its business.
  • NEAR EQUITIES
    These are classes of securities which share some of the characteristics of ordinary or equity shares. For example, a participating  preference share shares to some extent in the ordinary dividend and a convertible debentures will behave more and more like equity shares as their conversion date approaches.
  • NEAR-MONTH CONTRACT/FAR-MONTH CONTRACT
    A futures contract whose expiration is near/far.
  • NEAR-THE-MONEY
    An option with a strike price close to the current price of the underlying tradable.
  • NEARBY DELIVERY MONTH
    The futures contract month closest to expiration. Also referred to as the Spot Month. There are four futures close-outs each year – at the end of March, June, September and December. The nearest is the “nearby delivery month”.
  • NECKLINE
    A trendline drawn along the support or resistance points of various reversal and consolidation pattern (i.e., head and shoulder, double and triple top/bottom formations). A break down through the neckline usually indicates a new bear trend.
  • NEGATIVE AMORTISATION
    This means that a payment of the stated size is insufficient to repay even the interest on the debt, meaning the total debt actually increases each month instead of falling.
  • NEGATIVE DIVERGENCE
    When two or more averages, indices or indicators fail to show confirming trends.
  • NET ADVANCE/DECLINE
    The ShareFriend Pro software includes 10 net advance/decline (sometimes called “breadth indicators”) lines for various sectors and the market as a whole. The Net Over shows the number of shares in the overall index which went up minus the number that went down. This net figure is added to a running total and a chart is drawn of the result. Thus if on a certain trading day you have 186 shares going up and 74 going down then your net advance is 112 – which is added to yesterday’s total and graphed. In a net A/D all shares are treated equally irrespective of how big they are. Thus an up-move in a huge share like British America Tobacco can be cancelled out by a down move on the smallest Alt-X share on the same day. Sector indexes, on the other hand, are weighted for the market capitalisation of the shares which they include. For this reason, it is interesting to do a comparative relative strength of the net A/D against its sector index. Look at the following chart: [caption id="attachment_12680" align="alignnone" width="436"] Net Advance/Decline - Chart by ShareFriend Pro[/caption] This shows the JSE Overall index divided by the Net Over – which is the net A/D of the shares in the overall index. It shows that over the last six months, the index has been out-performing the net A/D – which means that the bigger blue chip shares have been doing better than the small caps.
  • NET ASSET VALUE
    The company’s assets minus its liabilities divided by the total number of shares in issue. Investors like to compare the current share price with the net asset value (NAV), but this approach can be unreliable because some companies have to have substantial assets (such as manufacturing concerns) while others (like service companies) do not. The concept also depends on the exact nature of the company’s assets. For example, if the NAV includes a considerable amount of intangible assets (like goodwill and intellectual property and software) then it may not be such a good indication of value. The true measure of value is how effectively management has been able to use the assets to generate a profit. When considering NAV you should always look to see if any of the assets can be revalued. For example, listed shares can be revalued to their current market price. Property often sits on a company’s books at cost and may have appreciated considerably.
  • NET CURRENT ASSETS
    The difference between current assets and current liabilities. In most healthy companies, this difference will be positive, so that the company is always able to meet its short-term creditors from its short-term assets.
  • NET INCOME
    The earnings of an organisation after deducting taxation and all other expenses. This is obviously an important measure of a company’s performance, but one should remember to allow for the inflation rate when comparing one year’s net income with another’s.
  • NET OPERATING INCOME
    Used to measure real estate investments, this calculation is done by subtracting all operating expenses from revenue generated from property. Revenue generated may include rental income, income from parking and other service fees. Operating expenses may include such things as maintenance, utilities and insurance, to name a few. Appearing in a company's cash flow statements, net operating income does not take into consideration tax, interest paid on loans, amortisation, depreciation or capital expenditure.
  • NET WORTH
    The value of the assets of a company less the value of its liabilities. It is common to hear investors saying, “A particular share is trading at 20% below net worth”. What they mean is that if the company were to sell all its assets and pay off all its liabilities, the balance would be 20% more than its current market capitalisation. This then makes the share good value at the current share price.
  • NEW ISSUE
    A listing of a new security or an issue of more shares in an already listed security.
  • NEW YORK STOCK EXCHANGE
    The biggest stock exchange in the world, located in New York City with a market capitalisation of about $18 trillion. The S&P500 index shows an average of the 500 largest companies trading on Wall Street and is a good way to assess the state of markets world-wide. If the S&P is going up on average then there is a high probability that world markets, including the JSE, are in a bull trend.
  • NEWGOLD
    The is an ABSA EFT which tracks the rand price of gold. It is the equivalent of buying krugerrands, but with the advantage that there is no security risk and the ETFs can be easily sold and bought. Obviously the rand/US dollar exchange rate is a key factor and has a significant influence over the price of this ETF. Since gold pays no dividends, interest or rent, there is no income which accrues to this ETF – what they have is security since their investment is backed by gold bullion.
  • NEWRAND
    This is an ABSA ETF which includes the major rand-hedge shares traded on the JSE. The fund is being closed because it is no longer viable due to insufficient investment.
  • NFA
    Authorized by the US Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association," NFA is the industry-wide self-regulatory organization of the futures industry in America.
  • NIKKEI INDEX
    The main stock exchange index from Tokyo in Japan. The Nikkei is an average of the 225 largest companies trading on the Tokyo stock exchange – weighted for their market capitalisations.
  • NIL-PAID LETTERS
    A security which is temporarily listed on the stock exchange and which represents the right to take up the shares of a certain company at a certain price and on a certain date. Nil-paid letters are the result of a rights issue to the existing shareholders (or debenture holders) of a company. A rights issue is one way of raising additional capital by offering existing shareholders the opportunity to take up more shares in the company – usually at a price below the market price of the shares. These rights are represented by the “nil- paid letter” and are renounceable – this means that they may be bought and sold on the stock exchange. You will see them from time to time on your price page. They are normally very volatile because they fluctuate according to how close the market price is to the “take-up” price.
  • NO–LOAD
    Without any sales charge. For mutual funds, shares sold at net asset value.
  • NOI
    Used to measure real estate investments, this calculation is done by subtracting all operating expenses from revenue generated from property. Revenue generated may include rental income, income from parking and other service fees. Operating expenses may include such things as maintenance, utilities and insurance, to name a few. Appearing in a company's cash flow statements, net operating income does not take into consideration tax, interest paid on loans, amortisation, depreciation or capital expenditure.
  • NOISE
    An incorrect interpretation of the market due to daily price and volume fluctuations. Volatility in the market can be smoothed out with a moving average. Usually the smaller the time period under review the more noise there is.
  • NOMINAL VALUE
    The nominal value of an investment is its value “on paper”. Usually, investments over any period of time are evaluated on their “nominal” and their “real" return. The real return is the nominal return after deducting the effect of inflation. Thus, for example, if you bought a share for 1000c and then sold it for 1100c six months later, your nominal return would be 20% per annum (10% over the six months, annualized). From that you need to deduct the inflation rate (say 6%) to arrive at your real return of 14% p.a.
  • NOMINEE
    A person or company nominated to perform some function on behalf of a principal. In the share market, the nominee typically registers shares in its name on behalf of the principal. Usually the nominee is a private company – and this makes it difficult to discover who actually owns the shares. However, since the introduction of section 140A into the Companies Act, all nominees are obliged to advise all listed companies of the beneficial owners of the shares that they have registered in their name as nominees, at the end of each calendar quarter.
  • NON CONFIRMATION
    Today, there are literally hundreds of line technical indicators each of which represents a different mathematical formulae and trading idea. Technicians usually use several indicators, looking for confirmation between them to give credence to their signals. Non-confirmation occurs where two indicators give different signals, laving the analyst in doubt as to which way the trend will proceed.
  • NON DISCRETIONARY STOCKBROKING ACCOUNT
    A stockbroking account where the client must make all the decisions about what to buy and sell and when to do it. A discretionary account allows the stockbroker complete control of the portfolio. He can buy or sell anything without even referring back to the client to get his permission. We strongly advise you to open a non-discretionary account and to make your own decisions in the market.
  • NON-CURRENT LIABILITIES
    A debt, which is to be repaid over years rather than months. A good example of this would be debentures, which carry a fixed percentage return and are redeemable by the company at some future date. Long-term liabilities are found on the liabilities side of the balance sheet immediately below share capital and reserves under the heading 'Non-current liabilities'.
  • NON-DISTRIBUTABLE RESERVE
    A concept from the old Companies Act which referred to that portion of accumulated shareholders’ equity which could not be distributed in the form of dividends. The new Companies Act (71 of 2008) uses a doctrine of solvency and liquidity which means that the distinction between distributable and non-distributable reserves has fallen away.
  • NON-EXECUTIVE DIRECTOR
    A director who is not employed by the company and has no employment contract. An executive director has an employment contract and works directly for the company. The Companies Act makes no distinction between executive and non-executive directors – they both have the same duties and obligations in terms of the Act. Non-executive directors typically attend board meetings and may sit on various committees like the audit committee or the remuneration committee. Non-executives are a requirement of the King 3 report on corporate governance and hence they must be employed by all listed companies in terms of the JSE rules.
  • NON-FARM PAYROLL
    An economic statistic from America which includes all employees in America except for farm workers, employees of non-profit organisations (like charities) and household employees. The increase or decrease in the non-farm payroll is a closely watched economic statistic because it is a good indicator of economic activity in the US. A better-than-expected figure usually has the effect of boosting share prices on Wall Street.
  • NON-TREND DAY
    A narrow range day lacking any discernible movement in either direction.
  • NONLINEAR STATISTICS
    Statistics theory that attempts to define probability distribution from disorder to either a more orderly state or a sharp trend reversal, such as stock market fluctuations.
  • NOT HELD
    An order submitted to a brokerage firm with the understanding that it will use its best efforts to execute the order according to the customer's instructions, but the broker may not be held responsible or liable for any lost profits, trading losses, or damages resulting from the manner in which the order is handled.
  • NOTES TO THE ACCOUNTS
    These form part of the annual financial statements of a company. They supply more information on the figures contained in the financial accounts, according to the requirements of the Companies Act. It is very important to consider these notes carefully before buying the shares of the company. They often contain important information, which the company has preferred to show as a note rather than in the balance sheet, income statement, statement in changes in equity or cash flow statements. For example, any change in accounting policies is usually contained in the first note, and these can be very important to the final profit or loss picture. Other items that are covered are a breakdown of investments into listed and unlisted, directors’ emoluments, a breakdown of fixed assets, auditors’ fees, details of borrowings and so on.
  • NOTICE DAY
    The day that a notice of intent to deliver is issued to a futures contract holder.
  • NUMBER OF DEALS
    One of the pieces of information supplied by the JSE for each listed company after each trading day. There are no indicators which utilise this piece of information, but it can be useful to distinguish between days where a single large book-over deal dominates trade and days where trade is made up of thousands of smaller deals.
  • NUMISMATIC
    The act or study of coins, paper money and medals and the subsequent value that results from their rarity.  In other words, numismatic coins have a greater value than their metal, because they are rare i.e. collector’s items.  Many people think that krugerrands have a numismatic value, however these coins are valued based on their gold content.
  • NYSE
    The biggest stock exchange in the world, located in New York City with a market capitalisation of about $18 trillion. The S&P500 index shows an average of the 500 largest companies trading on Wall Street and is a good way to assess the state of markets world-wide. If the S&P is going up on average then there is a high probability that world markets, including the JSE, are in a bull trend.
  • OBV
    This was the first volume-based technical method developed by Joseph Granville. The method begins with an arbitrary total like 100 000 to which the positive volumes are added and the negative volumes are subtracted. The volume for the day is considered positive if the share price goes up and vice versa. The purpose of the OBV is to detect insider trading which normally takes the form of massive increases in volume with very small changes in price. Critics of OBV point out that the weakness of the technique is that the movement in the chart is the same for large and small price movements.
  • ODD LOTS
    Transactions in shares in quantities other than round hundreds. With the advent of on-line trading and the further computerisation of the JSE, the need for a distinction between “odd lots” and “round lots” has fallen away. In the past, before the JSE dematerialised, traded odd lots carried a higher brokerage than round lots and there were even specialist odd-lot brokers. Today, it is possible for an investor to buy any amount of shares that suits him/her. This makes it easier for investors to buy high priced shares like Naspers which trades for around R2000 per share. If you had to buy a round lot of 100 shares, that would cost R200 000 – which was beyond what most private investors could afford. But today you could buy five Naspers shares for less than R10 000.
  • OFF FARM
    The amount of stock held by non-producers including supplies held at mills, elevators, terminals, and processors.
  • OFFER
    An indication of willingness to sell a a share at a given price; the opposite of Bid.
  • OLIGOPOLY
    An industry which is dominated by a few very large players who co-operate on the fixing of prices and allocation of contract work. Price fixing and work allocation agreements are a contravention of the Competitions Act. A good example of an oligopoly was the construction industry in South Africa. Eventually the Competition Commission extracted a fine of R1,4bn from the industry and it faces a civil action as well.
  • ON FARM
    The amount of stock held by producers.
  • ON-BALANCE VOLUME
    This was the first volume-based technical method developed by Joseph Granville. The method begins with an arbitrary total like 100 000 to which the positive volumes are added and the negative volumes are subtracted. The volume for the day is considered positive if the share price goes up and vice versa. The purpose of the OBV is to detect insider trading which normally takes the form of massive increases in volume with very small changes in price. Critics of OBV point out that the weakness of the technique is that the movement in the chart is the same for large and small price movements.
  • ONLINE TRADING
    Buying and selling of securities over the Internet. A number of stockbroking firms are offering the ability to buy and sell shares over the internet. Brokerage is usually less than for trades made by phoning a broker.
  • OPEC
    Commonly known as OPEC, this consists mostly of Arab countries that control the bulk of the world’s oil exports. OPEC has managed in the past to increase oil prices by restricting supply, but today oil prices are rising because of increased demand from India and China. Almost the only OPEC country that could still increase oil production meaningfully is Saudi Arabia. OPEC countries are notoriously bad at sticking to their quotas.
  • OPEN
    The price of the first transaction of the day in any share or security. The opening price is critical to the drawing of candlestick charts. If the market closes above its opening then the bulls are said to have won the day and vice versa.
  • OPEN INTEREST
    The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted. Only about 3% of futures contacts are ever delivered. The rest are closed out before the contract matures.
  • OPEN MARKET OPERATIONS
    The buying and selling of government securities (mainly bonds) in the open market by the Reserve Bank in order to control the money supply. Doing this allows for the amount of money in the banking system to expand and contract, ensuring stability and growth. Purchases of securities create growth by injecting money into the banking system. Essentially, this is an exchange of money for securities and increases the amount of money in the economy. Sales do the opposite and contract the economy. The aim is to influence interest rates and ensure that demand and supply within the economy do not become unstable.
  • OPEN ORDER
    An order still pending or on the books to buy or sell securities, but not yet executed. An open order will remain in effect until it is either executed or cancelled or subject to validity constraints (i.e. when entered, they specify an expiry date and/or time). Good till date/time (not more than 90 calendar days from the date of entry), at which point it expires.
  • OPEN OUTCRY
    A method of public auction for making bids and offers in the trading pits of futures exchanges. Stock exchanges also used to operate this way, but today most are electronic, with the notable exception of the New York Stock Exchange which still uses an open outcry method of trading.
  • OPEN TRADE EQUITY
    The gain or loss on open futures positions.
  • OPENING CALL
    A period at the opening of a futures market in which the price for each contract is established by outcry.
  • OPENING PRICE
    The price of the first transaction of the day in any share or security. The opening price is critical to the drawing of candlestick charts. If the market closes above its opening then the bulls are said to have won the day and vice versa.
  • OPENING PRINT
    The first price of a stock that comes across the ticker for a trading session.
  • OPENING RANGE
    The range of prices that occur during the first 30 seconds to five minutes of trading, depending on the preference of the individual analyst.
  • OPERATING INCOME
    An income statement item usually immediately following the statement of turnover, but not directly linked to it by calculation. Because finance costs are normally shown on the face of the income statement, they would have to be added back to the gross profit from the profit and loss account to arrive at operating income. They are then subtracted on the face of the income statement where shareholders can see their effect. As a private investor, you should be concerned to see that operating income is rising more quickly than the inflation rate.
  • OPPORTUNITY COST
    Income foregone by the commitment of resources to another use. For example, if you use some of your capital to buy shares then you suffer the opportunity cost of not being in a fixed interest investment – and vice versa. The opportunity cost is the cost of not being in an alternative investment.
  • OPTIMISATION
    A methodology by which a system is developed with rules tailored to fit the data in question precisely. A computer program can test every moving average from 1-day to 200-day, buying and selling at every signal and then applying the correct dealing costs. Once this is done it will establish which moving average gave the most profitable result (or the least unprofitable result) over a given period of time. This will be the optimum moving average for that share over the time period tested. Of course, past performance is no guarantee of future performance – but it is a consideration.
  • OPTION CONTRACT
    An option contract which gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or a futures contract at a specific price within a specified period of time. The seller of the option has the obligation to sell the commodity or futures contract or buy it from the option buyer at the exercise price if the option is exercised. See also Call Option and Put Option.
  • OPTION HOLDER
    An investor who holds (owns) an option.
  • OPTION PREMIUM
    The price a buyer pays (and a seller receives) for an option. Premiums are arrived at through open outcry. There are two components in determining this price -- extrinsic (or time) value and intrinsic value.
  • OPTIONAL CASH PURCHASE
    Buying additional shares made through the dividend reinvestment account.
  • OPTIONS
    The purchased right (not obligation) to buy (call) or sell (put) specified securities at a specified price (strike price) within a specified period (American) or a specified date (European).
  • ORDER
    An instruction from a client to buy or sell a specified quantity of securities at a set price (limit), or at best, an instruction to amend or cancel a prior instruction to buy or sell securities.
  • ORDINARY RESOLUTION
    A resolution which requires the approval or 50% or more of the voting shares of a company. Typically this would be the appointment of directors, approval of employment equity schemes and other routine matters at an annual general meeting. A special resolution, by contrast, requires at least 65% of the vote and is normally reserved for a fundamental transaction where control of the company is likely to change.
  • ORDINARY SHARE
    Also sometimes called “equity” shares, these are fixed shares, which share in the profits and risks of the company. Unlike the fixed dividend paid to preference shareholders, the ordinary dividend is decided by the directors, and is dependent on the company’s profits. If the company is liquidated, the ordinary shareholders share out the proceeds after the creditors and preferential shareholders have been paid out. For these reasons, ordinary share prices tend to be far more volatile than preference shares, giving opportunities for capital gains. Most of the shares published in the newspaper are ordinary shares.
  • ORDINARY SHARE CAPITAL
    Capital of a company represented by the number of its ordinary shares.
  • ORDINARY SHAREHOLDERS’ FUNDS
    The funds which the ordinary shareholders have in a company. This can normally be calculated by subtracting the company’s liabilities from its assets. Shareholders’ funds is a critical element of the company’s gearing. An unhealthy situation would be where outsiders like banks have more money in the business than the shareholders – or where the interest paid on loans was greater than one third of profits.
  • ORGANIC GROWTH
    This is growth from within the company’s existing businesses – as opposed to growth by acquisition. Both types of growth can be good, but growth by acquisition is generally more risky because it involves bringing a new organisation into the company’s culture.
  • ORGANISATION OF PETROLEUM EXPORTING COUNTRIES
    Commonly known as OPEC, this consists mostly of Arab countries that control the bulk of the world’s oil exports. OPEC has managed in the past to increase oil prices by restricting supply, but today oil prices are rising because of increased demand from India and China. Almost the only OPEC country that could still increase oil production meaningfully is Saudi Arabia. OPEC countries are notoriously bad at sticking to their quotas.
  • OSCILLATOR
    A statistical term which refers to an indicator which moves above and below a set level – usually zero. Many line indicators in ShareFriend Pro are oscillators – like the Overbought/Oversold (OB/OS) and the MACD. The benefit of an oscillator is that is moves within a defined range which enables you to establish good levels at which to buy and sell. The OB/OS, for example, enables you to establish a “buy line” below which it has always been profitable to buy the share (or other security). [caption id="" align="alignnone" width="413"] Overbought/Oversold - Chart by ShareFriend Pro[/caption] Here you can see an OB/OS of the JSE gold index going back to 1985. The zero line is drawn through the middle. What is immediately obvious is that this index very seldom goes below -35 on this OB/OS and it has only gone above +85 on three occasions in the entire 32 years. So, if you are going to buy gold shares you would do far better waiting until the OB/OS is somewhere near to -35. And you certainly don’t want to be buying gold shares when the OB/OS is around +85 because your statistical chance of being right in doing so would be almost zero – but somebody definitely did. That’s why the chart goes there. For more on the OB/OS Indicator, refer to module 25 in the PDSnet Online Investment Course.
  • OTC MARKET
    Over-the-counter market – a market which is normally not licensed or an informal market for the trading of securities. There is therefore no formal settlement through a clearing house nor is risk formally managed.
  • OUT-OF-THE-MONEY OPTION
    A call option with a strike price higher or a put option with a strike price lower than the current market value of the underlying asset, (i.e., an option that does not have any intrinsic value).
  • OUTSIDE DAY
    A bottom candlestick reversal signal, this is a two candlestick pattern consisting of a large green candle enveloping a preceding red candle. This pattern implies that the trend is likely to change from bearish to bullish and is only valid if found at the bottom of a trend. In order for the pattern to be valid, the opening price of the green candle must be at or below that of the red candle, and the closing price must be at or above that of the red candle. This reversal signal is stronger if there are no shadows on either candle and also if the green candle engulfs the previous two candles. [caption id="attachment_10362" align="alignnone" width="200"] Bullish Engulfing Pattern[/caption]
  • OUTSIDE REVERSAL MONTH
    A month in which the recent monthly trading range exceeds the previous month's range and closes opposite (reverses) the previous month's close.  
  • OUTSIDE SHAREHOLDERS
    A shareholding of less than 50% of the total issued share capital of a company. Companies work on the principle of majority rule – decisions are made by the majority of votes in the company. Because ordinary shares usually have one vote each (although there are sometimes voting and non-voting ordinaries), this means that whoever controls at least 50% of the shares controls the activities of the company. The Companies Act goes to considerable lengths to protect minority shareholders from any unlawful actions of the majority – or any actions, which are not in the interest of the company as a whole. Any such action could constitute what is called a “fraud on the minority”. When looking at the consolidated accounts of a company it is common to see a minority interest shown. This means that the holding company has subsidiaries in which it holds less than 100% of the share capital. The holding company is obliged by law to consolidate the whole of the subsidiary into its accounts, and therefore must itemise that portion which belongs to minority (or “outside”) shareholders.
