ATLASInvesting glossary with live examples
Every term is explained in plain words, with the formula when there is one and a worked example computed from real ATLAS numbers for a real stock, so you can see the idea at work instead of just reading about it.
Valuation and fundamentals
- Intrinsic value (fair value)What a business is worth based on the cash it is expected to produce, as opposed to what its shares cost today.
- Discounted cash flow (DCF)A valuation method that adds up a company's expected future cash flows, each shrunk to its value today.
- P/E ratio (price-to-earnings)The share price divided by earnings per share: how much investors pay for each unit of yearly profit.
- Price-to-book ratio (P/B)The share price divided by the book value of equity per share: what investors pay for each unit of accounting net worth.
- Free cash flow (FCF)The cash left over after a company pays to run and maintain its business, available to owners and lenders.
- Earnings per share (EPS)A company's profit for the period divided by its average number of shares outstanding.
- Return on equity (ROE)Net income divided by shareholders' equity: the profit a company earns on the capital its owners have invested.
- Dividend yieldThe dividends a company pays in a year, as a percentage of its current share price.
- Market capitalizationThe total market value of a company's shares: the share price multiplied by the number of shares outstanding.
Risk and statistics
- VolatilityHow widely and quickly a price moves around; usually the annualized standard deviation of its returns.
- BetaA measure of how strongly a stock tends to move with the overall market: above 1 means bigger swings, below 1 smaller ones.
- Standard deviationA measure of how far values typically fall from their average; in finance, the usual way to quantify risk.
- Value at risk (VaR)The loss an investment is not expected to exceed over a given period with a given confidence, such as 95%.
- Expected shortfall (CVaR)The average loss in the worst cases, those that go beyond the value-at-risk threshold.
- Sharpe ratioThe excess return over a risk-free rate, divided by volatility: how much return you earn for each unit of risk.
- DrawdownThe percentage decline of a price or portfolio from its highest previous value to a later low.
- CorrelationA number from −1 to +1 that shows how closely two assets move together.
- DiversificationSpreading money across assets that do not move in lockstep so that no single one can hurt the whole portfolio much.
- LiquidityHow quickly and cheaply you can buy or sell an asset without moving its price.
Models and probabilities
- Monte Carlo simulationA method that runs thousands of random scenarios to show the range and likelihood of possible outcomes.
- Geometric Brownian motion (GBM)The classic model of stock prices in which returns are random, with a steady drift and constant volatility, so prices can never go negative.
- Normal distributionThe symmetric bell-shaped distribution fully described by its mean and standard deviation.
- Expected rangeThe band of prices within which a stock is expected to end up with a stated probability, such as 50% or 90%.
- Probability of profitThe model's estimate of the chance that an investment ends above where it started over a given period.
- Recovery probabilityThe chance that a stock which has fallen climbs back to a previous level, such as its high or your purchase price, within a given time.
- CalibrationThe match between the probabilities a model states and how often those events actually happen.
Markets and instruments
- ETF (exchange-traded fund)A fund holding a basket of securities that you can buy and sell on an exchange throughout the day, like a single stock.
- Stock market indexA measure of the performance of a group of stocks, used as a gauge of a market and as a benchmark.
- SectorA broad group of companies in similar lines of business, such as technology, healthcare or energy.
- ADR (American depositary receipt)A certificate traded on a US exchange, in dollars, that represents shares of a foreign company.
- Bull and bear marketsA bull market is a sustained rise of 20% or more from a low; a bear market is a decline of 20% or more from a peak.
- Short sellingBorrowing shares to sell them now, hoping to buy them back cheaper later and keep the difference.
- Insider trading (and Form 4)Trading by a company's executives, directors and large shareholders; legal when reported publicly, illegal when based on material non-public information.
- Form 10-K (annual report)The detailed annual report that US public companies file with the SEC, with audited financial statements and risk disclosures.
- Institutional holders (13F)Large investors such as mutual funds, pension funds and insurers that hold shares of a company on behalf of others.
Practice and portfolio habits
- Paper tradingPracticing investing with virtual money at real market prices, without risking real capital.
- RebalancingAdjusting a portfolio back to its target weights after market moves have shifted them.
- Dollar-cost averaging (DCA)Investing a fixed amount at regular intervals, regardless of the price, so you buy more shares when they are cheap and fewer when they are expensive.
- Compound returnReturn earned on both the original investment and the returns already accumulated, so growth builds on itself.
- Expense ratioThe annual fee a fund charges, expressed as a percentage of the money you have invested in it.
Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer