13 quirky investing terms you should know


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So you know your index funds from your managed funds and you don't need to google the definition of PE ratio, but have you heard about Bowie Bonds, poison pills and pump and dump schemes?

Don't fear if you haven't - you soon will. Here are 13 unconventional investing terms you'll want to know about to improve your investing knowledge and impress your friends.

1. Ankle biters

bowie bonds quirky investing terms

Ankle biters are stocks with a market capitalisation of less than $500 million - so in micro-cap or small-cap territory. Beyond referring to its size, the term can also be used to describe the stocks volatility but potential for growth.

2. Bear hug

A bear hug is used to describe a situation in which an offer is made for a company that is far more generous than its market value. Why would such an offer be made? Often it's done to woo over existing investors and to pressure a company's board to accept.

3. Black swan

No, not the 2010 Oscar-nominated film starring Natalie Portman. In relation to the stock market, the term black swan refers to an unpredictable event which has a significant impact on the market. For example, the U.S. housing crash that lead to the global financial crisis.

4. Bowie Bonds

If your mind goes straight to David Bowie you'd be correct. Bowie Bonds were a specific bond issued in 1997 that used the royalties of the singers' 25 albums recorded before 1990 as the underlying security. They are considered the first example of a celebrity bond which use intellectual property as security.

5. Circuit breakers

Also known as a trading curb, a circuit breaker is a regulatory mechanism used by some exchanges to temporarily pause trading in order to avoid a market crash. For example, on the New York Stock Exchange if the S&P 500 Index drops by 7% then trading is halted for 15 minutes. Circuit breakers aren't used on the ASX, which instead employes Anomalous Order Thresholds (AOTs).

6. Cockroach theory

The cockroach theory (and it is very much theory, not fact) is an idea that when a company announces bad news, there's likely more of it to come in the future. It comes from the idea that if you spot one cockroach in your home, there will be a heap more lurking out of sight.

7. Dawn raid

A strategy used to acquire as many shares - and therefore a decent stake - in a particular company as possible. By launching a dawn raid at the start of the trading day the target company is, in theory, caught unaware and the shares can be scooped up cheaply.

8. Dead cat bounce

Based on the idea that even a dead cat will bounce after falling from a great height, a dead cat bounce in finance refers to a falling share price having a brief uptick before continuing to decline.

9. Falling knives

The phrase "don't catch a falling knife" is a warning which refers to the possibility of an investor buying a stock or equity whose price is falling, only for it to fall even further. Obviously, that's something that nobody wants to do.

unconventional investing terms you need to know getting a haircut catch a falling knife dawn raid

10. Haircut

In investing, the term haircut is used to describe the difference between the market value of an asset and how the value is assessed when it's used as collateral for a loan. For example, while the current market value of a particular asset may be $500,000, its value when used as collateral could be judged to be $400,000. Therefore it's been given a 20% haircut.

11. Penny dreadfuls

Penny dreadfuls are stocks priced right at the lowest end of the market - generally in the range of 10 cents or less. Dreadfuls are typically viewed as companies that have little chance of making a profit, but can sometimes surprise on the upside.

12. Poison pill

A poison pill is a defensive maneuver used by a company's board of directors to stave off hostile takeovers. In practice, a company with a shareholder rights plan could specify a maximum stake that a single entity can own then, if that is reached, give existing shareholders the option to buy shares at a heavy discount. This will dilute the entity's stake, but it can obviously have a negative impact on all shareholders by lowering the stock price.

13. Pump and dump

Pumping and dumping is a fraudulent scheme designed to inflate the price of a stock via the spread of false information. Fraudsters who already own a particular stock use the tactic to lure in new buyers in order to drive up the price and then sell it for a profit.

Feel like you need a refresher on some more conventional terms now that you've filled your head with these obscure ones? Have a read through our glossary of 20 key stock market terms.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.