  • OVER INVESTING
    Beginners in the share market are typically guilty of over-investing in two ways – either they put too great a percentage of their available funds into a single trading idea, or they commit more money to an investment than they can cope with emotionally. As a general rule of thumb you should aim to have a spread of between five and eight different companies in your portfolio to minimise risk. Having more money in an investment than you can cope with emotionally results in a failure to execute stops when they are triggered.
  • OVER-PRICED
    This describes a share which has a market price in excess of its “real” value – in the opinion of the person who uses the term. The real value of a share is always a matter of opinion, and at any one time some investors will regard a share as over-priced – while others will consider it to be under-priced – and if the opinion of pessimists carries more weight than that of the optimists, the market price will fall and vice versa. At any point in time, the market price represents the algebraic average of all investors’ opinions relating to the share’s real value, while technical analysis is the search for that real value, and is the study of investors’ opinions concerning the real value – as reflected in the share’s price pattern.
  • OVER-REACTION
    A situation which arises after news concerning a share is disseminated and investors push the price to levels beyond reasonable discounting of the news – i.e. they over-react. Such situations can give good profit opportunities to the astute and level-headed investor.
  • OVER-SUBSCRIBED
    When a company raises new capital by selling shares to the public they invite applications for a limited quantity of shares. If the company is perceived as having a bright future, then sometimes it receives far more applications than it has shares to sell. This is called over-subscription. When this occurs, the directors of the company determine the basis on which the available shares are issued. Normally, the larger applications will receive the lions share of what is available with smaller applications getting only 100 shares and sometimes nothing. That part of any application which is not filled is then refunded to the applicant.
  • OVER-SUBSCRIPTION
    This occurs where the applications for a new issue of shares exceed the number of shares available for issue. This often happens because the shares are offered to the public at a price below their inherent value and people obtaining the shares can make an immediate “stagging” profit when the shares are listed.
  • OVER-THE-COUNTER
    Trading of shares which are not listed on a formal stock exchange. In America there are about 80 000 companies that trade their shares in this manner - mostly small “mom-and pop” outfits which are too small to satisfy the listing requirements of the national or regional stock exchanges. In South Africa, the OTC has become associated with so-called “venture capital” selling of shares to the public, but there is very little secondary market for these shares.
  • OVERALL INDEX
    All stock exchanges have indexes which provide averages of the prices of their listed shares. These averages are normally “weighted” so that larger companies are more important and smaller companies have less of an impact. The JSE Overall Index contains all the shares in the sectoral indexes.
  • OVERBOUGHT/OVERSOLD INDICATOR
    An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to a reaction. The OB/OS indicator is calculated by expressing the gap between a price and its moving average as a percentage of the moving average. A large gap on the downside indicates an oversold position and vice versa.
  • OVERFITTING
    The parameters of a trading system are selected to return the highest profit over the historical data.
  • OVERSOLD
    Market prices that have declined too steeply and too fast.
  • P:E
    The market price of a share divided by its most recent average annual earnings per share. This gives the reciprocal of the earnings yield, and is used by some investors to compare shares. The PE ratio, also known as the “earnings multiple”, is not much used in South Africa but is common overseas where the earnings yield is unknown. The P:E gives a good idea of the share's "rating". Highly rated shares are those which have had steadily rising earnings for many years. Investors (especially institutional investors) are willing to pay much more for 100c of their earnings than for the same 100c in earnings from a company whose profits are erratic and unreliable. This means that their share price will be higher in relation to their profits. We say that the earnings are of "good quality".
  • PANAMA PAPERS
    A massive leak (over 11 million documents) of important documents from a Panamanian legal company involved in setting up off-shore companies and trusts in tax havens to avoid or evade tax in their home countries. The leak of these documents is a further step towards the elimination of tax havens world-wide.
  • PAPER PROFITS
    The difference between the purchase price of a share and its current market price. Another term for this is “market appreciation”. There is a potential danger in this figure, because it may not be possible to sell the shares at their market price – especially if they are “thinly traded”.
  • PAR
    The full principal amount of an investment instrument.
  • PAR VALUE
    A concept from the old Companies Act which meant the value given to shares when they are created, which established the authorised share capital of the company. Normally, the market price quickly exceeds the par value as the company grows and make profits. The objective of the par value was to enable the “asset base” of the company to be clearly established at its inception so that no illegal erosion of that base can take place. The new Companies Act (71 of 2008) has replaced the “capital preservation” doctrine of the old Act with a doctrine of “solvency and liquidity” which means that it is no longer necessary to calculate a company’s asset base and so the need for par value has been eliminated.
  • PARASTATAL
    Parastatals or State Owed Enterprises (SOE) are corporations owned and controlled by the government. In South Africa there are about 200 SOE’s which deal with everything from power (Eskom) to forestry (Safcol), defence (Denel) and transport (Transnet). Unfortunately, some of them (like SAA) are persistently unprofitable and constantly have to be subsidised by the government (and hence the tax-payer). Many of them are also badly run or involved in corruption and nepotism to a greater or lesser extent. The most dangerous of them is Eskom which has over R215bn in government guaranteed loans. It has also been shown to have been subject to state capture and corruption on a significant scale. If Eskom’s creditors decide to call in their loans, the Treasury would be hard put to meet their obligations – which also accounts to some extent for the ratings downgrades which South Africa incurred in 2017. In general, the less functions in a country which are run by the government the better. Governments are notoriously bad at running things and their activities should be kept to a minimum. As Adam Smith said “The best government is the least government”. South Africa could easily sell off many of its SOEs and thereby generate a substantial amount of cash to repay government debt. This would result in an improvement in our international credit rating and an improvement in the economy.
  • PARENT COMPANY
    A company which owns more than 50% of another company (its subsidiary). JSE listed companies are usually groups which own a number of subsidiaries. The Companies Act requires that the financials of subsidiaries be added into the parent company’s financials to give group financial statements.
  • PARETO’S LAW
    A law that states that 80% of results come from 20% of the effort.
  • PARITY
    An option is said to be trading at parity if the premium at which it is currently trading in the market is exactly equal to its intrinsic value. Time value, in other words, is zero.
  • PARTIAL FILL
    When a trader has placed an order to buy or sell more than 1-lot, it is always possible that the order may be only partially filled. This happens most commonly when a market touches a price level at which the trader is bidding or offering, but then reverses direction without actually penetrating that price. In such cases, the trader is not entitled to a fill, but with some good fortune, the order may be partially filled, or even filled in its entirety.
  • PARTICIPATING PREFERENCE SHARE
    Preference shares which participate in the profits beyond a fixed percentage. For example, they might receive an additional 2% if the ordinary dividend is above 8%, or, over and above their normal fixed percentage they might receive 10% of the ordinary dividend.
  • PARTNERSHIP
    A business which is not incorporated and which is owned and managed by more than one person. Partnerships usually have a partnership agreement which stipulates the relationship between the partners, their respective percentage ownership of the business, their salaries and their policy regarding drawings from the partnership. The most common partnerships today are professional partnerships, in the legal or medical profession.
  • PASSIVE INVESTOR
    An investor who aims to maximise his profits over the long term by holding on to his investments instead of taking advantage of short term highs and lows in the market.  Such an investor avoids the dealing costs and taxes that result from frequently getting in and out of the market, but may find that he/she is stuck in shares which are in a bear trend for many years. So-called “widows and orphans” are passive investors because they lack the knowledge and confidence to be active.
  • PATTERNS
    There is an on-going debate in the investment world about whether share prices move in patterns or are simply random. Obviously, it is impossible to predict a random series, by definition, so if share prices are random then all forms of analysis are a waste of time. The research departments of institutions and stockbroking firms around the world indicate that most investment professional believe that there are patterns that can be exploited through either fundamental or technical analysis. The subject of technical analysis begins with the assumption that there are patterns and that all that is required is to find the mathematical formulae that will identify and exploit those patterns. The random walk theory begins from the idea that there are no patterns and advocates a portfolio which is as close to the market’s average beta as possible.
  • PAY AS YOU EARN TAX
    A system of tax which is applied to salaried tax payers. Companies are required to deduct PAYE directly from employees’ salaries and pay it to SARS. People whose income is variable like sales persons can apply for a “directive” to pay a specified percentage and then settle the differences every six months with their provisional tax return.
  • PAYE
    A system of tax which is applied to salaried tax payers. Companies are required to deduct PAYE directly from employees’ salaries and pay it to SARS. People whose income is variable like sales persons can apply for a “directive” to pay a specified percentage and then settle the differences every six months with their provisional tax return.
  • PAYMENT DATE
    The date on which a dividend is paid. These days, dividend payments are mostly paid directly into shareholders’ stockbroking accounts automatically. There are five dates associated with dividend payments – the date of declaration, the last day to register, the record date, the ex-div date and the payment date.
  • PENNANT FORMATION
    A charting formation where the price chart forms a pattern which looks something like a triangle. The difference between a pennant and a triangle is the length of time that the formation occurs for. A pennant is more short term, usually lasting between one and three weeks. A triangle occurs over a longer period of time and can last up to three or six months. A triangle could also signal the reverse of a trend, whereas a pennant is more than likely a continuation signal and signifies that the trend will continue in the already established direction it is going. The general rule with the triangle is that it will continue in the direction in which it breaks out. [caption id="attachment_11427" align="alignnone" width="250"] Bullish Pennant[/caption]  
  • PENNY STOCK
    Shares which trade for low prices per share. They may be shares of a very good company; however, they are usually not. They are attractive to speculators who can generate returns based on big percentage increases.
  • PER SHARE RATIO
    Certain ratios are calculated as a number of cents per share – like the net asset value per share, the dividends per share and the earnings per share. These types of “per share” ratios depend on the number of shares in issue. Net asset value is usually based on the number of shares in issue at the end of the accounting period, but earnings and dividends per share are based on the average number of shares in issue during the accounting period – which can vary significantly as a result of rights issues, consolidations, share splits, employee share option schemes and share buy-backs.
  • PERCEPTION
    The way in which the investing public in general feel about a share.  In other words, do they see the share is highly-rated or poorly-rated? Are they expecting its share price to go up or down?  Usually a company with a good track record is perceived as having quality shares. In other words, there is a positive perception. A company that realises consistent growth and profits, and which pays out regular dividends is usually perceived to be a quality share which will increase in value over time.  On the other hand, if a company does not have consistent earnings and or growth it is likely to have a negative or poor perception, as investors are not likely to see its shares as quality that will reliably increase in value.  The perceptions of the market are not always correct.  In fact, as a private investor, you want to look for shares which are perceived incorrectly, because then you will make money when the perception changes and the big institutions catch on to the opportunity which you have already identified. A similar point can be made for the market as a whole. Are investors generally bullish or bearish, optimistic or pessimistic? This general perception can have an enormous impact on share price movements. In a bull market about 80% of shares go up and vice versa.
  • PERMANENT CAPITAL
    Capital which is tied up in the company permanently like share capital – as opposed to capital which is there temporarily – like loan capital from the bank. Loan capital must receive its interest payments whether or not the company makes a profit, but share capital does not need to be paid a dividend unless the directors think that the company can afford it.
  • PESSIMISTIC RATE OF RETURN
    A statistic that adjusts the usual wins/losses statistic to estimate the worst return from trading results. It reduces the number of wins by the square root of the actual number and increases the number of losses by the square root of the actual number of losses. The resulting numbers of wins or losses are multiplied by the average win or loss and the sum of the resulting wins/losses is divided by the required investment.
  • PGM
    These are platinum itself and rhodium, palladium, iridium, osmium and ruthenium. Normally these metals are all found in the same deposits and so are mined together in varying proportions. For example, South African mines produce far less palladium and far more platinum than Russian mines.
  • PIC
    The PIC controls and manages about R1,8 trillion of pensions contributions from civil servants working for the government. It is the largest investor on the JSE holding about 12,5% of its market capitalisation. Your stock exchange handbook will show the PIC as one of the top three investors in almost every major blue chip share on the JSE.
  • PIERCING PATTERN
    A bullish candlestick formation consisting of two candles at the bottom of a trend. The formation begins at the end of a downtrend with a long red candle. The next day opens at a new low or at the low of the previous candle. The second candle then closes above the midpoint of the body of the first day. Shadows should be minimal, particularly the upper shadow, to add strength to the signal. The piercing pattern is the counterpart of the Dark Cloud Cover candlestick formation which occurs at the top of a trend.
  • PIPS
    Slang forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, i.e. 0.0001. See also Points.
  • PIT
    The area on the trading floor where trading in futures or options contracts is conducted by open outcry.
  • PIVOT POINT
    In market activity, a price reversal point.
  • PLATINUM GROUP METALS
    These are platinum itself and rhodium, palladium, iridium, osmium and ruthenium. Normally these metals are all found in the same deposits and so are mined together in varying proportions. For example, South African mines produce far less palladium and far more platinum than Russian mines.
  • PMI
    An economic indicator which shows the health or otherwise of the manufacturing sector. This index is produced monthly and published in the financial press. It is obtained from a monthly survey of 300 purchasing managers in the private sector. Information is gathered under five headings: employment, supplier deliveries, production, stock levels and new orders. Together these figures are combined into an index. If the index is above 50 it indicates growth in the sector and vice versa. Obviously, manufacturing sales are ultimately derived from consumer demand for products and restocking by the retail sector. This in turn drives employment in manufacturing and comprises a significant element of Gross Domestic Product growth. A good PMI means that shares involved in manufacturing should do well going forward. Of course, there is a significant export element to manufacturing demand so the strength of the rand is a key component.
  • POINT AND FIGURE CHART
    A price-only chart (i.e. without a date axis) that plots up prices as Xs and down prices as Os. The minimum price recorded is called the box size which is often 100c. Typically, a three-box reversal indicates a change in the direction of prices.
  • POINTS
    A measurement term for market indices. An index is an aggregate of the listed companies on an exchange, for example, the JSE Top 40 is an average of the top 40 companies trading on the JSE by market capitalisation. As a way of measuring the fractional gains in an index, its value of it's total is broken into points to better emphasise a move in direction during a single trading day. Most indexes these days are weighted for the market capitalisation of the shares which they include and on the JSE they are also adjusted for their "free float". Therefore, for example, instead of saying that the companies in the JSE Top 40 index have increased in value by R13 456 723 we say that it has moved up by 150 index points.
  • POLITICAL RISK
    Risk, which is political rather than economic, financial or managerial. This kind of risk is very difficult to determine and can cause tremendous fluctuations in the market. It is not usually a feature of the more stable western countries, but has become an increasingly important factor in South Africa.
  • PONZI
    An illegal investment scheme which aims to steal money from members of the public by persuading them that they will make an above average return on their capital. Ponzi schemes take a variety of forms, but in South Africa they are normally housed in a public unlisted company. Typically Ponzi schemes use some of the capital that they receive to pay out excessive dividends and so encourage further investment – they are robbing Peter to pay Paul. The Collective Investment Scheme Control Act seeks to legislate and approve all collective investment schemes so as to protect the public.
  • POOR QUALITY EARNINGS
    The quality of a company’s earnings is a direct function of how sustainable they are. If the profits of a company rise every year by 15% and have done so for many years then analysts and investors will say that their earnings are of good quality. But if the earnings are primarily due to a once-off event (like a tax break or a profit on the sale of an asset) which is unlikely to be repeated next year, then the earnings are said to be of poor quality. Sustainability of earnings is very often a function of the business which a company is in. If the bulk of its income is derived from a large group of debit orders (such as with DSTV) then the earnings are likely to be good quality. A company in the chicken industry, which is very capital intensive, very competitive, requires considerable working capital, is dependent on a large labour force and subject to catastrophes such as an outbreak of Newcastle disease, is said to have poor quality earnings.
  • POORLY RATED
    Companies which have an erratic flow of profits are usually “poorly-rated” by investors. This means that their shares will trade on lower multiples of their earnings per share than “highly-rated” shares whose earnings flow is more reliable and consistent. The rating of a company is revealed in its P:E ratio which divides the current share price by the most recent year’s earnings per share. A high P:E ratio means that the share is highly rated and vice versa.
  • PORTFOLIO
    A small group of shares and other investments belonging to a single investor. As a private investor, you should aim to have between 5 and 8 different shares in your portfolio. Each additional share that you add reduces the risk in the portfolio, but spreads you time more thinly.
  • PORTFOLIO MANAGER
    This is someone who manages portfolios on behalf of investors. He makes the investment decisions and is not usually obliged to get his clients’ permission to change their investments if there is a discretionary mandate in place. He could be paid a set fee or a performance-related fee, and is not liable for any losses sustained by his clients.
  • PORTFOLIO STRUCTURE
    The percentage breakdown of a portfolio over the various market sectors.
  • POSITION LIMIT
    The maximum number of speculative futures contracts one can hold as determined by the CFTC and/or the exchange where the contract is traded.
  • POSITION MANAGEMENT RATIO
    The ratio of profits extracted on winning transactions versus losses suffered on trades that liquidate unprofitably.  
  • POSITION TRADER
    A trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader.
  • PRE-LISTING STATEMENT
    A public press announcement required by the JSE before the listing of a company, which is not accompanied by a new issue of shares and therefore a prospectus. It is felt that the investing public needs the same type of information that is usually contained in a prospectus before they buy shares on the JSE.
  • PRECIOUS METAL
    There are really three main precious metals – gold, silver and platinum. To this you could add the other platinum group metals, like palladium and rhodium.  Base metals are much cheaper and far less scarce. Through the centuries, precious metals have been used for currencies and as a store of value. South Africa has the world’s greatest known underground stores of gold and platinum, but is now the world’s sixth largest gold producer. This is because most of our gold is at very deep levels which makes it very expensive to mine.
  • PREFERENCE SHARE
    Shares which have preferential rights in relation to another class of share in the same company. These rights consist of: the right to receive dividends before ordinary shareholders. The right to receive a dividend which is a fixed percentage of the nominal or par value of the shares. The right to a preferential repayment of capital in the event of the liquidation of the company. “Prefs” are generally uninteresting to any but the most conservative investor who has an income portfolio because their prices tend to remain more or less static, in line with their fixed dividends.
  • PREMIUM
    A general term used to describe the difference between the price at which a share was first issued and the current price. Often, a successful company wants to issue additional shares to raise the capital for expansion. The price of these new shares will reflect the growth of the company since its incorporation and so they will be sold for more than the selling price of shares of the same class when the company was first formed. The additional amount in excess of the par value is a share premium, and is shown separately in a share premium account which is reflected under Non-Distributable Reserves in the company’s balance sheet.
  • PREMIUM ARISING ON ACQUISITION
    An intangible asset which arises when a holding company pays more for a subsidiary than its book value. Goodwill is also called a "premium arising on acquisition" and is normally written off against profits over a period of time.
  • PREPROCESSING
    Altering data to some extent to be more accurately analysed; smoothing, reducing unwanted data, removing trends. Processing data is mathematically transforming the data from one form into another with the goal of amplifying the pertinent information for traders.
  • PRESCRIBED ASSET
    An asset which must be held by a retirement fund by law. This idea was introduced by the National Party, to ensure that they had sufficient funds for major projects during the apartheid era. Today there are no prescribed assets, just a split of funds which is designed to ensure that pension and retirement funds are properly diversified. The ANC government has periodically mentioned re-introducing prescribed assets, but this has been strongly opposed.
  • PRESCRIPTION
    This is the period of time for which a debt remains valid, after the creditor ceases to demand payment. In terms of the Prescription Act. If the creditor does not demand payment (i.e. by delivering an invoice or letter of demand) then the debt will fall away after three years.
  • PRESS RELEASE
    An announcement made by a company, either voluntarily or to comply with legal requirements, to inform the public of some material development which will impact on shareholders. Typically, profit warnings, rights issues, capitalisation issues, consolidations, pre-listing statements, interim and final dividends, annual financial statements and many other announcements are made through the press. You should study these carefully because they often offer good opportunities for profit. Listed companies are required by the JSE rules to publish any important news on the Stock Exchange News Service (SENS).
  • PRICE CHANGE
    A revision to a previously reported fill, usually due to the resolution of an out trade.  
  • PRICE DISCOVERY
    The process of determining the price of a commodity by trading conducted in open outcry at an exchange.
  • PRICE LIMIT
    The maximum advance or decline, from the previous day's settlement price, permitted for a futures contract in one trading session. Also referred to as Maximum Price Fluctuation.
  • PRICE PAGE
    The page of your daily newspaper which displays the previous day’s closing prices on the JSE. The price page is divided into the same sectors and sub-sectors as the JSE and gives the high, low, and closing price for each listed, quoted equity or near equity together with other statistical information like the day’s move, the dividend yield, the P:E ratio, the volume of shares traded and so on.
  • PRICE RANGE
    The difference between the highest and lowest prices at which a particular share has traded over a certain time period – such as one trading day, or one year. The range is a good indication of the volatility of the share.
  • PRICE TO SALES RATIO
    The price of a stock divided by sales-per-share of the company in the most recent fiscal year.
  • PRICE/EARNINGS RATIO
    The market price of a share divided by its most recent average annual earnings per share. This gives the reciprocal of the earnings yield, and is used by some investors to compare shares. The PE ratio, also known as the “earnings multiple”, is not much used in South Africa but is common overseas where the earnings yield is unknown. The P:E gives a good idea of the share's "rating". Highly rated shares are those which have had steadily rising earnings for many years. Investors (especially institutional investors) are willing to pay much more for 100c of their earnings than for the same 100c in earnings from a company whose profits are erratic and unreliable. This means that their share price will be higher in relation to their profits. We say that the earnings are of "good quality".
  • PRICE:EARNINGS GROWTH RATIO
    A ratio which is designed to show whether a share is cheap or expensive at the current market price, in relation to its track record of growing earning per share over a period of time. For example, Capitec Bank has the following track record of growing earnings per share (EPS) since 2003: Capitec’s average EPS percentage growth over that period of 13 years is 37,9% per annum. Its current P:E ratio is 23,73 – and this enables us to calculate the P:E Growth ratio by dividing its P:E by its average EPS Growth – 23,73/37,9 = 0,63. If the P:E Growth is below 1 it is worth looking at and may be under-priced. Ratios above 1 are on the expensive side and should be viewed with caution.
  • PRICING POWER
    The ability of a company to raise the price of its products without losing significant market share. Pricing power is determined by the existence of suitable substitute products. For example, in a highly competitive industry, like the toothpaste industry it is difficult for producers to create much pricing power because the consumer always has a range of toothpaste choices at competitive prices. However, in more monopolistic markets, like the beer market, SA Breweries (now part of AB InBev) controls as much as 90% of the South African market and enjoys considerable pricing power.
