Wall Street’s menagerie
I write the “Investing Wisely” column with an educational slant to help individual investors better understand some particular aspect of the investment process. This week I digress.Recently, Charley, Frances and Ivan captured the news headlines and prompted a Wall Street Journal article on the little-known hurricane bond industry – the trading of “cat” bonds (see below). This feline reference triggered a not-to-be-denied urge on my part to explore Wall Street’s fauna-inspired lingo.Is this need-to-know information? Probably not. But, is it a “fun-to-know” glossary? I hope so.Dogs and catsThe “dogs of the Dow” stock-selection strategy has been around for years. On the last day of the year, you select the 10 stocks from the 30 stocks in the Dow Jones Industrial Average that have the highest dividend yield. You invest an equal dollar amount in each stock and hold these 10 “dogs” for one year. Repeat these steps each and every year. This strategy has performed reasonably well over the years.A Certificate of Accrual on Treasury Securities, a.k.a. “CATS,” is zero-coupon U.S. Treasury issues. Also, “cat” is investment vernacular for hurricane – or catastrophe – bonds that give investors an opportunity for a high risk-return play on sharing claims on catastrophic storm losses.Lastly, a “dead cat bounce” refers to an expected sharp rally in a stock price, or the overall market, that didn’t happen. Down on the farm• Bull: A well-known investing term, a “bull” is an investor who believes that a security’s price, or the overall market, is headed up. A “bullish” attitude defines a “bull market,” which describes an extended period of rising stock prices. • Cow: A “cash cow” is a business, or a segment of the business, that generates copious amounts of cash flow.• Turkey: A “turkey” in Wall Street parlance is a disappointing investment choice that is performing badly. Tropical forests• Alligator: An “alligator spread” in the options market “eats the investor alive” with high commission costs.• Spider: The pronunciation of the stock symbol “SPDR,” an exchange-traded fund (ETF) that tracks the S&P 500. • Butterfly: A “butterfly spread” is a complex options trading strategy.• Tigers: The booming economies of Taiwan, Hong Kong, South Korea and Singapore earn these countries the moniker of “Asian Tigers.” Also, the acronym “TIGER” refers to a U.S. Treasury Investors Growth Receipt.The wilderness• Bears: There are lots of bear references. A “bear” is an investor who believes that a stock, or the whole market, is headed downward – a “bear market.” A “bear hug” is a buyout offer so favorable to the acquisition target’s shareholders that there is little likelihood they will refuse the offer. A “bear raid” is a concerted effort to drive down a stock price, which can occasion a “bear trap” that defends against such actions. Lastly, a “bear spread” refers to another options trading strategy.• Porcupine: A “porcupine provision” is a corporate anti-takeover measure.• Vulture: A “vulture fund” is a type of limited partnership that invests in depressed property and profits from a rebound in value.Marine life• Shark: “Shark repellent” is a measure undertaken by a corporation to discourage an unwanted takeover. Accordingly, a “shark watcher” is a firm that specializes in the early detection of takeover activity.• Herring: A “red herring” is a preliminary prospectus for a new security issue. Portions of the cover page of this document are printed in red ink.Insects• Bees: “Killer bees” are investment bankers who help a company fend off a hostile takeover bid.• Ticks: Investment vernacular for the upward and downward movements in a security’s price.That’s all there is to this week’s digression into some of Wall Street’s colorful and imaginative terminology. Be assured that next week it’s back to serious business.The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing, an independent registered investment adviser. Loth can be reached at 827-5591 or email@example.com.