Academy

Dotcom Bubble

The dotcom bubble was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies during the bull market in the late 1990s. The value of equity markets grew exponentially during this period, with the technology-dominated Nasdaq index rising from under 1,000 to more than 5,000 between the years 1995 and 2000. Things started to change in 2000, and the bubble burst between 2001 and 2002 with equities entering a bear market.The crash that followed saw the Nasdaq index, which rose five-fold between 1995 and 2000, tumble from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct. 4, 2002, a 76.81% fall. By the end of 2001, most dotcom stocks went bust. Even the share prices of blue-chip technology stocks like Cisco, Intel, and Oracle lost more than 80% of their value. It would take 15 years for the Nasdaq to regain its peak, which it did on April 24, 2015.

Butterfly Spread

The term butterfly spread refers to an options strategy that combines bull and bear spreads with a fixed risk and capped profit. These spreads are intended as a market-neutral strategy and pay off the most if the underlying asset does not move prior to option expiration. They involve either four calls, four puts, or a combination of puts and calls with three strike prices.

Last In, First Out

Last in, first out (LIFO) is a method used to account for business inventory that records the most recently produced items in a series as the ones that are sold first. That is, the cost of the most recent products purchased or produced is the first to be expensed as cost of goods sold (COGS), while the cost of older products, which is often lower, will be reported as inventory.Two alternative methods of inventory costing include first in, first out (FIFO), in which the oldest inventory items are recorded as sold first, and the average cost method, which takes the weighted average of all units available for sale during the accounting period and uses that average cost to determine COGS and ending inventory.

Post-Money Valuation

Post-money valuation is a company's estimated worth after outside financing and/or capital injections are added to its balance sheet. Post-money valuation refers to the approximate market value given to a start-up after a round of financing from venture capitalists or angel investors have been completed. Valuations that are calculated before these funds are added are called pre-money valuations. The post-money valuation is equal to the pre-money valuation the amount of any new equity received from outside investors.

Macroeconomics

Macroeconomics is a branch of economics that studies how an overall economy—the markets, businesses, consumers, and governments—behave. Macroeconomics examines economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.Some of the key questions addressed by macroeconomics include: What causes unemployment? What causes inflation? What creates or stimulates economic growth? Macroeconomics attempts to measure how well an economy is performing, understand what forces drive it, and project how performance can improve.

Black Monday

Black Monday occurred on Oct. 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. The event marked the beginning of a global stock market decline, and Black Monday became one of the most notorious days in financial history. By the end of the month, most of the major exchanges had dropped more than 20%.Economists have attributed the crash to a combination of geopolitical events and the advent of computerized program trading that accelerated the selloff.

Black Tuesday

Black Tuesday was Oct. 29, 1929, and it was marked by a sharp fall in the stock market, with the Dow Jones Industrial Average (DJIA) especially hard hit in high trading volume. The DJIA fell 12%, one of the largest one-day drops in stock market history. More than 16 million shares were traded in the panic sell-off, which effectively ended the Roaring Twenties and led the global economy into the Great Depression.

Hulbert Rating

A Hulbert rating is a score that tracks the performance of an investment newsletter over time. Investment newsletters are paid subscriptions that can offer investors a variety of market-related information, such as trading strategies, stock recommendations, and economic commentary. Some newsletters focus on specific industries or types of trading, such as options trading, investing in utilities, precious metals investing, or cryptocurrency investing. Hulbert Ratings, LLC assigns Hulbert ratings and encourages investors to judge a newsletter by its long-term performance adjusted for risk.

Hamptons Effect

The Hamptons Effect refers to a dip in trading that occurs just before the Labor Day weekend that is followed by increased trading volume as traders and investors return from the long weekend. The term references the idea that many of the large-scale traders on Wall Street spend the last days of summer in the Hamptons, a traditional summer destination for the New York City elite.The increased trading volume of the Hamptons Effect can be positive if it takes the form of a rally as portfolio managers place trades to firm up overall returns toward the end of the year. Alternatively, the effect can be negative if portfolio managers decide to take profits rather than opening or adding to their positions. The Hamptons Effect is a calendar effect based on a combination of statistical analysis and anecdotal evidence.

Hamada Equation

The Hamada equation is a fundamental analysis method of analyzing a firm's cost of capital as it uses additional financial leverage, and how that relates to the overall riskiness of the firm. The measure is used to summarize the effects this type of leverage has on a firm's cost of capital—over and above the cost of capital as if the firm had no debt.

Overheated Economy

An overheated economy refers to a situation where an economy grows too quickly, causing demand to significantly outstrip supply, leading to economic issues such as inflation and asset bubbles. This condition is often driven by overly loose monetary policies, excessive fiscal stimulus, or other external factors. Typical characteristics of an overheated economy include rapidly rising prices, tight labor markets, and production capacities being stretched to their limits. To prevent overheating, governments and central banks usually implement contractionary monetary policies (like raising interest rates) and fiscal policies (like reducing public spending) to curb demand.

Overcapitalization

Overcapitalization refers to a situation where a company's issued capital exceeds its actual asset value. This typically occurs when a company overestimates its assets or earning capacity, leading to an excessive amount of issued stocks or bonds, resulting in an unbalanced capital structure. As a consequence, the company may struggle to pay dividends or interest, as its actual earnings are insufficient to cover these payments. Overcapitalization can lead to a loss of market confidence, a decline in stock prices, and potentially a financial crisis. Addressing overcapitalization usually involves restructuring the capital, reducing equity or debt to restore financial health.