  • PRIMARY MARKET
    The market for shares when they are first sold by a company to raise capital. New issues and rights issues are examples of activity on the primary market. Once the company has sold the shares, they enter the secondary market and are sold and bought by members of the public without in any way changing the capital structure of the company.
  • PRIMARY TREND
    The overall long-term trend of the share market as a whole. The primary trend is either bullish (up) or bearish (down) separated by periods of indecisiveness where the market moves sideways, oscillating between resistance and support levels. Bull and bear trends can last for between 18 months and ten years. They are broken by corrections and rallies which usually last two to four months. During a primary bull market 80% of the shares on the JSE are rising and vice versa – so it is wise to remain out of the market during a bear trend.
  • PRIME RATE
    The rate of interest charged by a commercial bank to its very best (i.e. lowest risk) clients. The prime overdraft rate is usually about 3,5% higher than the repo rate, which is the rate which the central bank charges the commercial banks. When the central bank changes the repo rate then the commercial banks follow quickly by adjusting their prime overdraft rate.
  • PRIVATE COMPANY
    A company defined by the Companies Act which may not make an offer of shares to the public – as opposed to a public company which may. So all the shares trading on the JSE represent public companies. Private companies must have the letters (Pty) Ltd in their name and cannot have more than fifty shareholders. They must have at least one director and one shareholder. Their Memorandum of Incorporation (MOI) must restrict the sale or transfer of shares – usually by giving the other shareholders the right of first refusal.
  • PRIVATE CREDIT EXTENSION
    The amount of money borrowed by companies, private individuals and other non-government organisations. This figure is made up of private individuals borrowing on credit cards, overdrafts and trade accounts and then companies borrowing to finance growth. The monetary policy committee (MPC) controls the level of interest rates through the repo rate charged to commercial banks and this, in turn, directly impacts the overdraft rate, the mortgage rate and all other interest rates. When private credit extension rises too quickly the MPC will tend to increase rates to make it less attractive to borrow – and vice versa.
  • PRIVATE INVESTOR
    A natural person (rather than a corporate entity) who invests on the stock market. Private investors make up only about 10% of the trades done on the JSE. The other 90% are done by big institutions like pension funds, insurance companies and unit trusts. This means that the approach of big institutions and their fund managers is of great interest to private investors.
  • PRIVATE PLACING
    An offer of shares to specific investors chosen by the board of directors. Usually, a private placing is offered to staff members, suppliers, clients and others who are closely connected with the company. Some shares in a private placing are also usually placed with a few large institutions. The benefit of a private placing is that the board is able to determine the initial composition of their shareholders so as to place the shares in “strong hands” – which means investors who are unlikely to sell the shares anytime soon.
  • PRIVATISATION
    The sale of government assets to the private sector. The union movement in South Africa has been implacably opposed to privatisation since 1994 because they see it as resulting in retrenchments. For this reason, privatisation has generally been a dirty word in the new South Africa. However, in 2016, with the re-appointment of Pravin Gordhan as Minister of Finance, the idea has come to the fore again as the cash-strapped government looked to subsidise loss-making parastatals like SAA and Eskom.
  • PROBABILITY
    The chances that a certain event or outcome will occur. It has been well said that investment is not about certainty. It is about probability. When you buy a share, you are making a forecast. You are saying, “I expect this share to go up”. The problem with forecasting is that you can never be certain of the outcome. Nobody can predict the future with a 100% certainty. But that does not mean that the future cannot be predicted – just that it can only be predicted with an approximate probability of being right. So, you can say, “This share has a 70% probability of going up by 50% in the next year.” Then the question of share assessment and timing comes down to various methods to improve your probability of being right in making that forecast. Thus, if a share is heavily over-bought then its probability of going down is much greater than if it was heavily over-sold. You can use both fundamental and technical methods to improve your probability of being right when making a share selection or timing decision. The fundamentals of a company tell you whether it is likely to be a good generator of dividends in the future. The charts can tell you whether it is a good time to buy that share given its chart patterns.
  • PRODUCER PRICE INDEX
    The inflation rate measured at the producer level. This is the average price of goods sold by manufacturers to wholesalers. If the PPI is rising then you can expect the Consumer Price Index to begin rising within the next few months. The PPI is calculated and published every month by Statistics SA.
  • PROFESSIONAL INVESTOR
    A private person who makes his/her living out of buying and selling shares on the JSE. These people generally keep a very low profile and are hard to find. Usually they operate out of a tax haven and have little or no financial presence in South Africa. They should not be confused with the fund managers who manage money on behalf of big institutions. The fund manager is a high-paid and highly-qualified employee – he makes his living by working and not from his own personal investments.
  • PROFIT AND LOSS ACCOUNT
    The profit and loss account (P&L) subtracts indirect expenses from gross profit to arrive at net profit. The P&L itself is not disclosable in terms of the Companies Act or GAAP, but elements of it like directors remuneration or finance costs are disclosed on the face of the income statement or by way of a note. The indirect or fixed costs of a company are those which do not vary with sales levels – like rent, telephone, salaries and electricity. These expenses must be paid whether the company sells anything in the accounting period or not.
  • PROFIT MARGIN EXPANSION
    In long-term reference, a measure of a company's net profit margin in the latest reported quarter divided by profit margin in the fiscal year previous. In short-term reference, a measure of a company's net profit margin in the latest reported quarter divided by profit margin in the quarter immediately preceding.
  • PROFIT TAKING
    Selling tradables that have appreciated since initial purchase in order to take advantage of the appreciation.
  • PROGRAM TRADING
    Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system.
  • PROSPECTUS
    This is a requirement of the Companies Act (71 of 2008) for every offer of shares made to the public. Section 108 of the Act requires that a company cannot allot shares or accept money for those shares unless there is a prospectus and that the applicant was in possession of that prospectus at the time of making the application. The purpose of the prospectus is to ensure that members of the public wishing to purchase the shares on offer are aware of certain key information concerning the company and its directors.
  • PROVISION
    An item on the balance sheet that falls under liabilities. A provision is “raised” when the company has an expense for which it has not yet received an invoice and therefore does not know the amount. The provision is an estimate, which is charged against profits because the expense was incurred in the accounting period, which is being reported.
  • PROXY
    A document, signed by a shareholder of a company, which entitles a person (who is not necessarily a shareholder of that company) to attend shareholders’ meetings, speak and vote on behalf of the shareholder of the company.
  • PUBLIC ANNOUNCEMENT
    An announcement made by a listed company about an event within the company which may have an impact on its shareholders or the price of its shares. Companies listed on the JSE are required by the JSE rules to post certain announcements on the Stock Exchange News Service (SENS). These announcements include their interim and final financial accounts in abbreviated form, the purchase or sale of their shares by any of their directors, cautionary announcements about any fundamental transactions such as a take over, merger or major acquisition and any other event which might impact the share’s price. As a private investor, it is well worth your while to follow and read these SENS announcements.
  • PUBLIC COMPANY
    A company as defined by the Companies Act may issue shares to the public, has no restrictions concerning the number of shareholders, or the transfer of shares from one person to another. Public companies may have their shares listed, but may not necessarily list. Public companies must have at least 7 shareholders, but there is no upper limit to the number of shareholders. They are also required to lodge their annual financial statements with the Companies and Intellectual Property Commission (CIPC).
  • PUBLIC FINANCE MANAGEMENT ACT
    An Act which governs the management of public funds in the hands of government departments, provinces and municipalities. It establishes procedures for borrowing funds, guarantees and the purchase of goods or services from the private sector.
  • PUBLIC INVESTMENT CORPORATION
    The PIC controls and manages about R1,8 trillion of pensions contributions from civil servants working for the government. It is the largest investor on the JSE holding about 12,5% of its market capitalisation. Your stock exchange handbook will show the PIC as one of the top three investors in almost every major blue chip share on the JSE.
  • PUBLIC OFFER
    An offer of shares made to the public. The public is invited to apply for the shares by completing an application form and submitting it with their cheque. If the total amount raised exceeds the “minimum subscription” then the offer has been successfully filled. If not, then the entire offer is cancelled and all applicants are refunded. If more applications are received than there are shares to allocate, then the offer is said to be “oversubscribed”. All offers must be accompanied by a prospectus drawn up in terms of Schedule 3 of the Companies Act.
  • PUBLIC PRIVATE PARTNERSHIP
    A partnership between the government and the private sector in terms of the Public Finance Management Act. The Gauteng freeway project and toll roads undertaken by Sanral with various construction companies is an example. The renewable energy initiatives are also public private partnerships. The idea is to undertake additional projects which the government by itself could not afford to do on its own.
  • PURCHASE AND SALE STATEMENT
    A statement sent by a Futures Commission Merchant to a customer in the US when a futures or options position has been liquidated or offset. The statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction. Sometimes combined with a Confirmation Statement.
  • PURCHASING MANAGERS INDEX
    An economic indicator which shows the health or otherwise of the manufacturing sector. This index is produced monthly and published in the financial press. It is obtained from a monthly survey of 300 purchasing managers in the private sector. Information is gathered under five headings: employment, supplier deliveries, production, stock levels and new orders. Together these figures are combined into an index. If the index is above 50 it indicates growth in the sector and vice versa. Obviously, manufacturing sales are ultimately derived from consumer demand for products and restocking by the retail sector. This in turn drives employment in manufacturing and comprises a significant element of Gross Domestic Product growth. A good PMI means that shares involved in manufacturing should do well going forward. Of course, there is a significant export element to manufacturing demand so the strength of the rand is a key component.
  • PUT OPTION
    The purchased right to sell (put) specified securities at a specified price (strike price) within a specified period (American) or a specified date (European). By the payment of a premium per share, the investor buys the right to deliver the shares at any time during the currency of the contract, at the ruling price when the put was purchased. This is useful as a hedge when a sharp drop is anticipated, as the only immediate capital required is the put money (premium).
  • PUT UP OR SHUT UP
    A rule of certain stock exchanges which requires an acquiring company to make a formal offer or to publicly abandon its take over attempt. The London Stock Exchange frequently enforces this policy, as it did in the cases of the Capital Shopping Centers take over and the SAB Miller take over.
  • PYRAMID
    A holding company that holds subsidiaries that in turn holds other subsidiaries and so on. In this way the company at the top of the pyramid can control those at the bottom even though it effectively owns only a small fraction of their shares. Pyramids are generally frowned upon in the financial markets.
  • QUALIFIED AUDIT REPORT
    Where the audit report in a company’s financial statements contains a proviso. The auditors state that “the company’s financials fairly represent the company’s financial position, except for…”. In other words, they are not totally satisfied with the financial statements. This is extremely rare because, obviously, listed companies are at great pains to avoid any sort of qualification of their audit report, but it is worth just glancing at the audit report to ensure that it is not qualified.
  • QUALITY OF EARNINGS
    The quality of a company’s earnings is measured by their consistency. An earnings growth of about 15% per annum is ideal from an investors viewpoint. If a company can sustain this for many years, even during recessions, then its earnings flow will be very highly rated and that will result in its share price being high in relation to its earnings – which can be seen in the P:E ratio and the earnings yield.
  • QUANTITATIVE EASING
    The policy of major Western countries to increase their money supply to stimulate growth as part of their monetary policy. Quantitative easing is the modern equivalent of printing money and injecting it into the economy through a bond-buying program. Since the 2008 sub-prime crisis, the major economies of the world have not only dropped interest rates to record low levels, but also massively increased their money supplies in a desperate effort to generate growth.
  • QUARTERLY BULLETIN
    The Reserve Bank’s quarterly report-back on the state of the economy. This document makes a very interesting read for the private investor because it gives a very credible overview of the economy and considerable detail on specific aspects.
  • QUARTERLY EARNINGS CHANGE
    Historical earnings change between the earnings most recently reported and the quarter preceding. This statistic is much watched in America where companies are required to report financials every quarter.
  • QUARTERLY NET PROFIT MARGIN
    Net operating earnings after taxes for the latest quarter divided by revenues for the quarter.
  • QUICK RATIO
    Indicates a company's financial strength; a company's cash and equivalent divided by current liabilities. This ratio is somewhat more stringent that the “acid test” ratio which includes all current assets, not just cash and cash equivalents.
  • QUOTATION
    The actual price or the bid or ask price of either cash commodities or futures or options contracts at a particular time.
  • QUOTED
    A security whose prices are quoted on the price page of the newspaper. Not all listed securities are quoted. For example, preference shares are usually not quoted, unless they are either convertible or participating (i.e. they are “near-equities”). Mostly only a listed company’s ordinary shares are quoted in the newspaper.
  • QUOTRON
    A proprietary financial data service.
  • RALLY
    A temporary upturn in the price of a share or index or other data stream, which occurs during an overall bear trend. The opposite of a correction.
  • RALLY TOPS
    A price level that concludes a short-term rally in an ongoing trend. A bull market will be made up of a series of rally tops.
  • RAND COST AVERAGING
    The idea of buying more of an investment after a large price move so that the average price is less volatile. Unit trusts make much of this idea because most investors buy small quantities of units on a regular monthly basis. If the market falls and they keep buying then naturally the average price which they have paid will come down - and vice versa. This is certainly a method for reducing the risk in share market investment, but unfortunately it also reduces the return.
  • RAND HEDGE
    Some companies listed on the JSE, receive most of their income in a foreign currency like US dollars, yen or British pounds. These companies benefit directly when the rand falls in value because they receive more and more rands for their foreign currency. They are known as rand-hedge shares because they protect or hedge the investor against any weakness in the rand.
  • RANDOM WALK
    A theory that says there is no sequential correlation (no “dependence”) between prices from one day to the next, and that prices will act unpredictably as they seek a level in response to supply and demand. The random walk theory is the basis for modern portfolio theory which assumes that the market is essentially random and that therefore it is pointless to attempt to predict price movements.
  • RANGE
    The difference between the high and low price during a given period.
  • RAROC
    Another measure of risk-adjusted profitability, derived as the ratio between P/L and value at risk.
  • RATE
    A forex term used to describe the price of one currency in terms of another, typically used for dealing purposes.  
  • RATE OF CHANGE
    In which today's closing price is divided by the closing price n days ago. Multiply by 100. Subtract 100 from this value. ((C today/Cn) * 100) - 100. This is a type of momentum indicator.  
  • RATINGS AGENCY
    An agency that rates the debt instruments of governments, parastatals and companies. There are three primary ratings agencies – Fitch, Standard & Poors and Moodys. Their ratings have a major impact on the interest cost of debt. Thus, when South Africa was downgraded in early 2017, it had a direct impact on its cost of borrowing. Obviously, the country should do everything in its power to reverse these downgrades.
  • RATINGS DOWNGRADE
    The world has three major ratings agencies, Fitch, Moodys and Standard and Poors that constantly monitor and rate the debt of governments and corporations throughout the world. They each allocate a “rating” to specific debt instruments and that rating is used to determine the effective interest rate at which that debt is bought and sold. Poorly rated debt, which is more risky, carries a higher effective rate of interest than highly-rated debt. If a company’s or government’s debt is “down-graded” then it slips one or more notches in the rating agencies assessment and this makes it more expensive and more difficult to raise capital on the world’s debt markets. South Africa’s debt rating was reduced by all three ratings agencies following the firing of Pravin Gordhan as Minister of Finance in March 2017. The downgrade means that in future it will cost the government more to service South Africa’s debt – and that will mean the government has even less to spend on housing, education and medical services.
  • RATIO
    The relationship between two figures from the financial statements, designed to show the profitability or effectiveness of the management within a company. Ratios have no absolute significance, and are only relevant for comparisons over the history of the company or between companies in the same sector.
  • REACTION
    A short-term decline in price.
  • REAL BODY
    That part of a candlestick chart which appears between the opening and closing prices. Normally, if the close is below the open, the bears are said to have won the day and the candle is coloured red. Alternatively, if the share or index closes above its opening price, the bulls have won and the candle body is coloured green or blue.
  • REAL ESTATE INVESTMENT TRUST
    The standard and internationally recognised structure for a property investment company. REITs came into effect in South Africa from the beginning of 2014. A REIT must pay out 75% of its profits in dividends and it is exempt from securities transfer tax.
  • REAL RETURN
    The return on an investment after inflation and tax have been deducted. The return before inflation is deducted is known as the nominal return. You should remember that the after-tax real return does not take into account the risk which the investor took on when he invested. Obviously, higher risk investments should earn a higher return.
  • REAL VALUE
    The real value of a share only exists as an opinion. Everyone has an opinion about whether a share is over- or under-priced. In relation to what? In relation to their perception of its real value. Typically, the market price of a share oscillates from being above to being below its real value, but that of course, depends on exactly what you think its real value is. Clearly if a share is trading below what you think its real value is, you will believe it to be cheap, a bargain – and vice versa.
  • REAL-TIME QUOTES
    Market quotations which are not delayed.
  • REALISED PROFIT/GAIN
    A profit, which is actually in the bank, as opposed to a market appreciation. If you buy shares for R10 and they rise to R12 then you have a market appreciation of R2. Only if you then sell them at R12 will you have a realised profit of R2 less your dealing costs.
  • REALISED/UNREALISED P/L
    The difference between trading revenues that are generated on positions that have been offset and closed, versus those associated with the marking of open positions to current market prices.
  • RECESSION
    A cyclical period of lower economic activity, occurring at regular intervals; as opposed to a depression, which is a period of major economic downturn with high unemployment and declining gross national product.
  • RECKLESS LENDING
    The National Credit Act does not allow financial institutions to lend money to people who cannot afford to repay it. Under the Act, the financial institution must ensure that the borrower has sufficient income and resources to effect repayment. Failure to do so can result in the institution being unable to recover its debt.
  • RECORD DATE
    The day determined by the issuer on which the holding, upon which the entitlement is based, is ascertained.
  • RECTANGLE
    A trading area bounded by horizontal, or near horizontal, lines. It can either be a reversal or continuation pattern, depending on the breakout.
  • REDEEMABLE PREFERENCE SHARE
    This refers to preference shares or debentures, which are issued with the specific undertaking that they will be paid out by the company at a certain future date. These are really a form of long-term indebtedness, which clearly have to be paid back to the lenders on pre-determined dates. The only real difference between redeemable “prefs” and redeemable debentures is that the debentures are units of loan capital and receive interest, while the prefs are share capital and receive dividends – which may not be paid if the company is not making a profit.
  • REDEMPTION DATE
    The date on which redeemable preference shares or debentures will be redeemed or paid back by the company. These are really forms of long-term indebtedness, which clearly have to be paid back to the lenders on pre-determined dates.
  • REGISTERED FINANCIAL SERVICES PROVIDER
    Any person or organization that wishes to engage in the business of asset management or investment advice must first register with the Financial Services Board as a “Financial Services Provider” (FSP). The Act precludes anyone who has a criminal record, particularly where the conviction is for fraud or theft.
  • REGISTRAR OF COMPANIES
    An old term used under the old Companies Act. Under the new Companies Act (71of 2008) the Registrar of Companies is replaced by the Companies and Intellectual Property Commission (CIPC). The CIPC receives and maintains all company returns received from companies in terms of the Act, including the memorandum of incorporation (MOI), the annual financial statements, and to authorise and make rulings where companies are concerned.
  • REGISTRATION CERTIFICATE
    When a company is registered with the Companies and Intellectual Property Commission (CIPC) the commission issues a registration certificate and the date of that certificate marks the commencement of that company.
  • REGRESSION LINE
    A regression line is a mathematical construct which is used in technical analysis – and especially in the construction of a time series moving average. A regression line is a line drawn through a set of ordered pairs on a chart such that the gaps between it and the points above the line exactly equal the gaps between it and the points below the line. Consider this example: [caption id="attachment_11965" align="alignnone" width="439"] Regression Line[/caption] Here you can see that a regression is a straight line that passes exactly through the middle of the points on the chart. If you can imagine that those points are rather daily share prices, then you can begin to understand how a time series moving average, which draws a line connecting the end-points of successive regression lines, is constructed.
  • REGULAR TRADING HOURS
    The standard, morning/afternoon trading sessions at the U.S. markets.
  • REIT
    The standard and internationally recognised structure for a property investment company. REITs came into effect in South Africa from the beginning of 2014. A REIT must pay out 75% of its profits in dividends and it is exempt from securities transfer tax.
  • RELATED PARTY TRANSACTION
    A related party is one who has an interest in a transaction made by a company and yet stands to gain from the transaction. In other words, he/she has a conflict of interest. Normally when this happens, the related party is not permitted to vote on the transaction.
  • RELATIVE RETURN
    The annualised return on an investment in excess of the average three-month US Treasury bill yield during the same period as the investment. This statistic measures the return on an investment relative to what would have otherwise been earned on a risk-free investment.
  • RELATIVE RETURN STANDARD DEVIATION
    Measures the amount of variability of the relative return. A large relative return standard deviation indicates that the relative return experienced during the holding period fluctuated dramatically and, if the holding period was different, a significantly different relative return would have been achieved. A small relative return standard deviation indicates the opposite.
  • RELATIVE STRENGTH
    A comparison of the price performance of a stock to a market index such as Standard & Poor's 500 stock index. A relative strength is calculated by simply dividing one data stream (such as a share) by another (like the market index). The result is then charted daily or weekly. If the share rises faster than the index then the chart will rise and vice versa. Relative strength enables the investor to determine the “relative strength” of a share versus its index – or indeed any data stream versus any other data stream.
  • RELATIVE STRENGTH INDEX
    An indicator invented by J. Welles Wilder and used to ascertain overbought/oversold and divergent situations. The RSI is a momentum indicator, or oscillator, that measures the relative internal strength of a market (not against another market or index). As with all oscillators, RSI can provide early warning signals but should be used in conjunction with other indicators. Divergences are the most important signal provided by RSI. The Relative Strength Index (RSI) is a popular oscillator developed by Welles Wilder, Jr (see his book, New Concepts in Technical Trading Systems). RSI measures the relative changes between higher and lower closing prices, and provides an indication of overbought and oversold conditions. The term "Relative Strength" is slightly misleading and often causes some confusion. Relative strength or the Comparative RSI, generally means a comparison between two different markets or indices. RSI, on the other hand, looks at the internal strength of a single market.
  • REMAINING LIFE
    An estimate of how long a mine will be able to extract gold (or other minerals) profitably, given the lease area and the expected grade. Clearly an assumption has to be made about the future mineral price in Rands. It can be roughly calculated by dividing the tonnage of mineable ore by the average annual rate at which it is extracted. As mining technology becomes more sophisticated and new, cheaper methods of mining are found, and the remaining life of mines can be extended.
  • RENKO
    A kind of candlestick chart that does not take time into account for constructing the chart.
