All Ordinaries Accumulation Index  This index lists the same companies as the All Ords but also takes into account reinvesting dividends in calculating returns.

All Ordinaries index (All Ords)  This index measures the level of share prices at any given time for approximately 500 of the largest Australian companies to determine the overall performance of the sharemarket. The index was established by the ASX at 500 points in January 1980. The companies are weighted according to their size in terms of market capitalisation (total market value of a company’s shares).

annual report  In the context of the Australian sharemarket, the annual report is a financial report or statement issued by a publicly listed company to its shareholders. The annual report contains a statement of financial performance, a statement of financial position and a statement of cash flow, as well as notice of the annual general meeting (AGM) and business resolutions to be discussed.

annuity  A series of identical fixed payments to be made for a specified number of years.

ASIC (Australian Securities & Investments Commission)  The government body responsible for (among other things) regulating companies, the issue and sale of shares and trust units, company borrowings, and investment advisers and dealers, in accordance with the Corporations Act 2001 (Cth).

asset allocation  The proportion of your total capital you invest in the different asset classes. This will be largely determined by your risk profile.

at limit  An order that places a limit on either the highest price that may be paid for shares or the lowest price that may be accepted for sale.

at market  An order that is placed at a price where the bid equals the best opposing offer, or the offer equals the best opposing bid. (This order type is superseded by ‘market to limit’.)

bear market  A market where share prices are falling and general sentiment is to expect further falls.

bid  The price at which someone is prepared to buy shares (the opposite of offer).

blue chip  Shares, usually highly valued, in a major company known for its ability to make profits in good times or in bad, with reduced risk of default.

bonus shares/bonus issue  Additional shares issued by a company to existing shareholders for free, usually in a predetermined ratio to the number of shares already held.

bottom-up approach  The investment process of selecting shares looking at individual companies: their outlook, what they do and their financial information.

brokerage  A fee paid to a stockbroking firm for buying or selling of shares.

bull market  A market where share prices are generally rising.

business cycle  Also known as the ‘economic cycle’. The rise and fall of the economy, from a peak, or boom, to a trough (sometimes called a depression) and back to a peak. The length and duration of each phase is not predictable.

capital  Funding for investment in capital assets or to operate a business. Also refers to the value of an investment in a business or in assets such as property or shares.

capital growth  An increase in the value in an asset such as an investment in shares. Capital growth is realised as a capital gain when the asset is sold for more than its purchase price.

cash management trust  A fixed-interest trust designed specifically for short-term investors. This means entry and exit fees are not normally charged. Interest usually accrues on a daily basis at a variable rate related to the actual earning rate each day.

CHESS  The ASX’s Clearing House Electronic Sub-Register System, which provides the central register for the electronic transfer of share ownership.

company report  Under the Corporations Act 2001 (Cth), a listed company must provide a range of reports. These include half-yearly reports and preliminary final reports, as well as annual reports.

contract note (also known as a confirmation)  A written document confirming a transaction between two dealers or a broker and a client that details the costs, type and quantity of shares traded.

contrarian investors  Investors who invest against the general tide and sentiments of the market.

contributing shares  Shares that have been partly paid for. At a future date the shareholder will be required to pay the balance outstanding, unless the company is a no liability company in which case shares can be forfeited instead.

convertible note  A loan made to a company at a fixed rate of interest with the right to be either redeemed (that is, repaid by the company) for cash or converted into ordinary shares at a predetermined date or within a certain period.

cum dividend  Cum means ‘with’. Shares quoted cum dividend entitle the buyer to the current dividend. The price of the shares will usually reflect the amount of the dividend. Similarly, shares ‘cum rights’ enable the buyer to participate in the new issue of shares.

cyclicals  Businesses that are reliant on the general economy for growth and have little intrinsic protection against soft periods.

debenture  A loan to a company at a fixed rate of interest and for a fixed term, usually one to five years. The debenture is secured by a trust deed over an asset, or assets, of a company.

derivatives  Derivatives are instruments that derive their value from that of underlying instruments (such as shares, share price indices, fixed-interest securities, commodities and currencies). Warrants and exchange-traded options are types of derivatives.

