Glossary: Cookie - Dow Jones Industrial Average

C (continued)

Cookie: A piece of software that gets downloaded into your computer when you register with a web site. It can provide the website with details of how you use the site.

Cookie Cruncher: Something that knows what a cookie is and eats it.

Cookie Monster: Something which eats Cookie Crunchers, naughty children, stray dogs and day traders. Cookie Monsters also like honey.

Commission: The way a stockbroker or an Independent Financial Adviser is compensated. When he or she makes a transaction for a customer, the customer pays a commission. In the Fool's opinion this is a Bad Thing, as it sets up a situation where the customer's and the broker's interests are directly at odds. Endowment policies, for instance, are inherently poor investments, yet pay large commissions and are therefore heavily sold by Independent Financial Advisers.

Common Stock: A US term for shares.

Compound Interest: The investor's best friend. One hundred pounds invested in the stock market in 1918 would be worth just over £1,000,000 today, according to calculations done by Barclays Capital, a London merchant bank. (No, that's right. Not a misprint.)

Consultant: Someone who borrows your watch and tells you the time in return for a fee.

Correction: A decline, usually short and steep, in the prevailing price of shares traded in the market or an individual share. Any time that commentators cannot find a reason for an individual stock or the entire market falling, they call it a correction. It sounds better than a "Crash".

Cost of Capital Employed: The weighted average cost of the Capital Employed, expressed as a percentage.

CREST: Introduced in 1996, this is a computerised system to settle up share purchases. No more bits of paper passing hands any more.

Creditor: Someone you owe money to, like the Inland Revenue. See debtor.

Cum-Dividend: "Cum" means "with" in Latin. If you buy shares cum-dividend, you are buying them at a time when you will be entitled to receive the next dividend. This is as opposed to ex-dividend. If restrictions on entitlement to dividends didn't exist, people would simply buy shares the day before the dividend was due, collect it and then sell them the day after.

Cyclical: Not a bicycle missing a wheel, but a description of a company, such as a steel maker, that is ultra-sensitive to the business cycle. Some investors enjoy buying and selling cyclicals according to which way they think the cycle is going next. Like any form of market-timing, this is a tricky exercise to get right.

D

DAX: German index of major companies, broadly equivalent to the Dow Jones Industrial Average.

Day Trader: A US term. Day traders are in and out of the market many times during the course of one trading session and may not even hold a position in any securities overnight. This approach tends to generate a lot of expenses in the form of commissions and anyone trading in the UK also has to reckon with stamp duty. See Cookie Monster.

Defined Benefit Scheme: See Final Salary Scheme.

Defined Contribution Scheme: See Money Purchase Scheme.

Deflation: Opposite of inflation. A rise in the value of money.

Debtors: People, or businesses, that owe you money. Usually, it is your biggest client...or your brother.

Demutualisation: The process building societies or other mutual organisations go through when they convert to banks and thus go from being owned by their members ( in a building society, the borrowers and savers) to being a public limited company owned by shareholders. There are pros and cons and the arguments rage on.

Depreciation: The diminution through time of the value of a fixed asset. In other words, an allowance for things wearing out. There is normally a charge in the profit and loss account to account for this. It is purely an accounting feature and has no effect on the cash flow. In a steady state the capital expenditure of a company will normally equate to the depreciation charge.

Derivatives: While shares are actual assets, derivatives represent contracts to buy or sell a particular security at a given point in the future for a particular price. Options, warrants and futures are derivatives. They can be used to lessen investment risk, but often their main attraction is that they are highly geared and can thus offer spectacular profits... and spectacular losses. As a rule, we do not advocate their use.

Dilution Levy: Bid-offer spreads are not allowed for OEICs. Instead, they have a dilution levy which is supposed to cover the cost for the hassle of someone buying into or selling out of an OEIC. The money goes into the OEIC's fund itself, not the pockets of the company running it.

Directors: These people form the Board of Directors and are legally responsible for running a company. If they transgress they can go to jail. If they run the business properly they can make themselves, and you as a shareholder, very rich.

Disclosure: Since 1995, Independent Financial Advisers and Tied Agents have been forced to disclose the level of commission they will earn from selling financial products to clients. It's a good thing, but the investor still isn't able to compare the levels of commission between investments. Stockbrokers also have to tell you of any financial interests they have in securities they are recommending.

Discount Broker: The US term for Execution-only Stockbroker.

Discount Rate This is the rate applied to a future cash flow in order to determine its current value. For instance, applying a discount rate of 8%, a payment of £100 in 10 years' time is currently worth 100/(1.08^10), or £46.32. The flip side of this is that if we have £46.32 now and it grows at 8%, then in ten years' time it will be worth £100. The discount rate is often based on long-term interest rates (see Redemption Yield).

Discounted Rate Mortgage: A mortgage with a guaranteed reduction in the variable mortgage rate (say, 2% below the variable, whatever it may be). Generally lasts for an agreed period and if you change mortgages within that time, you will pay a redemption penalty.

Dividend: A distribution from a company to a shareholder in the form of cash, shares, or other assets. The most common kind of dividend is a distribution of earnings. See Dividend Yield.

Dividend Yield: The dividend divided by the current share price, expressed as a percentage. Different companies have different policies on the size of their dividend payouts. See Beating the Footsie.

Dow Jones Industrial Average: The 30 companies chosen by editors of Dow Jones & Company that are supposed to epitomise the very best American corporations and reflect the landscape of corporate America, although high tech companies are grossly under-represented.