  • RENMINBI
    The unit of the Chinese currency – also called a “yuan”, which means “round”.
  • REPLACE ORDER
    To modify an existing, pending or working order.
  • REPO RATE
    This is the “repurchase rate” - an interest rate which is set by the supply and demand for money between the Reserve Bank and the commercial banks. The rate is effectively controlled by the Reserve Bank through the amount of money that they make available. If they fully meet or exceed the amount demanded by the commercial banks, then the rate will fall and if they under-provide, then the rate rises. As a general rule of thumb, the repo rate is about 3,5% below the prime overdraft rate. This gap is called the “mismatch factor” and accounts for much of the commercial banks’ gross profit.
  • REPORTABLE IRREGULARITY
    Auditors are required to report anything which they find during the course of their audit which indicates fraud, a breach of fiduciary duties, or anything which might cause the shareholders of the company to lose money – usually because their shares would drop in value. The report must be made to the Independent Regulatory Board of Auditors (IRBA).
  • RESERVE
    A figure from the liabilities side of the balance sheet, which is money ploughed back into the business out of profits, arising from a revaluation of assets, or money set aside for the redemption of debentures or other long-term loans.
  • RESERVE ARISING ON ACQUISITION
    A reserve which arises as a result of a holding company paying less for a subsidiary than its book value. The difference is shown in the balance sheet as a liability.
  • RESIDUAL VALUE
    The standard deviation of the unexplained portion of the monthly return.
  • RESISTANCE
    A price level at which rising prices have stopped rising and either moved sideways or reversed direction; usually seen as a price chart pattern. Resistance levels are normally caused by one or more large sellers giving their brokers massive sell orders at a certain price. Then the share (or other instrument) will rise to that level and get beaten back by a flood of sell orders. It may rise to that resistance several times before the sell orders are all completed and the share can break above the resistance.
  • RESISTANCE LINE
    On a chart, a line drawn indicating the price level at which rising prices have stopped rising and have moved sideways or reversed direction.
  • RESOLUTION
    There are two types of resolutions which can be voted and passed at shareholder meetings. The ordinary resolution which usually deals with normal business like the appointment of directors and requires a 50% majority and the special resolution which must be passed by at least 65% (depending on restrictions in company’s Memorandum of Incorporation) and which is reserved for fundamental transactions where the control of the company might be changed.
  • RESTING ORDER
    An order placed with a condition or qualifier but not yet executed.
  • RETAINED EARNINGS
    That portion of a company’s profits which are ploughed back into the business rather than paid out as dividends – so the equation is: profits (earnings) – dividends = retained earnings. Companies which are growing rapidly often choose to plough all their profits back into future growth while mature businesses usually have an established dividend policy whereby they pay out, say, one third of their profit as a dividend and retain the rest. This appears in both the statement of changes in equity and the balance sheet.
  • RETENDER
    In specific circumstances, some contract markets permit holders of futures contracts who have received a delivery notice through the clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the delivery notice.
  • RETENTION RATE
    Percentage of a firm's after-tax profits that can be put to those earnings retained.
  • RETRACEMENT
    A price movement in the opposite direction of the trend. Similar to a correction (in a bull trend) or a rally (in a bear trend). A retracement implies that some of the ground lost or gained is given back before the underlying trend reasserts itself.
  • RETURN
    The return on an investment consists of any dividend, interest, rental or other income added to the increase in the value of the asset over a set period, usually expressed as an annualised percentage of the original investment. For example, if you bought shares for 1000 cents, received a dividend of 25 cents and then sold them 6 months after the date of purchase for 1175 cents, then your return consists of 25 cents dividend plus 175 of capital growth, which is 20% of your original investment of 1000 cents. This is 40% on an annualised basis.
  • RETURN ON ASSETS
    The net earnings of a company expressed as a percentage of its assets.
  • RETURN ON CAPITAL EMPLOYED
    A ratio used to measure pre-tax profitability. It may be calculated as pre-tax profit plus interest paid, divided by total shareholders’ funds.
  • RETURN ON EQUITY
    The net earnings of a company divided by its equity.
  • REVALUATION (OF ASSETS)
    When a company purchases an asset the transaction is normally recorded in the books of account at purchase price (known as the book value). In time, however, the asset may come to be worth more or less than the price that was paid for it. Where this is the case, the directors may decide to have the asset re-valued by an independent assessor. If the asset’s value is increased then a “revaluation reserve” will be created – which is a non-distributable reserve.
  • REVERSAL GAP
    A chart formation where the low of the last day is completely above the previous day's range with the close above midrange and above the open. This is also sometimes called an “exhaustion gap”.
  • REVERSAL SIGNAL
    A term used in technical analysis to describe a formation found either at the top or bottom of a trend which signals that the trend is about to be reversed. Candlestick formation commonly form reversal signals. It is however always best to wait for a confirmation signal before acting on a candlestick reversal signal. There are other forms of reversal formation such as the head and shoulders formation, the double bottom or top formation and the island formation, to name a few.
  • REVERSAL SIZE
    In point and figure charting the number of reverse boxes required (set by the user) to indicate a change in the direction of the trend. So for example, in an upward trend, if the box size is 100c and the user has specified a three-point reversal, the share price would have to fall by at last 300c before a new downward box could be added. The reversal size determines how much of a turn there must be before a new trend is recognised.
  • REVERSAL STOP
    A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as stop and reverse.
  • REVERSE EXPONENTIAL MOVING AVERAGE
    An exponential moving average computed working backward through the time series, rather than forward, as is the case with a standard EMA. A REMA is used so the target would reflect only future price behaviour, not past action that would induce spurious correlation.
  • REVERSE HEAD AND SHOULDERS FORMATION
    The opposite of a head-and-shoulders formation, this formation normally comes at the bottom of a long down-trend and signals the end of that down-trend. The market makes a left shoulder with a rally and then falls to a new low before rallying again (the head). Finally it falls back again on one last fall which does not take as low as the previous fall (the right shoulder). Also called an Inverted Three Buddha.
  • REVERSE TAKE OVER
    Where a company buys assets, the value of which greatly exceeds its net asset value in exchange for the majority of its shares - so that the seller of the assets ends up with a controlling stake. Typically, this occurs when a large company uses an existing, listed cash shell as a vehicle to obtain a listing. Once the cash shell has been reversed into, its name is changed and its share capital expanded. This process avoids the need to apply to the listings committee for a new listing, although the deal must be approved by the JSE.
  • REWARD-RISK RATIO
    Monthly excess return to risk comparison, calculated by dividing alpha by standard deviation. A ratio better than 0.4 is excellent.
  • RICH
    Price higher than expected.
  • RICKSHAWMAN
    A candlestick pattern which comprises of a very small or non-existent body and very long upper and lower shadows. The body of the candle is exactly in between the two shadows. The Rickshawman candlestick pattern is a definite signal of indecision in the market, as buying and selling pressure are exactly equal. The upper and lower shadows are also very long, showing the intense fight between the bulls and the bears during the period. Also called a Long Legged Doji.
  • RIGHTS ISSUE
    An offer of additional shares to existing shareholders, usually at a discount to the current market price. When a company wishes to raise additional capital, one of the ways it can do so is by offering more shares to its existing shareholders. Normally the right to buy these shares is represented by “Nil Paid Letters” which entitle their holder to buy the shares at a price usually below the market price. Some of the existing shareholders may not wish to take up their rights and so are willing to sell their NPLs. For this reason the NPLs are often listed for a short period (until the date when the shares must be taken up) on the stock exchange.
  • RISING THREE METHODS
    A bullish candlestick signal, formed in the progress of an established uptrend, and used to predict the continuation of the current trend. This formation begins with a long green candle within a strong uptrend. Following this is a series of descending small red candles which occur as a result of price taking. After this a strong green candle will appear and reach a new high, confirming the continuation of the already established trend. The significance of this formation is that the bears do not have the stamina to reverse the trend. This formation is also used by some investors to add to their positions. Also called a bullish flag. [caption id="attachment_11425" align="alignnone" width="250"] Rising Three Methods[/caption]
  • RISK
    The probability that a share price will go down rather than up. All investments have an element of risk, which is harder to quantify than their return, and therefore very often left to “gut feel”. Generally, the rule is that the more risky an investment, the higher its potential return. To understand this, it is necessary to consider what you are actually doing when you buy a share or other investment. Essentially you are in the business of forecasting. You are saying that you are buying the particular share because you believe that its price will go up. Now ask yourself what is the easiest price graph to predict – obviously a straight line! But if the share’s price stays at the same place indefinitely, it may be easy to predict – but its volatility also makes possible much higher profits. So, in the share market, volatility, predictability and risk are really the same thing.
  • RISK (IMPLIED)
    In which the formula produces the percentage overbought/oversold for a contract using the price, a moving average and the option's implied volatility.
  • RISK-ADJUSTED RETURN ON CAPITAL
    Another measure of risk-adjusted profitability, derived as the ratio between P/L and value at risk.
  • ROLL
    Substituting a far option for a near option on the same underlying instrument at the same strike price; also to roll forward or roll over.
  • ROLLOVER
    Process whereby the settlement of a forex deal is rolled forward to another date. The cost of this process is based on the interest rate differential of the two currencies.  
  • ROTATION
    Moving funds from one sector to another sector of the stock market as the business cycle unfolds.
  • ROTH IRA
    An American individual retirement account where contributions are not deductible, taxes are not paid on distributions and allows penalty-free withdrawals for first-time homebuyers and retirees.
  • ROUNDED TOP
    A cycle top on a chart which drifts out and down in a gradual loss of momentum. This is as opposed to a “V” top which is very sharp and sudden. Also called an Umbrella Top, a Frying Pan Top, a Dumpling Top and a Rounded Top. [caption id="attachment_11642" align="alignnone" width="409"] Saucer Top[/caption]
  • ROUNDTURN
    A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
  • RULING PRICE
    The price at which the last trade on a security took place, unless there was a higher bid or a lower offer. So, for example, if the most recent trade took place at 100c, but there is an offer at 98c then the offer price would become the ruling price. Similarly, if there was a bid for 102c that would be taken as the ruling price.
  • RUNNING MARKET
    A market wherein prices are changing rapidly in one direction with very few or no price changes in the opposite direction.
  • RUNNING TOTAL
    Each day's value is added to yesterday's total or subtracted if the value is negative.  
  • S&P500 INDEX
    An index of the 500 largest companies trading on Wall Street, weighted for market capitalisation. The S&P is more representative than the Dow Jones which is a simple average of the 30 largest companies on Wall Street. We also suggest that the direction of the S&P indicates whether world markets are in a bull or a bear trend. If a long dated moving average (like 200 days or more) of the S&P is falling then world markets are in a bear trend and vice versa. Obviously, you do not want to own shares when world markets are in a bear trend, because during a bear trend 80% of shares fall. Consider the following long-term chart of the S&P500 index with a 250-day moving average superimposed: [caption id="attachment_13710" align="alignnone" width="435"] S&P500 Index - Chart by ShareFriend Pro[/caption]
  • SAFE HAVE TAX RULE
    In terms of the Income Tax Act, any share investment which is held for longer than 3 years is taxed only on the basis of capital gains and does not result in the investor being declared a share dealer by SARS. This means that as a private investor you should consider what is going to happen to any share you are interested in over the next 3 years.  
  • SAFEX
    South Africa’s licenced futures exchange under the Financial Markets Act. SAFEX is owned by the JSE.
  • SALES GROWTH
    The growth in sales in a company.
  • SALES LOAD
    A service charge of a mutual fund that is added to the costs of owning a stake in the fund.
  • SAME STORE SALES
    The sales made by a retailer from the same stores which it owned in the previous financial period – as opposed to new store which have been opened in the current  financial period. Same store sales are comparable and give a better idea of the company’s organic growth.
  • SARB
    A government or quasi-governmental organization that manages a country's monetary policy. For example, the U.S. central bank is the Federal Reserve, and the ECB (European Central Bank) manages monetary policy for the European Union. In South Africa the central bank is known as the Reserve Bank. It has two primary functions – to ensure monetary stability (which basically means controlling inflation) and to maintain the growth of the economy. These two objectives are to some extent mutually exclusive in that efforts to control inflation (such as increasing interest rates) inevitably result in a reduction in economic growth. To achieve its objectives the Reserve Bank holds a monetary policy committee (the MPC) meeting every two months to consider whether interest rates should be increased, decreased or left unchanged.
  • SARS
    The Receiver of Revenue in South Africa, tasked with collecting taxes and customs duties. Since the advent of the ANC government, tax collections in South Africa have improved noticeably, and the tax base has been broadened considerably.  
  • SATRIX
    A financial institution providing (passive opposed to managed) investment products including exchange traded funds (ETF) and unit trusts. They also produce customized products to meet specific institutional needs. They offer a number of Tax-Free Savings Accounts (TFSA) which investors can then place in the various exchange traded funds (ETFs) run by Satrix.
  • SATRIX DIVI
    This an ETF which tracks the Dividend Plus Index (STXDIV) as closely as possible. The components of the Dividend Plus index are based on a one-year forecast of future dividend yields. This type of investment is ideal for investors in a tax-free savings account (TFSA). The performance of the ETF may be subdued over the short term but, longer term it will contain the best dividend paying blue chips on the JSE.
  • SATRIX RESI
    Satrix Resi (STXRES) is an index tracking fund, providing investors with the price performance of the FTSE/JSE Capped Resource index. It, together with various other ETFs, is produced and managed by Satrix. If you think that commodities like gold , platinum, coal and iron ore are going to perform well then this ETF might suit you. Obviously, commodities like these depend on demand from overseas, especially China. They also tend to be very volatile and difficult to predict.
  • SATRIX SWIX
    The Satrix Swix (STXSWX) exchange traded fund (ETF) is very similar to the Satrix Top 40, except that it reduces the weighting of those shares in the top 40 which have exposure to foreign investments – making the ETF more about the performance of the South African economy and the largest South African companies.
  • SATRIX TOP 40
    The Satrix Top 40 (STX40) is an ETF (exchange traded fund) that tracks the FTSE/JSE Top 40 providing exposure to the 40 largest shares, by market capitalisation, listed on the JSE. Buying an ETF is generally better than buying a general unit trust, because the dealing costs are far lower. The problem with investing in the Top 40 basket is that it contains a number of resource shares which can increase the risk.
  • SAUCER BASE
    Similar to a cup and handle formation, but the saucer base is shallower and rounder in shape.
  • SAUCER BOTTOM FORMATION
    This is the name that technicians give to the bottom formation of a share price where it drifts out slowly from a strong downward trend and then begins to tentatively move upwards into a new bullish trend. Consider the following example: [caption id="attachment_11952" align="alignnone" width="440"] Saucer Bottom Formation[/caption] Here you can see that this share had a sharp fall which then became a sideways movement and finally a new upward trend. The saucer was about a month long before the new upward trend began. Also called an Umbrella Bottom and a Frying Pan Bottom.
  • SAUCER TOP FORMATION
    A cycle top on a chart which drifts out and down in a gradual loss of momentum. This is as opposed to a “V” top which is very sharp and sudden. Also called an Umbrella Top, a Frying Pan Top, a Dumpling Top and a Rounded Top. [caption id="attachment_11642" align="alignnone" width="409"] Saucer Top[/caption]
  • SAVI
    An index which is based on the opinions of institutional investors who write future and option contracts on the companies in the JSE Top 40 index. The SAVI gives an indication of market volatility.
  • SCALED INDEX
    An index which is modified to reflect changes in its component companies’ issued share capital. So a scaled index is not necessarily adjusted for the market capitalisation of its component companies.
  • SCALLOP
    Chart formation in which the price dips momentarily, forming a cup, before resuming its upward course.
  • SCALP
    In commodities, purchasing and selling in equal amounts so there is no net position at the end of the trading day; a speculative attempt to make a quick profit by buying at the initial offering price in the hope the issue will increase and can be sold.
  • SCALPER
    A local trader in the pit who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
  • SCHEME OF ARRANGEMENT
    A transaction which could change how a company is controlled. If the company’s ownership is changed to the extent that there is a new controlling shareholder by whatever means, then the minority shareholders can apply for appraisal rights to force the company to buy back their shares at a market-related price.
  • SCRIP
    The physical share certificates(s).
  • SCRIP DIVIDEND
    A dividend which is paid in additional shares rather than in cash. A company will offer a scrip dividend if it wants to retain cash in the business. And sometimes, dividends can be either in the form of shares or cash or both. Scrip dividends increase the number shares which the company has in issue and so they dilute the value of each share – so in the end, if all shareholders take up a scrip dividend, they gain as much as they lose.
  • SEASONAL TREND
    A consistent but short-lived rise or drop in market activity that occurs due to predictable changes in climate or calendar. For example, retailers tend to do a large percentage of their business around Christmas, while the construction industry is typically on holiday at that time.
  • SECOND ROUND INFLATION
    Primary inflation occurs because the price of goods goes up and hence the purchasing power of the currency falls. Thus an element of primary inflation would be an increase in the petrol price. Secondary inflation is where manufacturers and retailers have to put up their prices because their costs have increased as a result of the petrol price rise. Obviously secondary inflationary effects can take months or even years to work their way through the economy.
  • SECONDARY LISTING
    Companies generally list on the main stock exchange of the country where they have most of their businesses. But as they diversify into other geographies, they often take a second listing in another country. This helps them to raise capital in another country. This can be especially helpful if their secondary listing is in a first world country with a hard currency.
  • SECONDARY MARKET
    The market made up of share transactions, which do not involve the company that issued the shares concerned. The primary market is where companies sell their shares to the public to raise capital, and the secondary market is where those shares in turn are traded.
  • SECONDARY SHARE
    A share of a company which is well-managed and has good markets, but does not have the financial muscle or history of profits of the blue-chips. These are sometimes referred to as “growth” stocks, because they have the potential to become blue-chips at some future stage. You should expect a secondary share to double its market price within the next 2 to 3 years, and for this reason they form an important middle area in your portfolio between blue-chips and speculative shares.
  • SECONDARY TREND
    Charles Dow identified three different lengths of movement in the stock market as part of his “Dow Theory”. They were long-term trends which vary from 2 to 10 years or even longer, secondary trends which last from 1 to 6 months, and so-called “daily fluctuations” which last from a few minutes to two weeks. Secondary trends are known as “corrections” in a bull trend and “rallies” in a bear trend. It is difficult to take advantage of secondary trends unless your timing is superb and if you do you will certainly be regarded by the Receiver as a “share trader”. We suggest that you rather stick to longer-term investments (3 years or more) and hold through the secondary trends.
  • SECTOR
    A grouping of all shares in the same industry, usually represented by a sector index. If you look at the price page of your newspaper, you will see that the share market is divided into sectors. The market is divided into the following sectors: Materials, Energy, Industrial, Consumer Discretionary, Consumer Staples, Telecommunication Services, Financials, Healthcare, and Information Technology. These sectors are then further divided into sub-sectors. Each sector has an index which is an actuarially weighted average of the shares in that sector.
  • SECTOR EDUCATION TRAINING AUTHORITY
    SETA’s are probably one of the worst innovations of the ANC government. They were initially aimed to create a skilled labour force, but have turned into massive bureaucratic structures that achieve little or no training. There is supposed to be one SETA for each industry (over 20 in all) and companies in that industry are required to pay a 1% fee on their monthly salary bill if their annual sales are more than R500 000. Many SETA’s are badly run and have received qualified audit reports. Companies have ended up doing their own training anyway.
  • SECTOR FUND
    A mutual fund that concentrates on trading a range of securities within a broad industry group, such as technology, energy or financial services.  
  • SECTOR ROTATION
    When a block of investment professionals cash out of one industry sector to invest in another.
  • SECULAR TREND
    A long term trend that persists for a virtually indefinite period.
  • SECURITIES REGULATION PANEL
    In terms of the Companies Act, the securities regulation panel is established to examine “affected transactions” where the control of the business changes hands. Examples include mergers, acquisitions and take overs where there is potential for insider trading of the company’s shares.
  • SECURITIES SERVICES ACT
    This is an old and out-dated piece of legislation that was replaced by the Financial Markets Act (19 of 2012) in mid-2014.
  • SECURITIES TRANSFER TAX
    A tax which is charged on all share market transactions at the rate of a quarter of a percent of the value of the transaction. SST is part of the dealing costs of trading on the JSE.
  • SECURITISATION
    Where debt instruments like mortgage bonds are gathered under a new corporate entity and then shares in that corporate entity are on-sold. The 2008 sub-prime crisis was partly the result of retail mortgage bonds being bundled and sold in this way to banks all over the world. When the property market in America began to collapse, these securitised investments fell sharply in value undermining the balance sheets of banks all over the world.
  • SECURITY
    Stocks, shares or debentures (issued by a company having a share capital), notes, units of stock issued in place of shares and options on the above or options on indices of information as issued by a stock exchange on prices of any of the aforementioned instruments. The term is much broader than “share”, encompassing all types of investments, which can be readily bought or sold.
  • SECURITY SELECTION RATIO
    The percentage of trades in a given account that liquidate profitably.
  • SEED
    The first value used to start a calculation. For example, an exponentially smoothed moving average (EMA) uses the previous day's EMA for the calculation. On the first day's calculation of the EMA, you could use a simple moving average as the seed for the EMA.
  • SEGREGATED ACCOUNT
    A special account used to hold and separate customers' assets from those of the broker or firm.
  • SELECTNET
    A Nasdaq execution technology.
  • SELF-REGULATORY ORGANISATION
    Self-regulatory organisations (i.e.the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members.
  • SELLER’S PRICE
    The price at which someone is prepared to sell a share. At the end of the day’s trade, there is often a seller who was not able to find a buyer for his shares at the price he wants, so that his price remains in the seller’s column until the next trading day. The seller’s price is reported in papers as it stood at the close of trade on the previous day.
  • SELLING PRESSURE
    A high sell-off of a particular share or class of shares which creates excess supply in the market and so causes the price to fall.
  • SELLING SHORT (BEAR SALES)
    Selling shares you do not own at the date of sale in the expectation of being able to buy them back at a lower price.
  • SEMI-LOG CHART
    The ShareFriend Pro software allows you to display charts in a linear or semi-log form. A linear chart is just like the charts that you used to draw at school with both the X and the Y axis showing one unit for each interval. A semi-log scale shows one axis (the X-axis) linearly and the other axis (the Y-axis) logarithmically. So the X-axis shows the date at regular intervals. The Y-axis shows the prices logarithmically. The best way to explain this is with an example. Consider the following chart of the JSE Overall index going back to February 1985: [caption id="" align="alignnone" width="423"] JSE Overall Index 1985 to 2017 - Chart by ShareFriend Pro[/caption] It looks like the 2008 sub-prime crisis was much bigger than the 1987 crash. Now look at exactly the same chart, but in a semi-log form: [caption id="" align="alignnone" width="434"] JSE Overall Index 1985 to 2017 Semi-Log - Chart by ShareFriend Pro[/caption] Now you can see that in percentage terms, the 1987 crash was about the same size as the 2008 sub-prime crisis.