diversification  Spreading investments over a variety of investment categories in order to reduce risk. You may also invest in different countries to spread your risk.

dividend  Distribution to shareholders. Usually expressed as a number of cents per share.

dividend cover  A ratio showing the number of times a company’s dividend is covered by its net profit. Dividend cover ratio equals net profit divided by total dividend paid. A low dividend cover points to a company paying out most of its net profit, while a high cover suggests much of the profit is being retained.

dividend imputation  The tax credits passed on to a shareholder who receives a franked dividend. Under provisions of the Income Tax Assessment Act, imputation credits entitle investors to a rebate for tax already paid by an Australian company.

dividend per share (DPS)  Represents the cash payment or distribution made by a company to shareholders on a per share basis. The payment is made out of the earnings of the company. Calculated by adding the interim dividend to the final dividend, DPS is usually expressed as cents per share.

dividend yield  The annual dividend shown as a percentage of the last sale price for the shares. A simplified rate of return on an investment.

earnings per share (EPS)  Measures the earnings that are attributed to each equivalent ordinary share over a 12-month period. It is calculated by dividing the company’s earnings by the number of shares on issue.

equity capital or equity funding  Capital raised by a company through issuing shares. An alternative to debt funding.

ex date  The date at which a previously announced dividend or issue is deemed to take place. If you purchase shares on or after the ex date, you will not be entitled to the current new issue of shares or the dividend. You must purchase shares before the ex-dividend date to be entitled to that dividend.

ex dividend  The ex-dividend date occurs two business days before the company’s Record Date. To be entitled to a dividend a shareholder must have purchased the shares before the ex-dividend date. If you purchase shares on or after that date, the previous owner of the shares (and not you) is entitled to the dividend. A company’s share price may move up as the ex-dividend date approaches and then fall after the ex-dividend date.

fixed asset  An asset that is not easily converted into cash, such as your house or superannuation.

float  The initial raising of capital by public subscription to securities, such as shares offered on the sharemarket for the first time.

franked dividend  A dividend paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company.

fundamental analysis  A method of analysis using ratios and percentages calculated from financial data of a company to assess the company’s quantitative and qualitative aspects. Ratios of particular industry groups and/or major competitors may also be included in the analysis to determine its suitability for investment.

general market risk  The risk of volatility within the market as a whole or within a particular sector of the market; for example, mining shares are usually more volatile than bank shares.

goods and services tax (GST)  A broad-based tax on most supplies of goods and services consumed in Australia.

government bond  A debt security issued by the government. Interest is usually paid twice yearly at a fixed rate for the life of the bond, which is usually 10 years.

growth companies  Companies that have already achieved above-average earnings growth and are expected to continue doing so.

holder identification number (HIN)  A number allocated by your stockbroking firm when you buy shares if you nominate the firm as your sponsor in CHESS.

income  An investor’s income includes dividends, interest and other payments received from investments. It does not include capital growth.

investment clock  An analysis tool that sets out simply the economic and investment cycles using the analogy of a sweeping hour hand to pass through various economic stages or cycles.

liquid asset  An asset that you can easily convert into cash, such as shares or fixed-interest investments.

liquidity  Being able to convert assets into cash easily, quickly and with little or no loss of capital. A liquid market is a market with enough participants to make buying and selling easy.

listed company  A company that has agreed to abide by the ASX Listing Rules so that its shares can be bought and sold on the ASX.

macroeconomic models  Analysis methods that use economic data as inputs to forecast market movements.

margin call  Occurs when the amount borrowed to invest in shares exceeds the lending margin. For example, a company agrees to lend money using shares as collateral to the value of 70 per cent of the shares. If the share price falls, the amount borrowed rises above 70 per cent and the borrower will be required to provide extra funds to bring the loan amount back to 70 per cent of the collateral.

market capitalisation  The total number of shares on issue multiplied by their market price. This can be applied to work out the market value of one company or the value of all companies listed on the exchange.

market price  The prevailing price of shares traded on the ASX. It may be the last price at which the shares traded, or the most recent price offered or bid for the shares.

negative gearing  Negative gearing is a situation where you borrow money to invest in an income-producing asset and the income received from that asset is less than the interest expense. The interest expense on borrowed funds may be tax deductible.

net tangible assets (NTA)  An indication of what each share in a company would be worth if all the assets were liquidated, all the debts were paid and the residual was distributed to the ordinary shareholders on a per share basis.

offer  The price at which someone is prepared to sell shares (the opposite of bid).

off-market transfer  The transfer of shares between parties without using a stockbroking firm as the intermediary. Off-market transfers are executed through the use of an Australian standard transfer form.

ordinary shares  The most commonly traded security in Australia. Holders of ordinary shares are part-owners of a company and may receive payments in cash, called dividends, if the company trades profitably. A class of shares that has no preferential rights to either dividends out of profits or capital on a winding up.

preference shares  Shares that rank before ordinary shares in the event of liquidation of the issuing company and that usually receive a fixed rate of return.

price/earnings ratio  Shows the number of times the price covers the earnings per share over a 12-month period. Investors commonly use this ratio to measure the attractiveness of particular shares and to compare shares in one company with those in another.

price range for day  The highest and lowest price at which a share traded over the course of a day.

prospectus  The document issued by a company or fund setting out the terms of its public equity issue or debt raising. This provides the background and financial and management status of the company or fund, subject to the requirements of ASX Listing Rules and the Corporations Act 2001 (Cth).

return/return on investment  What you earn from your investments, including dividends, interest or other income and realised capital gains. Return is usually expressed as a percentage of the amount invested.

rights issue  A privilege granted to shareholders to buy new shares in the same company, usually below the prevailing market price.

risk profile  Your attitude to risk, determined by a range of factors including your stage of life, the amount you have to invest, your experience and confidence as well as your investment time frame.

S&P/ASX indices  These measure the movement in share values resulting from trading on the ASX. The indices are constructed and calculated by Standard & Poor’s.

securities  A general term applied to all shares, debentures, notes, bills, government and semi-government bonds.

Security Holder Reference number (SRN)  This is allocated by an issuer to identify a holder on an issuer-sponsored or certificated sub-register.

self-managed superannuation fund (SMSF)  A super fund controlled by its trustees and regulated by the ATO. SMSFs can have no more than four members and must be run for the sole purpose of providing death or retirement benefits for the members or the members’ dependants.

shares  Shares represent part-ownership in a company. They can be ordinary shares, preference shares or partly paid (contributing) shares.

small-capitalisation shares / Small Ordinaries Index (XSO)  The S&P/ASX Small Ordinaries Index is comprised of companies included in the S&P/ASX 300 index, but not in the S&P/ASX 100 index. This index provides a benchmark for small-cap investments (also called ‘small-cap’ stocks).

specific risk  The risk of a particular share underperforming the market.

stockbroker  Stockbrokers have direct access to the market for trading shares. Therefore, they can act as agents for buying or selling shares, for which a fee is charged. A broker may also offer a range of other products and services including providing advice on which shares to buy or sell.

technical analysis  A method used to identify investment opportunities through the study of price action. A chart, representing past price movements, is the principal tool used to identify trends on which analysts can base their predictions.

top-down approach  An investment philosophy that looks firstly at the social, economic and political forces that may affect the nature and shape of the economic cycle. From these theoretical positions, analysts examine and interpret market forecasts to develop a picture of the investment environment, which helps to determine whether the investment strategy should be bullish, bearish or neutral.

underwriter  Guarantees to the company that the funds sought — through a float, for example — will be raised, that any shortfall will be taken up by the underwriter and that the funds will be available at a specific time.

unsecured notes  A loan made to a company for a fixed period of time at a fixed rate of interest. They are issued mainly, but not only, by finance companies for between three months and three years. They offer a higher rate of interest than a debenture of the same maturity, but do not have the same security as a debenture.

volatility  The measurement of the amount of fluctuation in price of the underlying security calculated using the standard deviation of average daily price change.