  • SENS
    A news service run by the JSE on which listed companies are required to announce everything of importance which happens – such as their financials, the dealings of directors in their shares, mergers, take-overs, acquisitions, and anything else which might possibly have an impact on the share’s price. Trading statements, which are published a month or more before the publication of their financials give a good indication of what the profit is likely to be and whether it varies by more than 20% from that of the previous period.
  • SENSITIVITY
    The rate of change of the moving average in response to the movement of the underlying data. The most sensitive period is that in which the rate of change of the moving average is fastest in response to changes in the sinewave.
  • SENTIMENT
    Crowd psychology, typically a measurement of bullish or bearish attitudes among investors and traders. There is a definite “herd” effect in market sentiment where bullish or bearish sentiment, once it is strong enough, tends to feed on itself. For example, during a bear trend negative articles in the press are given front-page headline prominence while positive articles tend to be relegated to the middle pages and are largely ignored. One of the methods for determining whether sentiment is bullish or bearish is to study the movement of the market in response to breaking positive or negative information. When the market tends to ignore positives and over-emphasise negatives then you can be sure that sentiment is bearish.
  • SERVICES COMPANIES
    A company which sells a service as opposed to a tangible product. Services companies have come to dominate the economies of first world countries. A services company has the advantage that it has low or even negative working capital – because usually it has little or no stock and often sells an on-going service for a debit order. This makes it much less risky than a traditional manufacturing or retailing business.
  • SETA
    SETA’s are probably one of the worst innovations of the ANC government. They were initially aimed to create a skilled labour force, but have turned into massive bureaucratic structures that achieve little or no training. There is supposed to be one SETA for each industry (over 20 in all) and companies in that industry are required to pay a 1% fee on their monthly salary bill if their annual sales are more than R500 000. Many SETA’s are badly run and have received qualified audit reports. Companies have ended up doing their own training anyway.
  • SETS
    The London Stock Exchange’s “Stock Exchange Trading Service” (SETS) electronic order book. The London Stock Exchange sold its Sets order-driven trading system to the JSE Securities Exchange South Africa in a deal worth a minimum of £11 million in additional revenue for the LSE over five years. The deal specified the provision of core technology services by the LSE to the JSE and aimed to achieve easier access to each other's markets for both member firms and issuers. The JSE boosted revenue potential from data distribution once the new platform was installed at the end of 2001. The tie-up with the LSE enabled the South African exchange to extend its reach and the services it can offer to local brokers and investors while at the same time retaining its independence and control over the operation of its market. In July 2012 the SETS system was replaced by the Millennium system.
  • SETTLEMENT
    The price at which all outstanding positions in a stock or commodity are marked to market. Typically, the closing price.
  • SETTLEMENT DATE
    The date on which the transaction is due to be settled. In the STRATE environment transactions become due to be settled a prescribed number of days after the trade date. This is currently three (3) days. This is commonly expressed as T+3.
  • SETTLEMENT PERIOD
    One of the prescribed portions of the year for the settlement of Krugerrands (the weeks are numbered from 1 to 52, starting in January).
  • SETTLEMENT PRICE
    The last price for a futures contract on any trading day, as determined by the exchange on which the futures contract is traded. The market may not actually have traded at the settlement price, in which case this price is said to be a "nominal" settlement.
  • SEZ
    Special Economic Zones (SEZ) grew out of the Industrial Development Zones (IDZ) which existed previously. There are five SEZ’s in South Africa. They are Coega, Richards Bay, East London, Saldanha Bay and Dube Tradeport. Businesses which establish in these SEZ’s are given a special tax rate of 15% (as opposed to the normal 28%) and other tax incentives such as capital allowances on buildings and machinery. The idea is to attract both local and overseas investment so as to stimulate growth and employment in the areas surrounding the SEZ. In general, SEZ’s have been a successful intervention with strong support from both local and foreign investors.
  • SHADOW
    The wick or tail, at one end or both, designating the high and/or low prices for the period upon which a candle is based. In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display – usually a trading day. The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. Thus the upper shadow is a vertical line connecting the open or close (whichever is higher) to the high of the day and the lower shadow connects the open or close (whichever is lower) to the low of the day.
  • SHARE BUY BACK
    The new Companies Act (71 of 2008) allows a company to buy back its own shares in the open market, provided it can pass a solvency and liquidity test. Shares which are bought back by a company are known as “treasury shares” and are normally destroyed. For this reason, buy backs reduce the number of shares in issue – which means that the value of the remaining shares increase. This is, in effect, a dividend and is treated as such by the Income Tax Act.
  • SHARE CAPITAL
    A figure on the balance sheet representing the amount of money raised by the company through the issue of shares to the public.
  • SHARE DEALER
    Someone who deals in shares as their primary business. A person or organisation that buys and sells shares can be declared by the Receiver of Revenue to be a share dealer – in which case, any capital gains they make on their dealings will be added to their taxable income. Shares which are held for longer than three years only incur capital gains tax – which for the private investor is effectively about 16,4%. For this reason, it is wise to think about where a share will be in three years before buying it.
  • SHARE MARKET
    A market place where ordinary shares can be bought and sold through an organised exchange like the JSE. The share market is, in fact, two markets – the primary market and the secondary market. In the primary market listed companies raise capital by selling their shares to the public (as in a rights issue or an initial public offer). In the secondary market members of the public buy and sell those shares between themselves. In order to have a good primary market, companies needs a good secondary market – because no one would buy their shares in the primary market unless they knew they could sell them later in the secondary market.
  • SHARE SPLIT
    Where a company decides to divide its existing issued share capital into more shares to increase tradability. For example, if a company with 10m shares in issue trading for 1 000c in the market decides to do a 10 for 1 split, then it will end up with 100m shares of 100c each. The market capitalisation of the share is usually not affected, except that the share, once split, becomes cheap enough for a larger group of investors to afford thus increasing demand. This is also known as a sub-division. There is an increase in the number of shares held by each shareholder, with a proportionate reduction in their value so that there is no change in the total value of the shareholding. This is done by breaking each share down into smaller pieces. The effect is to bring the share’s value within the reach of smaller investors.
  • SHARE TRANSACTIONS TOTALLY ELECTRONIC
    An electronic settlement system for the South African equities market.
  • SHAREHOLDER OF RECORD
    Share owner of company stock as registered in company files.
  • SHAREHOLDERS FUNDS
    The money which shareholders have invested in a company – as opposed to third parties like banks. These funds are derived from the sale of shares to the public, plus the accumulation of retained income over the years. Shareholders’ funds should always be more than the company’s total debt, including its creditors book – otherwise outsiders have more money in the business than the shareholders.  
  • SHARES
    A part-ownership of a company. The ownership of companies is divided into individual shares which, if the company is listed on the JSE can be bought and sold by members of the public. Companies issue and sell shares to raise the capital they need to start or build their businesses. This is done in the "primary market". Thereafter, the shares can be bought and sold between members of the public in the "secondary market". There are many different types of shares - like preference shares, N-shares, non-voting shares, and so on - but the most common and interesting type are "ordinary" or "equity" shares - because they participate in the risks and the returns of the business. Companies can issue new shares, consolidate their shares, split their shares and use their shares to buy other companies. If you own shares in a company then you are entitled to receive your share of whatever dividends the directors declare.
  • SHARPE RATIO METHOD
    The Sharpe Ratio Method is the classic return/risk measure, often used to measure the affect of a new investment in a portfolio. Similar to this is the Sterling Ratio Method.
  • SHAVEN BOTTOM
    When a candle has no shadow at the lower end, it is said to have a shaven bottom.
  • SHAVEN CANDLESTICK
    A candlestick which does not have shadows at both the top or bottom of the candle, indicating certainty.
  • SHAVEN HEAD
    When a candle has no shadow at the upper end, it is said to have a shaven head or a shaven top.
  • SHAVEN TOP
    When a candle has no shadow at the upper end, it is said to have a shaven head or a shaven top.
  • SHOOTING STAR
    A top reversal candlestick formation consisting of a candle with a small body and a long upper shadow. This candlestick formation is the inverse of the hammer and derives its significance from the length of it's upper shadow. The longer the shadow the stronger the signal as this represents the failure of the bulls to drive the price up and keep it there. The upper shadow should be at least twice the length of the body of the candle. The lower shadow should be small or non-existent. The colour of the candle should preferably be red.
  • SHORT CODE
    An abbreviation for securities traded on an organised exchange. Share codes on the JSE are between 3 and 6 letters long – so, for example, the code for Sasol is “sol”. Most stockbroking trading platforms and other software dealing with the share market (like your charting software) require that you know the share’s code to access it. The codes, together with the short name and long name of each listed company are contained in your Stock Exchange Handbook.
  • SHORT INTEREST RATIO
    A ratio that indicates the number of trading days required to repurchase all of the shares that have been sold short. A short interest ratio of 2.50 would tell us that based on the current volume of trading, it will take two and a half days' volume to cover all shorts.
  • SHORT NAME
    Listed shares have three names - the long name, the short name and the JSE code. So for example, Edgars Consolidated Stores Ltd. is the long name for Edgars, Edcon is the short name and ECO is the JSE code. Most stockbrokers prefer to use the JSE codes.
  • SHORT OPTION VALUE
    The current market value of all short options in a trading account. This amount of cash would flow out of the account (in addition to any commissions and fees) in the event that the options were offset (purchased) at the prices used to compute short option value.
  • SIDEWAYS MARKET
    A technical analysis term meaning a period of ”backing and filling” where a share’s price moves up and down within a tight range bounded on the upside by a “resistance line” and on the downside by a “support line”. A sideways market implies a period of relative uncertainty in the share. Consider the following chart: Here you can see that this share moved up and down within a range between the upper and lower trendlines (known as resistance and support lines) drawn on the chart.
  • SIGNAL
    In technical analysis (charting), a signal is usually either a “buy” or “sell” signal given when two charts cross over each other, a chart crosses a horizontal “buy line” or a formation indicates that the trend is likely to change direction.
  • SIGNAL LINE
    A moving average superimposed on an indicator, generating buy and sell signals. Two indicators which use a signal line are the MACD and the stochastic oscillator. Generally a buy signal occurs when the indicator cuts the signal line and moves above it. The opposite is true of a sell signal, which occurs when an indicator cuts the moving average on the downside so that the moving average is now on top of the indicator.
  • SIGNATURE MEDALLION GUARANTY
    Program used by banks and other institutions to verify a signature.
  • SIGNIFICANCE
    The probability of rejection on the basis of a statistical test and a hypothesis that there is no validity to the specific claim that two variations of the same thing can be distinguished by a specific procedure.
  • SIMPLE MOVING AVERAGE
    The arithmetic mean or average of a series of prices over a period of time. The longer the period of time studied (that is, the larger the denominator of the average), the less impact each individual data point has on the average. Moving averages of various types are used by technicians to smooth out “noise” within a chart and to give clear signals of a change in the direction of the trend.
  • SIMPLE PERCENTAGE STOP-LOSS
    A strategy which allows an investors profits to accumulate while cutting his losses where a position goes against him. The simplest stop-loss strategy involves selling a share if it falls more than, say, 10% from the price paid and then maintaining a 10% stop-loss below the highest price which the share has reached since purchase. A stop-loss strategy is a method for cutting your losses while allowing your winners to run. Stop-loss strategies, no matter how complex they become, all start with the simple percentage stop-loss. To establish a simple percentage stop when you are about to buy a share decide on the amount which you are prepared to lose if the investment does not go as you predicted. Are you prepared to lose 10% or 15% or some other figure? Then deduct that percentage from the price that you are going to pay for the share to get your stop-loss level. If the share moves up after you have bought it, simply re-calculate your stop-loss level from the highest price which it has reached since you bought it. If the share moves down, when it reaches your stop-loss level you sell.
  • SIMPLE REGRESSION
    A mathematical way of stating the statistical linear relationship between one independent and one dependent variable.
  • SIMULATION
    A training method which imitates the actions of the share market as closely as possible to enable investors to gain real-life experiences without the risks inherent in investing directly in the share market. The ShareFriend software includes a full simulation of the JSE.
  • SINGLE STOCK FUTURES
    Futures contracts on individual securities.
  • SLIPPAGE
    The difference between estimated transaction costs and actual transaction costs.
  • SMA
    The arithmetic mean or average of a series of prices over a period of time. The longer the period of time studied (that is, the larger the denominator of the average), the less impact each individual data point has on the average. Moving averages of various types are used by technicians to smooth out “noise” within a chart and to give clear signals of a change in the direction of the trend.
  • SMALL ORDER EXECUTION SYSTEM
    Computerised system developed by Nasdaq for immediate electronic execution of up to 1,000 shares of stock.
  • SMALL, MEDIUM AND MICRO ENTERPRISES
    A definition used by the Department of Trade and Industry. SMME’s are businesses with less than 150 employees, but most of them are one-man businesses, spaza shops and street vendors. They employ more than a third of the SA work force and account for a significant proportion of the country’s GDP.
  • SMALL-CAP INDEX
    The Top 40 index is an average of the 40 largest companies on the JSE, followed by the mid-cap index which is the next 60 largest companies and, finally, the small cap index which is an average of the balance of the shares trading on the JSE.  
  • SMART MONEY
    This refers to large, very well-informed investors who generally buy at or close to the bottom of a trend and sell at or close to the top. Smart investors, sometimes also called professional investors should not be confused with institutional fund managers who manage the funds brought in by pension funds, unit trusts and insurance companies. A smart investor is a private investor who does not manage money on behalf of other people. He makes his living by choosing the right shares and timing his transactions for the best profit.
  • SMME
    A definition used by the Department of Trade and Industry. SMME’s are businesses with less than 150 employees, but most of them are one-man businesses, spaza shops and street vendors. They employ more than a third of the SA work force and account for a significant proportion of the country’s GDP.
  • SMOOTHING
    Simply, a mathematical technique that removes excess data variability while maintaining a correct appraisal of the underlying trend.
  • SNAPSHOT QUOTES
    Market quotations which reflect the market price at a particular point in time. Such quotes do not refresh automatically but are refreshed when the user hits the reload button on his web browser or requests another quote.
  • SOCIAL AND ETHICS COMMITTEE
    This is a diverse committee of experts from the community, academia, professionals and employees whose task it is to advise listed and government corporations on everything from empowerment to health, public safety and labour relations. The Companies Act requires that all listed companies have a social and ethics committee.
  • SOCIAL SCIENCE
    A social science is an academic discipline which attempts to quantify some aspect of human behavior. The obvious examples are psychology and economics. Both of these disciplines attempt to measure human behavior and come to conclusions. The problem is that human behavior is infinitely variable. For this reason, in the social sciences, the larger the size of the sample in any experiment, the more reliable the results. No psychologist would come to firm conclusions after conducting an experiment with just a single subject – because that subject might be a psychopath or have some other personality disorder. The general rule is the larger the sample, the more reliable the result. This is applicable to technical analysis – which is also a social science. It is the study of group investor behavior. And in technical analysis, the size of the sample is the volume traded. Thinly traded shares can be thrown one way or another by a single investor getting into or out of the share. With a heavily traded share (like Sasol) the activities of individuals are lost in the overall direction of the trend. Thus the more heavily traded a share is, the more technically reliable it becomes. Indexes are more technically reliable than individual shares and so on.
  • SOCIALLY RESPONSIBLE INDEX
    This index includes all companies that care about the environment and that look after the communities where they are located. The problem is that some big companies like Sasol which produce plenty of pollutants are part of the index. The Government Pension Fund which owns about 12,5% of the entire JSE has said it will not invest in companies which are not socially responsible.
  • SOES
    Computerised system developed by Nasdaq for immediate electronic execution of up to 1,000 shares of stock.
  • SOLE TRADERS
    A business run by a single natural person. Sole traders carry all the risk of their business. The risk and tax liability pass through the business to the sole trader himself. This makes this type of business more risky than a company where the owners have limited liability.
  • SOLVENCY
    The ability of a company to pay its expected short-term liabilities out of its expected short-term assets and incomes. With the introduction of the new Companies Act (71 of 2008) company law shifted from a doctrine of asset protection to a doctrine of solvency and liquidity. Whereas previously, the Act had been concerned to ensure that dividends were paid only from profits, the emphasis is now on whether the company’s solvency and liquidity is sufficient to afford the dividend. A company can be profitable, but illiquid – which can ultimately result in its liquidation. If all its profits are tied up in working capital, like stock and debtors then there might be insufficient cash to meet current liabilities on time.
  • SOLVENCY AND LIQUIDITY TEST
    A test required by the Companies Act which requires the directors of a company to assert that the company can meet all its expenses out of its incomes for the next 12 months (liquidity) and that its assets are more than its liabilities (solvency). This test must be conducted before the paying of a dividend, a share buy-back or a loan to a director.
  • SOTP
    A method of valuing a company by valuing its separate divisions of parts and then adding them up to arrive at a total value for the company. This gives a different (usually higher) value than net asset value (NAV) because operating assets are often worth more as a profitable entity. Their value is determined by their ability to generate profits going forward. For example, investment holding companies often prefer to use an SOTP valuation because they typically trade at a discount to the market value of the shares that they own.
  • SOUTH AFRICAN INSTITUTE OF CHARTERED ACCOUNTANTS
    The South African Institute of Chartered Accountants is the pre-eminent accounting body in South Africa. Its membership consists of qualified chartered accountants and its functions include offering a service to those members and keeping them informed of developments in the accounting industry – especially changes in GAAP.
  • SOUTH AFRICAN RESERVE BANK
    The South African Reserve Bank is the central bank of the Republic of South Africa. The Bank was established in 1921 in terms of a special Act of Parliament, the Currency and Bank Act of 10 August 1920 (the Act) and was the direct result of the abnormal monetary and financial conditions which had arisen during and in the period immediately following World War I. Its primary goals are to achieve monetary stability and economic growth in South Africa. The bank does this through control of monetary policy and a regular Monetary Policy Committee meeting.
  • SOUTH AFRICAN REVENUE SERVICES
    The Receiver of Revenue in South Africa, tasked with collecting taxes and customs duties. Since the advent of the ANC government, tax collections in South Africa have improved noticeably, and the tax base has been broadened considerably.  
  • SOVEREIGN DEBT
    A government’s debt, mostly in the form of long-term government bonds. The interest cost of this debt obviously reduces the proportion of revenue available for social spending. The government’s debt is rated by the international ratings agencies and in mid 2016 the country was barely holding on to its investment grade rating. A downgrade to junk status would result in a much higher interest cost.
  • SPAC
    A listed JSE company that comes to the JSE with just cash and management with the direct intention of making acquisitions within a specified time frame. The JSE requires that those acquisitions be made within two years.
  • SPECIAL DIVIDEND
    When a company has surplus cash it can sometimes pay a special dividend over and above its normal interim and final dividends. Companies accused of having a “lazy balance sheet” with excessive surplus cash are under pressure to pay a special dividend.
  • SPECIAL ECONOMIC ZONES
    Special Economic Zones (SEZ) grew out of the Industrial Development Zones (IDZ) which existed previously. There are five SEZ’s in South Africa. They are Coega, Richards Bay, East London, Saldanha Bay and Dube Tradeport. Businesses which establish in these SEZ’s are given a special tax rate of 15% (as opposed to the normal 28%) and other tax incentives such as capital allowances on buildings and machinery. The idea is to attract both local and overseas investment so as to stimulate growth and employment in the areas surrounding the SEZ. In general, SEZ’s have been a successful intervention with strong support from both local and foreign investors.
  • SPECIAL OFFSET
    When a long position and a short position are specially matched and offset according to specific instructions from a customer, rather than according to standard industry offset practices.
  • SPECIAL PURPOSE ACQUISITION COMPANY
    A listed JSE company that comes to the JSE with just cash and management with the direct intention of making acquisitions within a specified time frame. The JSE requires that those acquisitions be made within two years.
  • SPECIAL RESOLUTION
    A special resolution can only be passed with the approval of at least 65% of the voting shares of the company depending on the stipulations of the memorandum of incorporation (MOI). Special resolutions are required for any major decisions in the company such as the changing of the nature of its business, the conversion of a public company into a private company or any “fundamental transaction” as defined by the Companies Act.
  • SPECIALIST
    A trader on the market floor of the New York Stock Exchange assigned to fill bids/orders in a specific stock out of his/her own account when the order has no competing bid/order to ensure a fair and orderly market.
  • SPECTRUM
    The frequency decomposition of time series data. This is used to detect periodic fluctuations or cycles in historical price data.
  • SPECULATIVE
    The word “speculative” usually applies to smaller companies, usually newly listed, which don’t have a track record of profits and which can be viewed as risky penny stocks. These shares are seen as risky because although their value can increase rapidly off a low base, they can just as easily lose value in a short a period.  So quick profits can be made but can be lost just as quickly.  If you are a beginner at investing on the stock market, we recommend that you stay away from speculative shares to begin with and rather stick to blue chips shares which are the opposite in nature – they have a strong record of profits over many years and are a safe place to put your money. A key difference between blue chips and “specs” is that blue chips generally pay dividends out regularly. Speculative shares usually plough all their profits back into growth.
  • SPECULATIVE SHARES
    The word “speculative” usually applies to smaller companies, usually newly listed, which don’t have a track record of profits and which can be viewed as risky penny stocks. These shares are seen as risky because although their value can increase rapidly off a low base, they can just as easily lose value in a short a period.  So quick profits can be made but can be lost just as quickly.  If you are a beginner at investing on the stock market, we recommend that you stay away from speculative shares to begin with and rather stick to blue chips shares which are the opposite in nature – they have a strong record of profits over many years and are a safe place to put your money. A key difference between blue chips and “specs” is that blue chips generally pay dividends out regularly. Speculative shares usually plough all their profits back into growth.
  • SPECULATOR
    A person who buys shares with the sole objective of making a quick capital gain. Usually, speculators concentrate on high-risk penny stocks or commodity shares where there is considerable movement.
  • SPIKE
    A sharp rise or fall in price in a single day or two; may be as great as 15-30%, indicating the time for an immediate sale or perhaps a purchase.
  • SPIKE BOTTOM
    A candlestick reversal signal which is the opposite of the tower top formation. The Tower Bottom, also call the Spike Bottom, takes form beginning with a long red candle followed by three or more spinning tops which represent the uncertainty in the market, and finally a long green candle, which is the start of the reversal of the trend. As always with candlestick charts, it is important to wait for confirmation of the signal from the candles that follow the formation. [caption id="attachment_11658" align="alignnone" width="220"] Tower Bottom[/caption]
  • SPIKE TOP
    A candlestick top reversal signal formed at the top of a well established trend in an uncertain market. The Tower Top, also call the Spike Top, takes form beginning with a long green candle followed by three or more spinning tops which represent the uncertainty in the market, and finally a long red candle, which is the start of the reversal of the trend. As always with candlestick charts, it is important to wait for confirmation of the signal from the candles that follow the formation. [caption id="attachment_11654" align="alignnone" width="220"] Tower Top[/caption]
  • SPINNING TOP
    A candlestick formation which consists of a small real body and long upper and lower shadows which represent a wide range of trading movement during the period. This formation signals a level of uncertainty, especially if found in a strong up or down trend.
  • SPLIT FILL
    An order consisting of more than one lot, where contracts are filled at different prices. An order to sell 2 December Canadian Dollar contracts at .6200 stop might be reported as one contract filled at .6200, and one filled at .6199.
  • SPOT MARKET
    A spot market is a market where transactions are made for immediate delivery – like the share market. If shares are bought they must be delivered three days later (T+3). The derivatives market trades contracts where delivery is months ahead – usually at the end of each quarter.
  • SPOT MONTH
    In trading, the current contract month. Also known as the “front month”.
  • SPOT PRICE
    In futures markets, this term usually refers to a cash market price for a physical commodity that is available for immediate delivery. Whereas where forex is concerned, the term generally refers to the current market price. Settlement of spot FX transactions usually occurs within two business days.
  • SPREAD ROLLS
    Using a spread order to bridge the closing of one position and the establishment of a new one.
  • SPRING
    A two-day pattern where the market declines below a support point on the first day and moves up strongly the next day into the congestion area.
  • SRI
    This index includes all companies that care about the environment and that look after the communities where they are located. The problem is that some big companies like Sasol which produce plenty of pollutants are part of the index. The Government Pension Fund which owns about 12,5% of the entire JSE has said it will not invest in companies which are not socially responsible.
  • SRO
    Self-regulatory organisations (i.e.the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members.
  • SSA
    A government department which accumulates and analyses information about the South African economy. The Statistician General runs the department and collects figures for population, economic growth, employment and many others. This data is then used by private enterprise and government.
  • SST
    A tax which is charged on all share market transactions at the rate of a quarter of a percent of the value of the transaction. SST is part of the dealing costs of trading on the JSE.
  • STAG
    An investor who buys shares prior to a listing with the intention of selling them and making a profit as soon as the listing takes place.
  • STAGGING
    The practice of buying shares in a new listing before it comes to the market with the objective of making a profit when trading begins.
  • STAGGING PROFIT
    The profit made by an investor who buys a share before a listing, usually as part of a private placing, and then sells it immediately as it begins to trade on the market.
  • STAIR-STEPPING
    Market activity characterised by a trend, then sideways movements, followed by another trend and further sideways movement.
  • STANDARD & POORS
    A ratings agency which, together with Fitch and Moodys, rates the bonds and other debt instruments of governments, parastatals and companies. It also produces indexes of leading stock markets which are widely followed.
  • STANDARD DEVIATION
    A statistical measure of deviation from the average. The first standard deviation is the first 34,13% of occurrences closest to the average (or mean) on either side of it. The second standard deviation is the next 13,59% of occurrences and the third standard deviation is the following 2,14%. The occurrences outside the third standard deviation constitute just 0,68% of the total in the sample. [caption id="attachment_12077" align="alignnone" width="415"] Bell Curve - Source: Wikipedia.[/caption]
  • STANDARDISED UNANTICIPATED EARNINGS
    A company's average earnings surprise is compared with analyst earnings estimates dispersion, which can be used to estimate the likelihood of earnings surprises.
  • START UP
    A business which has just started. Usually businesses begin as sole traders or partnerships and then progress from that to becoming private companies and finally public companies. Then, if they are large enough they can choose to list on the JSE, initially on the Alt-X and then later on the main board. Occasionally a start-up might list immediately on the JSE. A typical example would be a special purpose acquisition company (SPAC) which aims to buy other operating companies within two years of its listing.
  • STATE OWNED ENTERPRISES
    Parastatals or State Owed Enterprises (SOE) are corporations owned and controlled by the government. In South Africa there are about 200 SOE’s which deal with everything from power (Eskom) to forestry (Safcol), defence (Denel) and transport (Transnet). Unfortunately, some of them (like SAA) are persistently unprofitable and constantly have to be subsidised by the government (and hence the tax-payer). Many of them are also badly run or involved in corruption and nepotism to a greater or lesser extent. The most dangerous of them is Eskom which has over R215bn in government guaranteed loans. It has also been shown to have been subject to state capture and corruption on a significant scale. If Eskom’s creditors decide to call in their loans, the Treasury would be hard put to meet their obligations – which also accounts to some extent for the ratings downgrades which South Africa incurred in 2017. In general, the less functions in a country which are run by the government the better. Governments are notoriously bad at running things and their activities should be kept to a minimum. As Adam Smith said “The best government is the least government”. South Africa could easily sell off many of its SOEs and thereby generate a substantial amount of cash to repay government debt. This would result in an improvement in our international credit rating and an improvement in the economy.
  • STATIONARITY
    A distribution of a quantity that does not change over time.
  • STATIONARY TIME SERIES
    Implies that no trend is observed in the time series. Identified when the time series has a constant mean and variance.
  • STATISTICS
    The collection, study and analysis of large quantities of data in order to facilitate interpretation and forecasting. In the context of the share market, various economic statistics which are produced regularly by Statistics South Africa and reported in the press are useful for predicting how the economy and various companies within it are going to perform in the future. Beyond that, various forms of technical analysis use statistical methods to determine averages and to smooth data streams. These techniques include standard deviation, the bell curve, regression, Fourier transforms and regression analysis. Technical analysis itself is a form of statistical analysis.
  • STATISTICS SOUTH AFRICA
    A government department which accumulates and analyses information about the South African economy. The Statistician General runs the department and collects figures for population, economic growth, employment and many others. This data is then used by private enterprise and government.
  • STATUTORY MERGER
    The combination of two (or more) companies to form a new company in terms of the Companies Act. A statutory merger is a fundamental transaction because it changes the control of the company.
  • STERLING RATIO METHOD
    A measurement ratio used mostly when evaluating hedge funds. The ratio measures returns versus volatility, and is similar to the Sharpe Ratio.
  • STOCHASTIC OSCILLATOR
    An overbought/oversold indicator that compares today's price to a pre-set window of high and low prices. These data are then transformed into a range between zero and 100 and then smoothed.
  • STOCK EXCHANGE CONTROL ACT No 1 of 1985
    The statute regulating the establishment and operation of stock exchanges in South Africa. The Act also governs the trading of listed securities, and the constraints on the broking profession. Copies of the Act are available from the Corporate Communications Department of the JSE.
  • STOCK EXCHANGE NEWS SERVICE
    A news service run by the JSE on which listed companies are required to announce everything of importance which happens – such as their financials, the dealings of directors in their shares, mergers, take-overs, acquisitions, and anything else which might possibly have an impact on the share’s price. Trading statements, which are published a month or more before the publication of their financials give a good indication of what the profit is likely to be and whether it varies by more than 20% from that of the previous period.
  • STOCK EXCHANGE TRADING SERVICE
    The London Stock Exchange’s “Stock Exchange Trading Service” (SETS) electronic order book. The London Stock Exchange sold its Sets order-driven trading system to the JSE Securities Exchange South Africa in a deal worth a minimum of £11 million in additional revenue for the LSE over five years. The deal specified the provision of core technology services by the LSE to the JSE and aimed to achieve easier access to each other's markets for both member firms and issuers. The JSE boosted revenue potential from data distribution once the new platform was installed at the end of 2001. The tie-up with the LSE enabled the South African exchange to extend its reach and the services it can offer to local brokers and investors while at the same time retaining its independence and control over the operation of its market. In July 2012 the SETS system was replaced by the Millennium system.
  • STOCK INDEX FUTURES
    A futures contract traded that uses a market index as the underlying instrument. Typically, the value of the contract is $500 times the underlying index. The delivery mechanism is usually cash settlement.
  • STOCK MARKET
    A market place where ordinary shares can be bought and sold through an organised exchange like the JSE. The share market is, in fact, two markets – the primary market and the secondary market. In the primary market listed companies raise capital by selling their shares to the public (as in a rights issue or an initial public offer). In the secondary market members of the public buy and sell those shares between themselves. In order to have a good primary market, companies needs a good secondary market – because no one would buy their shares in the primary market unless they knew they could sell them later in the secondary market.
  • STOCK TURN RATIO
    A ratio which shows how quickly a company is turning over its stock. Obviously, companies are always trying to minimise the amount of stock which they hold, because it represents cash which could be in the bank and reducing their interest bill. Obsolete and out-of-date stock cut into profits and tie up working capital. The stock turn ratio is calculated by dividing the company’s turnover by its stock figure from the balance sheet. A rising stock turn ratio indicates that the company may be becoming less efficient at managing its stock.
  • STOCKBROKER
    A member of the stock exchange who has passed the required exams and been accepted by the stock exchange. All the transactions done on the JSE must go through a registered stockbroker. These days most stockbrokers offer their clients an online trading platform where they can execute their trades and monitor their portfolio.
  • STOCKBROKING ACCOUNT
    Before you can buy shares on the stock exchange, you must first open a stockbroking account and deposit some funds into it. Stockbrokers offer two types of accounts – discretionary and non-discretionary. The discretionary account gives your stockbroker licence to buy and sell shares on your behalf without consulting you. With a non-discretionary account you make all the buying and selling decisions. We advise the non-discretionary account. You should also make sure that your broker offers a good trading platform which shows the depth of the market (i.e. the best three bids and offers for any listed share).
  • STOP AND REVERSE
    A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as reversal stop.
  • STOP LOSS STRATEGY
    A strategy which allows an investors profits to accumulate while cutting his losses where a position goes against him. The simplest stop-loss strategy involves selling a share if it falls more than, say, 10% from the price paid and then maintaining a 10% stop-loss below the highest price which the share has reached since purchase. A stop-loss strategy is a method for cutting your losses while allowing your winners to run. Stop-loss strategies, no matter how complex they become, all start with the simple percentage stop-loss. To establish a simple percentage stop when you are about to buy a share decide on the amount which you are prepared to lose if the investment does not go as you predicted. Are you prepared to lose 10% or 15% or some other figure? Then deduct that percentage from the price that you are going to pay for the share to get your stop-loss level. If the share moves up after you have bought it, simply re-calculate your stop-loss level from the highest price which it has reached since you bought it. If the share moves down, when it reaches your stop-loss level you sell.
  • STOP ORDER
    An order that becomes a market order when the futures contract reaches a particular price level. A sell stop is placed below the market, a buy stop is placed above the market.
  • STOP-CLOSE-ONLY ORDER
    This order type is used by the trader who desires his stop order to be filled only if elected in the closing range of trading. Since this order type may not be filled until the closing range, the price stipulated by the trader may be anywhere in relation to the current market. Stop Close Only orders are elected in the same fashion as regular stops, the difference being that Stop Close Only orders must be elected and filled during the closing range.
  • STOP-LIMIT ORDER
    Used by the trader who doesn't wish to be filled any worse than his stop price. Here, the stop and limit prices specified on the order are one and the same. This order becomes a straight limit order if, once the stop is elected, the broker is unable to execute the order at the stipulated price or better. Also, a stop limit order will be placed as a straight limit order if, when received by the exchange, the stop price already has been violated.
  • STOP-RUNNING
    After a trend, the market will enter into a trading range and have a tendency to trade to levels where stop-loss orders have been placed.
  • STOP-WITH-LIMIT ORDER
    Used by the trader who wishes to give the floor broker a limit as to how far through the specified stop the order may be filled. Two prices must be stipulated when the order is placed -- the stop price and the limit price. When the stop is elected, the order will be filled if it is possible to do so without exceeding the limit price. If this isn't possible, the order becomes a working limit order. Also, a stop with limit order will be placed as a straight limit order if, when received by the exchange, the stop price already has been violated.
  • STOPS
    Buy stops are orders that are placed at a predetermined price over the current price of the market. The order becomes a "buy at the market" order if the market is at or above to the price of the stop order. Sell stops are orders that are placed with a predetermined price below the current price. Sell-stop orders become "Sell at the market" orders if the market trades at or below the price of the stop order.
  • STRADDLE
    The purchase or sale of an equivalent number of puts and calls on an underlying stock with the same exercise price and expiration date.
  • STRANGLE
    The purchase or sale of an equivalent number of puts and calls on an underlying stock with the same expiration date but a different exercise price. Usually, the put has a low strike price and the call has a higher strike price.
  • STRATE
    South Africa’s central securities depository. All the trades done on the JSE are settled by STRATE – in other words, the seller is paid and the buyer receives his shares. STRATE also keeps a record of the issued shares of listed companies – the final share register. STRATE also handles transactions for the warrants market and the bond market.
  • STRATE SETTLEMENT COST
    A tiny percentage of the value of all transactions, the Strate Settlement Cost is about 0,00546% of the value of transactions up to a value of R200 000.
  • STREET NAME
    Stock ownership in which shares are registered to a brokerage or other financial institution and held.
  • STRIKE ACTION
    Strike action is a major factor in labour-intensive industries in South Africa – like the mining industry and the metals industry. The labour legislation in this country is skewed heavily in favour of employees and against employers so that the cost of labour rises much more quickly than the inflation rate. When you are looking at a share you should always try to assess how vulnerable it is to strike action.
  • STRIKE PRICE
    The price per unit at which the holder of an option may receive or deliver the underlying unit; also known as the exercise price.
  • STRIPS
    An option strategy in which an investor buys one call and puts two on the same underlying security with the same exercise price and expiration date.
  • STRONG HANDS
    Investors in a particular share who are in possession of information which convinces them of the good prospects of a company. This means that they will hold the shares, even if they begin to fall.
  • STRUCK
    The price at which an exercised option delivers the underlying securities.
  • SUB-DIVISION
    Where a company decides to divide its existing issued share capital into more shares to increase tradability. For example, if a company with 10m shares in issue trading for 1 000c in the market decides to do a 10 for 1 split, then it will end up with 100m shares of 100c each. The market capitalisation of the share is usually not affected, except that the share, once split, becomes cheap enough for a larger group of investors to afford thus increasing demand. This is also known as a sub-division. There is an increase in the number of shares held by each shareholder, with a proportionate reduction in their value so that there is no change in the total value of the shareholding. This is done by breaking each share down into smaller pieces. The effect is to bring the share’s value within the reach of smaller investors.
  • SUB-PRIME CRISIS
    In 2007/8 the property market in America collapsed. Mortgage bonds on tens of thousands of properties had been securitised and sold to banks all over the world. As property owners scrambled to sell, property prices fell even further pushing more owners into financial difficulty. Lehman Bros – a major American bank collapsed and the Federal Reserve Bank had to step in to rescue various major American companies, including General Motors. The Fed injected billions of dollars into the American economy and urged other central banks to do the same. By 2017, the ramifications of the sub-prime crisis were still being felt, although the US economy was gradually recovering.
  • SUBSCRIBER
    A term from the old Companies Act used to refer to those people who start a company. With the advent of the new Companies Act (71 of 2008) in May 2011 the people who start their own companies and usually contribute the initial capital are called the “incorporators”. Their names and details and the number of shares that they hold are recorded in the memorandum of incorporation (MOI) and they are deemed to be the directors of the company until the first directors are appointed at a meeting of the shareholders.
  • SUBSIDIARY
    The Companies Act (71 of 2008), states that a company is considered to be a subsidiary of another company if the parent company owns more than 50 % of voting rights in that company or it has the right to appoint or remove directors holding the majority of voting rights at board meetings. In terms of the Companies Act the balance sheet, income statement and flow of funds statement of a subsidiary must be consolidated with that of its parent to make group financial statements.
  • SUE
    A company's average earnings surprise is compared with analyst earnings estimates dispersion, which can be used to estimate the likelihood of earnings surprises.
  • SUM-OF-THE-PARTS
    A method of valuing a company by valuing its separate divisions of parts and then adding them up to arrive at a total value for the company. This gives a different (usually higher) value than net asset value (NAV) because operating assets are often worth more as a profitable entity. Their value is determined by their ability to generate profits going forward. For example, investment holding companies often prefer to use an SOTP valuation because they typically trade at a discount to the market value of the shares that they own.
  • SUPPORT
    A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction; usually seen as a price chart pattern.
  • SUPPORT LINE
    On a chart, a line drawn indicating the price level at which falling prices have stopped falling and have moved sideways or reversed direction. This usually happens because one or more large players have given buy orders which come into effect below that price. The support will last until the trend changes direction or the buy orders are filled.
  • SUSPENDED SHARE
    A share that the JSE has suspended from trading for a period of the time. Usually, this occurs where some material event is about to occur which will drastically effect the share price. Until this information is made public, trading is suspended to prevent individuals with inside knowledge buying or selling the shares.
  • SUSTAINABILITY
    A buzz-word which came into fashion in 2015 with the King 3 report on corporate governance. Sustainability is the ability of a corporation to continue with its various activities in a manner which does not harm the environment or the communities in which it operates. It is a long-term approach – as opposed to the short-term maximising of profits.
  • SWAPS
    The sale of one security to purchase another with similar features.
  • SWING CHART
    A chart that has a straight line drawn from each price extreme to the next price extreme based on a set criteria such as percentages or number of days. For example, percentage price changes of less than 5% will not be measured in the swing chart.
  • SYNERGISTIC MARKET ANALYSIS
    Also known as synergistic analysis. An analytical method that merges technical and fundamental analysis with an emphasis on inter-market analysis.
  • SYNERGY
    This is a fashionable word to denote gains made in addition to the sum total of the parts when two business concerns are joined. The basis of the concept in some mergers is that the net advantages that accrue to one firm need not come at the expense of the other: both parties may gain.
  • SYNTHETIC SECURITIES
    Security created by buying and writing a combination of options that imitate the risk and profit profile of a security.
  • SYSTEMATIC RISK
    The risk which attaches to the market itself as opposed to the risk that attaches to a specific share (unsystematic risk).  This refers to the risk you take when investing in shares that the market itself will fall.  It is very important for an investor to first establish if the market is in a bull or bear trend before putting their money into the share market.  You can easily do this by looking at certain indices such as the S&P500 and applying a moving average to your chart.  Once you are certain the market is in a bull trend the systematic risk is much lower. As a general rule, approximately 70% to 80% of a share’s moves will be determined by systematic factors and only 20% - 30% to unsystematic factors. This is especially true for large, blue-chip companies.
  • SYSTEMIC RISK
    This risk refers to the scenario when a disruption at an institution such as the JSE or a bank or the STRATE settlement system could cause a “domino effect” throughout the financial markets toppling one financial institution after another to cause a “crisis of confidence” among investors.
  • T
    The symbol for a transaction’s date used by the JSE. Thus T is the date on which a transaction takes place, T+1 is the next trading day, T+n is the day after that and so on. Today the JSE guarantees settlement of transactions by T+3.
  • TAIL
    The wick or tail, at one end or both, designating the high and/or low prices for the period upon which a candle is based. In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display – usually a trading day. The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. Thus the upper shadow is a vertical line connecting the open or close (whichever is higher) to the high of the day and the lower shadow connects the open or close (whichever is lower) to the low of the day.
  • TAINTED SCRIP
    Shares certificates and other securities which are fraudulent or forged. Since the advent of dematerialisation all shares have been converted to electronic records maintained by STRATE. One of the major benefits of this move is that it has virtually eliminated all types of securities fraud.
  • TAKE-OVER
    The situation where one company makes an offer for some or all of the shares of another company. The offer to existing shareholders is usually pitched at a price well above the existing market price to persuade shareholders to accept the offer. Many investors select companies that may be ripe for a take-over and then wait. Some classic indications of a possible take-over: the company’s market price is well below its net value; it has recently cut or passed its dividend; and it has a large assessed tax loss that could be used by another company.
  • TAKE-UP PRICE
    The price at which shares subject to a rights issue must be bought. Normally this price is below the market value of the shares, so that the rights themselves have a value. If the rights are not taken up then they fall away and cease to exist.
  • TAKEOVER PANEL
    A panel of 17 people whose job it is to examine mergers and acquisitions or any transaction which might change the control of a company. The panel includes the commissioners of the Competition Commission and the Companies and Intellectual Property Commission (CIPC).
  • TAKING A VIEW
    This phrase has two meanings. Firstly, it can refer to an investor taking a bullish or bearish view of the market depending on whether he believes market trends will rise or fall – usually this would be reflected in his transaction. Secondly, it can refer to the length of time that one intends to keep a share – shares can be bought with a short, medium or long-term view.
  • TANGIBLES
    Cash equivalents of the futures contracts.
  • TARGET STOP-LOSS
    Once a share that you have bought is “in-the-money” (i.e. your stop-loss level has moved above the price you paid for the share), then you can apply a “target percentage growth line”. What this means is deciding on how much you want to make every year in percentage terms and then adjusting your daily stop-loss level by that amount to ensure that you can achieve your goal. For example, let us say that you decide that you want to make 50% per annum, then you simply divide that 50% by the number of trading days in the year (about 250) and that will mean that you must increase your stop-loss level by 0,2% (50%/250) per trading day. That then becomes your target stop-loss. [caption id="attachment_4027" align="alignnone" width="455"] Target Stop Loss[/caption]
  • TAX BASE
    The group of people and companies in a country who pay tax. One of the most challenging problems of the new South Africa has been to widen the tax base to include more people. Obviously, if the tax base is small, then there are fewer people paying tax and they have to pay more. The informal business sector is not registered for tax and pays nothing, but still uses the government infrastructure (for example, roads) without paying anything for it.
  • TAX EXEMPT SAVINGS ACCOUNT
    The TFSA was brought in in 2015 to encourage people to save. It is a savings account which attracts no income tax, capital gains tax or interest tax. Each natural person can have one TFSA into which they can put a maximum of R33 000 per annum or a total of R500 000. If money is withdrawn from the TFSA it cannot be put back.
  • TAX-DEFERRED
    In which an investment allows an investor to postpone paying taxes on money put into the investment until the investor literally takes possession of the money invested.
  • TAXABLE INCOME
    Your taxable income is your total income for the tax year less whatever expenses you have incurred in generating that income. Once you have calculated your taxable income you can subtract any rebates which you may be entitled to. Your taxable income is then taxed according to the tax tables. The tax tables for individuals can be viewed at: http://www.sars.gov.za/Tax-Rates/Income-Tax/Pages/Rates%20of%20Tax%20for%20Individuals.aspx
  • TECH SHARES
    Technology shares world-wide are becoming more and more important as computers, cell phones and the internet become more powerful and ubiquitous. In America, most tech shares are listed on the Nasdaq and they are driving the current bull trend on the New York Stock Exchange (NYSE). Massive advances in battery technology and computerisation are pushing shares like Tesla up to new record levels. There is no sign that this trend will slow down or reverse. In South Africa, shares like EOH have been market darlings for a decade.
  • TECHNICAL ANALYSIS
    The analysis of group investor behaviour, as reflected in the patterns of share prices and volumes, indices, exchange rates and other indicators. More commonly known as charting, this consists of carefully examining the share price, and drawing graphs to establish patterns which can then be used to give buy and sell signals.
  • TECHNICAL INDICATOR
    A technical indicator is a mathematical formula which is applied to price and volume data for shares (and other securities) to identify and isolate patterns which may then be used to predict the future. The patterns derive from the fact that investors and traders are human beings who share certain behavioural characteristics. For example, people generally tend to over-react to new information. In the share market this takes the form of a share moving far further than it should either on the up- or the down-side. The Overbought/Oversold indicator (OB/OS) exploits this characteristic and allows you to measure mathematically the propensity of a particular share to over-react. There are hundreds of technical indicators, beginning with the simplest moving average and progressing to regression analysis and Fourier transforms. The secret is to specialise in a few that you like and become an absolute expert in them. The ShareFriend Pro software includes about 60 different line indicators.
  • TECHNICAL RISK
    The risk inherent in the volatility of a share’s price on the JSE – as opposed to the fundamental risk that the company’s business will become less profitable. Obviously technical and fundamental risk are linked because any change in the company’s perceived profitability will immediately impact on the share’s price.
  • TECHNICIAN
    A technician is an investor who strives to predict the future progress of a share’s price by studying patterns in its past price and volume performance. The technician assumes that all the relevant fundamentals have already been discounted into the share’s price pattern. Technical analysis, or charting as it is known, is divided into formations, line charts and wave and cycle theories. With the use of computers to draw charts, thousands of line indicators have been developed, but the best way to analyse charts is to use simple concepts like trendlines, basic formations and indicators like the relative strength and the moving average.
  • TELEGRAPHER’S EQUATION
    A variation of the Diffusion Equation that describes minor differences in the drunkard's walk, in which the random decision controls the change in direction rather than the direction itself.
  • TERM INSURANCE
    Insurance which is aimed at covering you for a specific risk like your death or disability or the theft of your car or a house fire. This is as opposed to endowment insurance which is a type of savings policy which yields either a monthly pay-out until your death or a lump sum on maturity. Term insurance is the proper function of insurance and the only type of insurance you should have, Endowment policies are notoriously poor investment vehicles and have the added disadvantage that they are very difficult to get out of.
  • TERM STRUCTURE
    Also known as yield curve. The slope of the term structure is the yield on long-term government bonds minus the yield on short-term instruments such as Treasury bills.
  • TFSA
    The TFSA was brought in in 2015 to encourage people to save. It is a savings account which attracts no income tax, capital gains tax or interest tax. Each natural person can have one TFSA into which they can put a maximum of R33 000 per annum or a total of R500 000. If money is withdrawn from the TFSA it cannot be put back.
  • THETA
    The measurement of the time decay of a position.
  • THINLY TRADED
    The first criteria which a private investor should look at when assessing a share is its average daily volume traded. As a general rule of thumb you should not buy any share if the volume traded on average every day is less than three times the value of the shares which you want to buy. Such a share is described as “thinly traded” and you may have difficulty in selling out of it when you want to (i.e. on your stop-loss strategy). Shares which are difficult to obtain because the owners are reluctant to part with them are tightly held. These shares become thinly traded and are easy to spot because they have little or no volume traded. Generally, it is not a good idea to deal in such shares.
  • THREE BUDDHA TOP
    A charting formation at the top of a cycle. The price chart forms three peaks the middle one of which is the highest. The “left shoulder” is generally reckoned to be where the “smart” money sells – well before the highest point. The “right shoulder” is where the die-hard bulls make their final stand. Once the right shoulder is complete, the price falls through the “neckline” (the line which joins the bottom of the two shoulder cycles) and enters an extended bear trend. Also called a Three Buddha Top. [caption id="attachment_7757" align="alignnone" width="379"] Head and Shoulders Formation[/caption]
  • THREE MOUNTAINS TOP
    A top reversal signal in technical analysis which signals the end of a well established uptrend. The formation occurs when the price chart of a share or another security forms three peaks at roughly the same price. These three occurrences where the price hits the same level imply that buying pressure is starting to diminish. The resistance at that particular price signals a dominance of bearish sentiment at that level which ultimately results in the reversal of the trend. Although this signal is very similar in appearance to the Head and Shoulders formation, the three peaks are equal and reach the same resistance level. Also called a Three Mountains Top.  
  • THREE RIVER BOTTOM
    A technical analysis formation used to predict the bottom of a downward trend. Triple bottoms are quite rare in charting and they indicate a very strong base for upward movement. The pattern is identified when the price of a share creates three troughs at nearly the same price level. The price level at which these three troughs extend to is called a support level. This formation is also called a Three River Bottom formation.
  • THREE TIMES VOLUME RULE
    Probably the most important criteria for you as a private investor when looking at which shares to purchase, this rule requires that you assess whether a security has sufficient volume traded on a daily basis to enable you to sell out when you want to. We suggest that you apply the “Three Times Volume” rule-of-thumb – or something like it. Basically, this says that you should not buy a share unless it has an average daily volume of at least three times the number of shares that you wish to purchase. For example, if you are looking to buy 1000 shares then you need to see at least 3000 shares changed hands on average every day for at least the previous three months. And you should watch out for unusually high volume days that might impact on that average. Sometimes, for a example, a share which trades on average about 5000 shares a day can have a single day with 2 million shares traded and obviously that will make a nonsense of the “Three Times Volume” rule. The ShareFriend software allows you to calculate the average volume traded over any period. Just put any share on your screen then add the volume histogram (press your right mouse button and then click on “volume”). You will then see the heading “Volume MA” in a the bottom left-hand corner of your screen. Simple type in whatever number of days you want in your average into that box and the computer will do the rest. To see the average volume on any day over your selected period just click on the “data window” icon at the top of your screen.
  • THRUST
    A comparison between the price difference of successively lower pivot bottoms or higher pivot tops. For example, a reduction in the difference between pivot bottoms shows loss of momentum; an increase in the difference shows increased momentum.
  • TICK
    A short horizontal line off a bar chart showing the opening price (to the left) or the closing price (to the right).
  • TICK INDICATOR
    The number of stocks whose last trade was an uptick or a downtick.
  • TICK SIZE
    A short horizontal stroke on a bar graph showing the price at which the share closed.
  • TIGHTLY HELD
    The first criteria which a private investor should look at when assessing a share is its average daily volume traded. As a general rule of thumb you should not buy any share if the volume traded on average every day is less than three times the value of the shares which you want to buy. Such a share is described as “thinly traded” and you may have difficulty in selling out of it when you want to (i.e. on your stop-loss strategy). Shares which are difficult to obtain because the owners are reluctant to part with them are tightly held. These shares become thinly traded and are easy to spot because they have little or no volume traded. Generally, it is not a good idea to deal in such shares.
  • TIME AND SALES
    Official exchange transcript of the prices at which a futures contract traded, as well as the precise times at which such trades occurred.
  • TIME SERIES
    A term used to describe a list of numerical data accumulated at regular periodic intervals. The daily or weekly closing price of shares is a time series.
  • TIME SERIES MOVING AVERAGE
    A time series moving average is not really a moving average in the strictest sense. It draws a line which is the end of a regression line. A regression line is a line through a set of points (in our case share prices) which is drawn such that the aggregate distance of the points above the line is exactly equal to the aggregate of the distance of the points below the line. In layman’s terms, if you add up all the distance of points above the line and subtract the total of all the distances of the points below the line, you will come to zero. To do this the regression line has to pass through the middle of the points. If you keep moving the regression line each day (as you get a new share price to add onto the front while removing one from the back), then the gradient of the regression line will change to reflect the slight changes in the group of share prices that it regresses. A time series “moving average” connects the end-points of those daily regression lines. In practice, a time series MA follows the trend more closely than either a simple or an exponential moving average such that even on a protracted trend it can pass through the middle of the share price points. Consider this chart: [caption id="attachment_11959" align="alignnone" width="305"] Time Series Moving Average[/caption] Here you can see both 65-day simple (red) and time series (blue) moving averages. You will notice that the time series MA moves through the middle of the share prices, while the simple moving average is outside of them. You need to experiment with these and other moving average mechanisms to find the optimum for each share that interests you.
  • TIME VALUE
    The difference between the premium paid for an option and the intrinsic value. As the option approaches expiration, the time value erodes, eventually to zero.
  • TIME VALUE DECAY
    A term which describes the fact that the time value of an option diminishes as the option approaches the expiry date. Time value decay follows a negative exponential curve, which is to say that it is very gradual at first, but builds up momentum until it declines very sharply in the last few days.
  • TIP SHEET
    A newsletter, which concentrates on giving its readers hot tips regarding which share to buy and sell and when to transact. Such letters should be followed with caution, and their advice used only in conjunction with your own research.
  • TOKYO STOCK EXCHANGE
    The stock exchange of Japan. The Nikkei index of the 225 largest companies trading on the TSE gives a very good idea of the performance of this market. The TSE opens in the early morning South African time – at about 2am and so can provide an early indication of how the JSE and the London Stock Exchange will open.
  • TOO LATE TO CANCEL
    When a trader attempts to modify or replace an order that has already been executed but not yet reported as having been filled, the order is said to be too late to cancel.
  • TOP
    The highest point on a share price or other graph over a defined period. Obviously, as a private investor, you will be trying everything you know to determine the moment at which a share's price reaches the top of its cycle. Your objective should be to sell out of the share well before it reaches that top and so take the low-risk portion of the cycle. The further up a share goes the closer it is to its top and the greater the risk. Consider the chart below:  
  • TOP 40 INDEX
    The FTSE/JSE All Share Top 40 Companies Index (TOP 40 Index) is an equity index intended to reflect the performance of the South African ordinary share market as a whole. A relatively small proportion of the total number of securities listed on the JSE are incorporated into the index on the basis that movements in the share prices of those constituent companies can be said to represent the movement of the market as a whole. Companies selected for inclusion in the TOP 40 Index are the largest 40 companies by full market cap.
  • TOP DOWN
    An approach to financial analysis which begins with a company’s financial statements and attempts to assess how the company is doing based on what they contain. As opposed to a bottom-up approach which is what accountants do when they accumulate figures from the books of first entry to produce the financial statements.
  • TOP FORMATION
    A term used in technical analysis to describe a formation at the top of a trend which signals that the trend is likely to change and become a downward trend. Examples of such formations include the head and shoulders formation, the double top formation and various candlestick formations such as the shooting star and hanging man.
  • TOP REVERSAL SIGNAL
    A term used in technical analysis to describe a formation at the top of a trend which signals that the trend is likely to change and become a downward trend. Examples of such formations include the head and shoulders formation, the double top formation and various candlestick formations such as the shooting star and hanging man.
  • TOTAL EQUITY
    Money balance figure calculated by adding futures open trade equity (the gain or loss on open futures positions) to cash balance.  
  • TOUCH POINTS
    A touch point is a the point on a chart where the share (or other data stream) touches a trendline. The more touch points that a trendline connects the more reliable it becomes. Consider the following chart of the rand during the six years from May 2011 to May 2017: [caption id="attachment_11859" align="aligncenter" width="900"] Rand Dollar - Chart by ShareFriend Pro[/caption] You can see here that the underlying trendline connects as many as ten touch points (the green arrows) before finally being broken in October 2016.
  • TOWER BOTTOM
    A candlestick reversal signal which is the opposite of the tower top formation. The Tower Bottom, also call the Spike Bottom, takes form beginning with a long red candle followed by three or more spinning tops which represent the uncertainty in the market, and finally a long green candle, which is the start of the reversal of the trend. As always with candlestick charts, it is important to wait for confirmation of the signal from the candles that follow the formation. [caption id="attachment_11658" align="alignnone" width="220"] Tower Bottom[/caption]
  • TOWER TOP
    A candlestick top reversal signal formed at the top of a well established trend in an uncertain market. The Tower Top, also call the Spike Top, takes form beginning with a long green candle followed by three or more spinning tops which represent the uncertainty in the market, and finally a long red candle, which is the start of the reversal of the trend. As always with candlestick charts, it is important to wait for confirmation of the signal from the candles that follow the formation. [caption id="attachment_11654" align="alignnone" width="220"] Tower Top[/caption]
  • TRADABLE INDEX
    An index which can be traded through some type of derivative contract such as a futures contract. Derivative instruments like futures enable investors to buy or sell various JSE indexes either to speculate or to hedge their positions. Certain indexes like the JSE Top 40, the industrial index and the gold index can be traded in this way.
  • TRADE ACCOUNT
    This, together with the Capital Account make up the Balance of Payments. The Trade Account shows the country’s exports minus its imports – are we selling more to overseas people than they are selling to us? A negative trade account balance can be bad to the rand if it persists for a long time. In South Africa we tend to have a trade account deficit which we make up for by having positive inflows on the capital account.
  • TRADE UNIONS
    The trade union movement in South Africa has become a major force since the advent of democracy in 1994. The union movement was an important component of the ANC’s gaining power and the labour laws in South Africa tend to favour them over employers. When looking at a share it is important to consider its union-exposure. Companies with large semi-skilled or unskilled workforces (like those in the gold and platinum sector) tend to be more susceptible to strike action, while service companies usually have very little union exposure.
  • TRADEABILITY
    The ease with which a share can be traded. Some shares are free-dealing and highly tradeable, others are tightly held.
  • TRADING ASSETS
    Usually taken as the company’s debtors and stock – in other words, the assets which are normally tied up in the direct running of the business.
  • TRADING BANDS
    Lines plotted in and around the price structure to form an envelope, answering whether prices are high or low on a relative basis and forewarning whether to buy or sell by using indicators to confirm price action.
  • TRADING DAY
    A normal business day during which trades can be made on the JSE – usually from 9am until 5pm. There are approximately 250 trading days in the year and 22 per month. End of day data shows a share’s high, low, open, close and volume traded for the close of each trading day. Most charts use this data to calculate technical indicators like the moving average or the overbought/oversold.
  • TRADING FLOOR
    A large room where stockbrokers gather during specific hours every working day to trade shares and other instruments on behalf of their clients and for their own account. There are very few trading floors left in the world as most stock exchanges have computerised their trading. One of the few left is the New York Stock Exchange.
  • TRADING IDEA
    A strategy for making money from an investment. This can be as simple as buying a share which you think is going to go up, to complex strategies involving the use of derivative instruments and calculated spreads. It is important to distinguish between trading ideas that are investments and those which are speculative. With an investment you are typically buying into an equity share with the idea of holding it for many years and enjoying both dividends and capital growth. Speculative trading ideas are all about making a capital gain and dividends are not really considered.
  • TRADING RANGE
    The difference between the high and low prices traded during a period of time; in commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.
  • TRADING STATEMENT
    Listed companies are required by the JSE rules to publish on the Stock Exchange News Service a statement which gives an indication of their financial results which are about to be published. Generally, if the profit is expected to differ by more than 20% from the previous period’s profit then a statement is required. The market often responds directly to a company’s trading statement depending on whether profits are expected to be higher or lower than indicated.
  • TRADING STRATEGY
    A pre-determined concrete plan for buying and selling which does not rely on any abstract or subjective input. So, for example, you may decide to buy a certain share when its price moves above a 65-day exponentially smoothed moving average and to sell when its 50-day over-bought over-sold moves above +12%.
  • TRAILING STOP ORDER
    This special order type allows the trader to profit from favourable movement in the market while having the protection of a Stop order. But it frees the trader from having to constantly monitor the market and repetitively cancel/replace a regular Stop.
  • TRANSFER AGENT
    Financial institution that manages ownership records of company stock.
  • TRANSFER FUNCTION
    The mathematical relationship between the output of a control system and its input for a linear system, it is the Laplace transform of the output divided by the Laplace transform of the input under conditions of zero initial energy.
  • TRANSFER PRICING
    A method of moving profits out of a high-tax regime into a low tax regime, used by multinational companies with subsidiaries or business interests in a variety of countries. By selling product from a company in a high tax regime at inflated prices to a company in a low tax regime profits can be moved. The practice is both illegal and very common. The tax authorities are always coming up with new rules in an attempt to overcome transfer pricing. The first step is always to prove that the two parties involved are “connected” in some way – in other words they are owned by the same parent company or through some other mechanism.
  • TRANSFORM
    A process to change or convert. For example, a simple moving average is a filter to reduce noise; the moving average is the transform function.  
  • TREASURY BILLS
    Instruments for short-term borrowing employed by governments. The bills are issued by tender to the money market.
  • TREASURY SHARES
    Shares of a company which it has bought back from shareholders. Treasury shares are normally destroyed, thereby reducing the number of shares which the company has in issue and so benefiting the remaining shareholders. Sometimes treasury shares are re-issued, typically to employees as part of an employee share incentive scheme. The destruction of treasury shares in usually treated by the Receiver as a dividend payment for tax purposes.
  • TREND
    The general drift, tendency or bent of a set of statistical data as related to time. There are two types of primary trend – “bull trends” which are upwards and “bear trends” which are downwards. These can be interrupted by rallies (in a bear trend) and corrections (in a bull trend).
  • TREND DAY
    A day in which the price of a futures contract moves consistently away from the opening range and does not return to the opening range prior to the close.
  • TREND FOLLOWING
    Moving in the direction of the prevailing price movement.
  • TREND LINE
    A line joining the high points on a bear trend and the low points on a bull trend. When the price breaks through the trend line this gives a trading signal. This is probably the simplest, but by no means the least effective technical analysis indicator.
  • TRENDING MARKET
    Price moves in a single direction, generally closing at an extreme for the day.
  • TRENDLESS
    Price movement that vacillates to the degree that a clear trend cannot be identified.
  • TRI-STAR
    A candlestick formation consisting of three consecutive doji candles found at either the top or bottom of a trend which signal the reversal of the trend. This is a very rare formation and should not be ignored. Recognition criteria consist of a prolonged trend, three consecutive doji candles and a gap between the first and second doji. [caption id="attachment_11040" align="alignnone" width="226"] Bullish Tri-Star[/caption] [caption id="attachment_11041" align="alignnone" width="226"] Bearish Tri-Star[/caption]
  • TRIANGLE FORMATION
    A charting pattern that exhibits a series of narrower price fluctuations over time; top and bottom boundaries need not be of equal length. Trendlines are usually drawn along the upper highs and lower lows of the candles, giving the formation a triangle outline. When the narrowing candles reach the point where the trendlines meet, the continuation of the trend is determined. If the candles break up through the upper trendline, it signifies the continuation or beginning of a bull trend. If the candles break on the downside of the lower trendline, the bear trend will continue or begin. This is a continuation signal, and variations include the ascending triangle, the descending triangle and the symmetrical triangle. [caption id="attachment_11412" align="alignnone" width="300"] Triangle Formation[/caption]
  • TRIANGULAR MOVING AVERAGE
    A moving average in which each day's data are multiplied by a weight that increases in value at steady increments to a peak value and then declines to zero at equivalent increments. The sum of the weighted daily data is divided by the number of variables.
  • TRIN
    Also known as TRading INdex (TRIN): An advance/decline stock market indicator. A reading of less than 1.0 indicates bullish demand, while greater than 1.0 is bearish. The index is often smoothed with a simple moving average. Richard Arms developed the TRIN, or Arms index, as a contrarian indicator to detect overbought and oversold levels in the market. Because of its calculation method, the TRIN has an inverse relationship with the market. Generally, a rising TRIN is bearish and a falling TRIN is bullish. Sometimes you will see the scale of the TRIN inverted to reflect this inverse relationship. The TRIN is the advance/decline ratio divided by the advance volume/decline volume ratio.
  • TRIPLE BOTTOM FORMATION
    A technical analysis formation used to predict the bottom of a downward trend. Triple bottoms are quite rare in charting and they indicate a very strong base for upward movement. The pattern is identified when the price of a share creates three troughs at nearly the same price level. The price level at which these three troughs extend to is called a support level. This formation is also called a Three River Bottom formation.
  • TRIPLE TOP FORMATION
    A top reversal signal in technical analysis which signals the end of a well established uptrend. The formation occurs when the price chart of a share or another security forms three peaks at roughly the same price. These three occurrences where the price hits the same level imply that buying pressure is starting to diminish. The resistance at that particular price signals a dominance of bearish sentiment at that level which ultimately results in the reversal of the trend. Although this signal is very similar in appearance to the Head and Shoulders formation, the three peaks are equal and reach the same resistance level. Also called a Three Mountains Top.  
  • TRUE RANGE
    The largest of the following: Today's high minus today's low, today's high minus yesterday's close, today's low minus yesterday's close.
  • TRUE STRENGTH INDEX
    A momentum indicator developed by William Blau that double-smoothes the ratio of the market momentum to the absolute value of the market momentum.
  • TSE
    The stock exchange of Japan. The Nikkei index of the 225 largest companies trading on the TSE gives a very good idea of the performance of this market. The TSE opens in the early morning South African time – at about 2am and so can provide an early indication of how the JSE and the London Stock Exchange will open.
  • TSUTSUMI
    In candlestick terminology, a multiple candlestick line pattern; a major reversal signal with two opposing-color real bodies making up the pattern (also referred to as a tsutsumi). An engulfing pattern is either bullish or bearish, and is usually very easy to identify. The bullish engulfing pattern consists of a green candle engulfing its preceding red candle. The bearish engulfing pattern is the opposite to this, presenting a red candle engulfing it's preceding green candle. The pattern is found to be more accurate and reliable when the engulfing candle's high and low engulfs the previous candle's high and low.    
  • TULIP SECTOR
    A sector that is the intense focus of speculators at the moment.
  • TURNING POINT
    The approximate time at which there is a change in trend.
  • TURNOVER
    A figure in the income statement of a company's financial statements which consists of the company’s total sales or income figure.
  • TWEEZER BOTTOM
    A bottom reversal pattern comprising of at least three candles and which signals the beginning of an upward trend. The Tweezer bottom requires that the last two candles in the formation have the same or similar low for the day. This formation can also have a candle in-between these two last candles, however the signal is only valid if this middle candle's low does not go below the low of the two candles next to it. The formation can be comprised of many candles with the same low, signalling that the bulls are making a stand and that soon an uptrend will begin. [caption id="attachment_10565" align="alignnone" width="190"] Tweezer Bottom Formation[/caption]  
  • TWEEZER TOP
    A top reversal candlestick formation consisting of three candles, the last two of which have the same, or nearly the same, highs. It does not matter whether these highs are shadows, bodies or both, or what colour the candles are. It is also possible for the prongs of the tweezer to be separated by another candle as long as that candle's high does not reach higher than the highs of the prongs. The logic of this pattern is that the bulls have failed to drive the price higher than the prongs, signalling the end of the uptrend. This formation can also consist of up to four candles with the same or similar highs - the more candles there are like this, the stronger the signal. [caption id="attachment_10634" align="alignnone" width="171"] Tweezer Top Formation[/caption]
  • TWO-WAY PRICE
    When both a bid and offer forex rate is quoted by the dealer.
  • UBUNTU
    A Zulu word which has found its way into the socio-economic jargon of the South African economy – and even into ideas on corporate governance. The word means “humanity” and has come to symbolise community and caring about the environment and employees.  
  • UMBRELLA BOTTOM
    This is the name that technicians give to the bottom formation of a share price where it drifts out slowly from a strong downward trend and then begins to tentatively move upwards into a new bullish trend. Consider the following example: [caption id="attachment_11952" align="alignnone" width="440"] Saucer Bottom Formation[/caption] Here you can see that this share had a sharp fall which then became a sideways movement and finally a new upward trend. The saucer was about a month long before the new upward trend began. Also called an Umbrella Bottom and a Frying Pan Bottom.
  • UMBRELLA TOP
    A cycle top on a chart which drifts out and down in a gradual loss of momentum. This is as opposed to a “V” top which is very sharp and sudden. Also called an Umbrella Top, a Frying Pan Top, a Dumpling Top and a Rounded Top. [caption id="attachment_11642" align="alignnone" width="409"] Saucer Top[/caption]
  • UNABLE
    A working order which has not yet been able to be executed.
  • UNBUNDLE
    A verb which means to dispose of a subsidiary by handing the shares which the parent company holds directly to the parent company’s shareholders in proportion to their holdings. In some cases, unbundling is preferable and simpler than selling a subsidiary.  
  • UNCOVERED OPTION
    The purchase or sale of an option without a position in the underlying futures contract; also known as a “naked option”.
  • UNDER-PRICED
    A security which is below its “real” value. Obviously, the real value of a share (or any other security) is a matter of opinion, so a share can be under-priced for some analysts and over-priced for others at the same time.  There can be little doubt, however, that share prices often do not represent the true value of a company. Indeed, investors are continuously looking for under-priced opportunities in the market.
  • UNDERLYING FUTURES CONTRACT
    The specific futures contract that the option conveys the right to buy (in case of a call) or sell (in the case of a put).  
  • UNDERLYING INSTRUMENT
    A trading instrument subject to purchase upon exercise of a derivative instrument such as a future or option.  
  • UNDERWRITING
    An agreement to buy all the units of a new issue not sold by a specific day. Banks typically underwrite new share issues, thus assuring the issuing company that all shares will be taken up.
  • UNEMPLOYMENT
    The number or percentage of people in the economy who are trying to find work and cannot. In a first-world economy, this as many as 5% to 10% of workers can be unemployed depending on the business cycle. In an emerging economy like South Africa, unemployment rates are much higher (around 26%). However, there is some doubt as to the validity of unemployment data and the true figure could be lower or higher. For example, unemployment does not take into account people who have given up looking for work. If those are added then unemployment in South Africa would be closer to 36% than 26%.
  • UNENCUMBERED ASSETS
    These are assets which have not been used in any way as a surety for any debt.
  • UNIFORM GIFTS TO MINORS ACTS
    A law that allows minors to own property without the use of a trust.
  • UNIMPAIRED
    An adjective to describe an asset the value of which does not need to be reduced for any reason. For example, a debtors book may need to be impaired because some of the debtors will turn out to be bad or doubtful debts.
  • UNION ACTIVITY
    Union activity is a major problem in South Africa where labour legislation is skewed heavily in favour of employees and against employers. Strikes are common place in all of our labour intensive industries – like the mining industry or the metal industry. Union action generally makes the economy less productive. It is important to establish the extent to which a listed company is exposed to union activity before buying its shares.  
  • UNIT TRUST
    A trust consisting of a management company like STANLIB and a trustee company (usually a bank) that invests unit-holders’ funds in the share and capital markets for a fee. The public is invited to buy units in order to obtain capital growth and dividend income. Unit trusts are basically a method for lay-people to pass on the management of their money to a management company employing expert analysts. Investors can invest much smaller sums of money in a unit trust than is usually practical when buying shares directly through a broker. Different unit trusts have different biases in their portfolios, which can greatly affect their overall performance.
  • UNIT TRUST CONTROL ACT
    This act was replaced by the Collective Investment Schemes Control Act (45 of 2002).
  • UNLISTED INVESTMENT
    A balance sheet item, normally shown by way of a note, and indicating share investments held by the company in unlisted companies which may be private or public.
  • UNSYSTEMATIC RISK
    A term to describe that risk which attaches to a specific investment – as opposed to systematic risk which pertains to the market as a whole.
  • UPSIDE BREAK
    An upward break above some form of resistance. Quite often a share’s price will get stuck below a resistance line. When it breaks above this resistance that is known as an “upside break”. Consider the following example of the JSE Overall index: [caption id="" align="alignnone" width="367"] Upside Break JSE Overall Index - Chart by ShareFriend Pro[/caption] You can see here that the JSE had become trapped below a clear resistance line. After several attempts it then broke cleanly up through the resistance in an upside break. Upside breaks are a bullish signal and the share/index usually climbs strongly once the resistance is broken.
  • UPSIDE POTENTIAL
    A term used to describe a transaction made at a price higher than the preceding transaction price. Also called a plus tick.
  • UPTHRUST
    Occurs when price moves above a pivot top and a widespread reversal ensues as follows: a) two previous closes are reversed, b) close is below pivot top, c) close is below opening and mid-range, d) daily price range is greater than the previous day's range.
  • UPTREND
    A period where a security’s value and price move generally upwards. Uptrends can last from a few minutes to a decade or longer. The key is to determine when a new uptrend has begun so that you can get in as early as possible. Most of technical analysis is devoted to this idea, from simple moving average buy signals to complex modern line indicators.
  • UPWARD MARKET
    A market where the average of all shares is rising such that each high is higher than the previous high and each low is higher than the previous low. Bull markets generally last for between 3 and 10 years. A “bull” is a person who is expecting the market to rise.
  • UPWARD TREND
    A long period of consistently rising share prices, or index levels. Usually such trends last from 2 to 4 years. During a bull trend you should be 100% invested in the share market, because about 80% of shares will be going up. The best way to determine whether the stock markets of the world are in a bull trend is to look at a long-dated (like 250 days) moving average of the S&P500 index from Wall Street. If that moving average is rising, then the high probability is that you are in a bull trend. The following chart of the S&P500 hows a number of bull and bear trends:  
  • V-BOTTOM FORMATION
    V-bottoms are a fairly rare formation in technical analysis and usually signal some sort of artificial interference in the progress of the market. For example, the V-bottom which occurred in the S&P500 index in 2009 was caused by the massive quantitative easing undertaken by the US Federal Reserve Bank in a effort to counter the sub-prime crisis. Consider the chart: [caption id="attachment_11866" align="alignnone" width="139"] V-Bottom Formation[/caption]
  • V-TOP FORMATION
    Changes in the direction of market sentiment from bullish to bearish represent points or periods at which the sentiment has shifted from positive to negative. Usually this takes place over a period of time as the consensus gradually shifts among investors interested in the share. Sometimes, however, sentiment is pushed sharply, often by government intervention of some kind, from being bullish to being bearish. This is known as a V-Top. Consider the chart of the rand at the time of President Zuma’s midnight recall of Pravin Gordhan as Minister of Finance in April 2017: [caption id="attachment_11943" align="alignnone" width="77"] Source: www.x-rates.com[/caption] You can see here that the rand had been in a strengthening trend and this suddenly and abruptly reversed on the news of the cabinet re-shuffle. (Note: your ShareFriend software shows the inverse chart where strength in the rand is shown as a falling line).
  • VALUE ADDED TAX
    A tax which is applied to the value added by an organisation to a product. The value added is measured by the difference between what a company paid for a product and what it is able to sell the product for. Thus there are VAT inputs and VAT outputs. An input is the value of purchases which are subject to VAT from which the company can subtract from the value of its VAT outputs which are sales made. Very small organisations are VAT exempt and some types of products (like basic foods) are also VAT exempt.
  • VALUE AT RISK
    A measure of exposure within a given portfolio, which attempts to estimate how much the portfolio would be expected to lose, given the recent behaviour of the securities contained therein.
  • VALUE-WEIGHTED INDEX
    A market average such as Standard & Poor's 500 Index that takes into account the market value of each security’s market capitalisation rather than calculating a straight price average.
  • VAR
    A measure of exposure within a given portfolio, which attempts to estimate how much the portfolio would be expected to lose, given the recent behaviour of the securities contained therein.
  • VARIABLE LIMIT
    A price system that allows for larger than normal allowable price movements under certain conditions. In periods of extreme volatility, some exchanges permit trading at price levels that exceed regular daily price limits.
  • VARIABLE RATE PREFERENCE SHARE
    A preference share which receives a dividend based on a variable – like the prime overdraft rate from a specific bank.
  • VARIABLE-LENGTH MOVING AVERAGE
    A moving average where the number of periods selected for smoothing is based on a volatility measurement of price. Typically, the standard deviation of price is used to measure price volatility. The more volatile the price is, the shorter the number of periods used is for smoothing.
  • VARIATION MARGIN
    Additional margin required to be deposited by a clearing member firm to the clearinghouse during periods of great market volatility or in the case of high-risk accounts.
  • VAT
    A tax which is applied to the value added by an organisation to a product. The value added is measured by the difference between what a company paid for a product and what it is able to sell the product for. Thus there are VAT inputs and VAT outputs. An input is the value of purchases which are subject to VAT from which the company can subtract from the value of its VAT outputs which are sales made. Very small organisations are VAT exempt and some types of products (like basic foods) are also VAT exempt.
  • VCM
    A division of the JSE which was folded into the Alt-X. This division was originally for smaller companies requiring less capital and no history of profits. The Alt-X has taken over this function.
  • VEGA
    The amount by which the price of an option changes when the volatility changes.
  • VELOCITY OF CIRCULATION
    The speed with which money circulates in the economy. In a recession, money tends to circulate more slowly than in a boom. When money is circulating more slowly, it takes longer for the inflationary effects of an increase in the money supply to be felt in price levels – and vice versa.
  • VENTURE CAPITAL
    High-risk, start-up operations which normally raise capital by selling shares in a public unlisted company directly to the public through a team of commissioned salespeople. These are always highly speculative.
  • VENTURE CAPITAL MARKET
    A division of the JSE which was folded into the Alt-X. This division was originally for smaller companies requiring less capital and no history of profits. The Alt-X has taken over this function.
  • VERTICAL SPREAD
    A stock option spread based on simultaneous purchase and sale of options on the same underlying stock with the same expiration months but different strike prices.
  • VESTING
    The rights that an employee gains for working at a firm for a specific length of time.
  • VOLATILITY
    The degree to which a share deviates from its average. High volatility is associated with risk, both fundamental and technical. For example, shares in marginal gold mines can be extremely volatile because their operations are only just profitable or unprofitable so that their performance is highly geared to the gold price.
  • VOLUME
    The number of shares changing hands during the trading day. This figure is calculated by counting the number of shares subject to each and every trade daily, which gives the daily traded volume you can see in the daily newspapers. You should keep a careful lookout for exceptional volumes on a share, because they can give a clue to possible special situations.
  • VOLUME PRICE TREND
    In which a running sum is maintained when a day's total volume is added if the market closes positive or the day's total volume is subtracted if the market closes lower. In this calculation the day’s volume is usually multiplied by the percentage change in the share’s price and then added or subtracted to a running total. This is designed to be an improvement on the On-balance Volume because it incorporates the size of the daily price movement.
  • VOLUNTARY CORPORATE ACTION
    A corporate action which requires a decision from shareholders – such as a rights issue. With a rights issue, shareholders must decide whether to take up the rights or not. If they do not take up the rights by the take-up date then the rights cease to exist. They could also decide to sell their rights in the open market before the take-up date. An example of an involuntary corporate action would be the payment of a cash dividend – where no decision is required from the shareholder.
  • VOTING AND NON-VOTING PREFERENCE SHARES
    Preference shares are usually non-voting but can also be voting shares.  If given the ability to vote the value of the shares is greater. Because preference shares do not participate in the risk of the company to the same extent as ordinary shares, it is often felt that they should also not have a say in important decisions like the appointment of directors etc. Some investors are not concerned about being able to vote, but, obviously, non-voting “prefs” have a smaller market of interested investors than their voting equivalent and so tend to trade at a discount.
  • WALL STREET
    The largest stock exchange in the world, located in New York City on Wall Street. Wall Street is a nick name for the New York Stock Exchange (NYSE).
  • WAREHOUSE RECEIPT
    A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
  • WARRANT
    Warrants are securities traded on the JSE. They are derivatives that closely resemble options and include the right but not obligation to buy (call), sell (put) or participate in the performance of an underlying instrument.  They are either “American”, which can be exercised at any time up to the expiry date or “European”, which can be only on a specific date – typically the expiry date.  They have a limited time for which they are listed on the JSE and they all have an expiry date.  They are issued on ordinary shares, baskets of shares, indices and bonds and serve a particular purpose in trading, but have high risk associated with the trading decision.
  • WASTING
    A term depicting how an option's value decreases over time; as each day after acquisition passes a portion of the option's time value is lost or wasted.  
  • WATCHLIST
    A list of shares in different listed companies which is being watched by an investor. As a private investor you should always maintain and monitor your watchlist. Whenever you read about an interesting share which might have the potential to be profitable, you should add it to your watchlist. Once a share is on your watchlist you should look at it every day. You should collect and read its latest financial results from the company website. You should read all available press reports on the company. You will choose the shares to buy and put into your portfolio from your watchlist.
  • WAVE
    In Elliott wave theory, a sustained move by a market's price in one direction as determined by the reversal points that initiated and terminated it.
  • WAVE AND CYCLE THEORY
    Technical analysis or charting can be broken down into formations, line charts and wave and cycle theories. Over the decades since investors started charting the progress of share prices, indexes and other financial data, various wave and cycle theories have been proposed. These theories are usually based on recurring price patterns which are said to happen in every financial market. The Dow Theory itself is probably the oldest and best-known wave theory. It postulates that the Dow Jones Industrial Index has three visible movements, Long-term trends, secondary trends and daily fluctuations. R. N. Elliott proposed what came to be known as the Elliott Wave Thoery – which suggests that shares and markets move in an 8-part recurring cycle, made up of a five-part upward trend and a three-part downward trend. Nicolai Kondratiev put forward the Kondratiev Wave which is a very long cycle (54 years) of commodity prices which he traced back 300 years – but which economists at the London School of Economics have traced back 3000 years. The problem with wave and cycle theories is that they do not establish any clear and believable link to human behavior. Why should shares or indexes move in an 8-part Elliott Wave or in any cycle? Is there some sort of cosmic biorhythm which we are unaware of? It is interesting and fun to study wave and cycle theories and to try to apply them, but our experience is that they do not have much predictive value.
  • WAVE CYCLE
    An impulse wave followed by a correction wave, the impulse wave being made up of five smaller, numbered waves of alternating direction designated 1, 2, 3, 4 and 5, and the correction wave being composed of three smaller alternating waves designated a, b, and c.
  • WEAK HANDS
    Ignorant and generally inactive investors who make trades on the JSE for personal reasons (like they need the money to buy a house) which are entirely unrelated to the reality of the share. Weak hands are subject to the vagaries of their fear and greed. As opposed to “strong hands” who are very well informed and professional investors.
  • WEDGE FORMATION
    A pattern in which two converging trend lines connect a group of price peaks and troughs. Very similar to the triangle formation, the wedge is considered to be a longer term signal occurring anywhere between three and six months. In the case of a triangle, support and resistance trendlines are either both sloping towards each other (symmetrical triangle), or one of either is horizontal (ascending and descending triangles). The trendlines in a wedge are always sloped, and both are sloped in the same direction - either upwards or downwards. The break out direction of a wedge is usually much more predictable than with a triangle and is considered a reversal signal as opposed to a continuation signal (in the case of a triangle). There are two types of wedges - bullish and bearish. [caption id="attachment_11415" align="alignnone" width="250"] Bearish Wedge[/caption]
  • WEIGHTED AVERAGE PURCHASE PRICE
    Multiply each purchase order bought by the associated purchase price, add them together and divide the total by the number of blocks. The result is the weighted average purchase price.
  • WEIGHTED MOVING AVERAGE
    A moving average that puts more weight on recent prices. A three-day weighted moving average would apply a multiple of 1 to the price of the first date, 2 to the second date and 3 to the third date.
  • WHIPSAW
    Losing money on both sides of a price swing.
  • WHISPER NUMBER
    A currency amount which fund managers and others in the investment management business talk about for a particular company’s key statistics (like its profit) before they are announced. For example, when a large blue chip institutional company is about to publish its earnings figure, before the trading statement is made, analysts will have a number which they are talking about and which they think is most likely – that is the whisper number.
  • WHITE GOODS
    Large domestic appliances like, fridges, washing machines, dryers, stoves and microwave ovens. These types of big-ticket purchases are very influenced by the state of the economy. During a recession people tend to avoid replacing their major appliances to save money – so the companies that make and sell such appliances suffer.  
  • WICK
    The wick or tail, at one end or both, designating the high and/or low prices for the period upon which a candle is based. In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display – usually a trading day. The hollow or filled portion of the candlestick is called "the body" (also referred to as "the real body"). The long thin lines above and below the body represent the high/low range and are called "shadows" (also referred to as "wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. Thus the upper shadow is a vertical line connecting the open or close (whichever is higher) to the high of the day and the lower shadow connects the open or close (whichever is lower) to the low of the day.
  • WIDOW’S AND ORPHAN’S FUND
    An institutional term referring to a fund which is dominated by the need to generate income rather than rapid capital growth.
  • WILLIAM’S PERCENTAGE R
    Overbought and oversold indicator that is used to determine market entry and exit points.
  • WINDOW
    Set period of time such as a look-back period for market indicator in question.  
  • WINDOW DRESSING
    A practice, over the December period when trade on the JSE is very thin, when institutions drive the prices of the shares in their portfolios up so as to make their year-end figures look better. For example, if a unit trust holds a large quantity of a certain share and they report annually, they can enter the market on 31st December and with relatively little money push the price of that particular share up significantly so that their performance for the whole year looks that much better. For an example in the market, please read this article on the PDSnet website: http://www.pdsnet.co.za/index.php/window-dressing/
  • WORKING CAPITAL
    The money which is tied up in the workings of the company. Usually calculated by adding the company’s debtors, stock and cash balances, and subtracting its creditors and other current liabilities. Most companies try to keep their working capital to a minimum because it ties up money which could be used for other activities and which incurs interest.
  • WORLD ECONOMIC FORUM
    A non-profit organisation that strives to improve the world by engaging with various societal leaders, mainly in business. It meets once a year in Davos, Switzerland and attracts about 2000 businessmen from all over the world. It produces an “overview” of the meeting. The 2017 overview can be viewed at: http://www3.weforum.org/docs/WEF_AM17_Overview.pdf
  • WORLD INFLATION
    An average inflation rate for the world economy – which is an aggregate of all the economies of the world. World inflation is found by calculating a weighted average of the available inflation rates of most of the countries in the world. It is weighted for the relative size of those economies. Thus the US economy which is at least twice as large as any other economy has the most impact.
  • YATES'S CORRECTION
    When a small amount of data is available for testing, the chi-square formula is adjusted to account for the small sample base.
  • YEAR END
    The end of a company’s financial year. Most companies have a year-end at the end of December or June or one which coincides with the tax year end in February, but there are company financial year-ends throughout the year. It is very important to consider financial year-ends when you are comparing two companies in the same sector – because one may have just produced financials while the other is just about to. This is especially true if the companies are in a sector which is heavily influenced by the business cycle.
  • YIELD
    (1) The term used by newspapers on their price page for the dividend yield of a company. The dividend yield is the dividends per share (DPS) expressed as a percentage of the current share price. As a private investor you should be looking for high-quality blue chip shares which are on dividend yields of around 5% or more, because they may be under-priced. (2)The yield on a bond is the effective interest rate on that bond at the current price. So treasury bills in the US and our own government bonds are bought and sold in a market. They are basically I.O.U.'s where the government has borrowed money with a specific fixed interest rate and repayment date. When current interest rates go up, then the interest rate on existing bonds becomes less attractive and their price falls to bring their effective interest rate into line with the interest rate that can be had on current bonds - and vice versa. When there is a high demand for bonds, their prices naturally rise - which makes the effective yield fall.
  • ZAMA ZAMA
    A term for an illegal miner in South Africa. South Africa has many disused mines where the shafts and stopes are accessible. Illegal miners remove particularly precious metals using primitive techniques and sell them on the black market. The practice is very dangerous and has little regard for the safety of the miners which means that periodically the miners are killed or trapped underground.
  • ZERO RATED
    Products which do not attract value-add tax (VAT). The zero-rating of various food stuffs and other products, like educational products, is designed to help poor people to survive and improve their standard of living over time. Obviously, the authorities are reluctant to zero-rate products because that reduces the effectiveness of the tax
  • ZERO SUM GAME
    A securities market where the total of capital gains made by investors exactly equals the total of capital losses so that subtracting the one from the other always comes back to zero. Derivative markets, contracts for difference, currency markets and binary markets are all zero-sum-games. This is as opposed to equities which can be seen as investments because there is a team of managers and directors who are striving to grow the companies’ profits over time. As a private investor you should stay well away from zero-sum markets because they are a form of gambling, not investing.
  • ZERO-COUPON GOVERNMENT BONDS
    Government bonds that are purchased at a deep discount and pay no cash dividend, unlike regular bonds.
  • ZETA
    The percentage change in an options price per 1% change in implied volatility.
  • ZIGZAG
    In a bull market, an Elliott three-wave pattern that subdivides into a 5-3-5 pattern with the top of wave B noticeably lower than the start of wave A. In a bear market, this pattern will be inverted.