Glossary: Red Herring - Symbol

R

Red Herring: The slang term for a pathfinder prospectus prepared for a US issue and used in pre-marketing. It contains all the details of the issue except the price. The front page is covered in red ink, warning potential investors of all sorts of dire consequences if they were to invest in this company.

Redemption Penalty: If you try and bow out of a capped rate mortgage, discounted rate mortgage or fixed rate mortgage early, you'll be liable for one of these.

Redemption Yield This figure generally refers to gilts, but it can be calculated for any type of bond. Strictly speaking, it represents the internal rate of return on a bond, bought at a specified price and held until maturity. Basically, this means that its the interest rate that you are getting if you buy a bond at the current price and hold it until it redeems in however many years' time. The redemption yield on gilts is often used to provide a figure for the fundamental, risk-free, interest rate on money for a particular period. Current redemption yields can be found in the Companies and Markets section of the Financial Times, under the heading "UK Gilts Prices".

Repayment Mortgage: The monthly repayments pay off both the interest and the capital on the mortgage. Early on, the majority of the monthly payment goes towards the interest. See Australian-type mortgage.

Return on Capital Employed: Often shortened to ROCE. This ratio is a measure of how effectively the company is using its capital. The formula looks like this:

Profit before interest and tax (PBIT) / (total assets - current liabilities)

This measures the return on all the assets the company is using.

Retained Profits: The profits left in the business each year, if any, after all charges have been paid and dividends declared. This number is added, or subtracted if it is a loss, to shareholders' funds at the end of the year.

Revenue: The money a company collects from a customer for a product or service. See Earnings.

Rights Issue: When a public company creates new shares. Existing shareholders are generally offered the right to purchase a certain number at a discount to the market value. In the USA, a rights issue is a form of secondary offering.

Risk: Something it often pays to take, as long as you fully understand what you're getting into. See Risk-Free Rate of Return.

Risk-Free Rate of Return: The interest rate you get on gilts. Because the British Government is reckoned to be one of the least likely entities in the world to default on a loan, this rate of interest is reckoned to be about as close to risk-free as you can get. The equity risk premium is the average amount by which share returns are higher than gilt returns. In the UK this century, it has been about 5.6% per year and is effectively the bounty Fools get paid for taking the risk of investing in shares.

Rule Breakers: Maverick companies that radically reshape a market, causing others to have to imitate them. Some Rule Breakers are great investments and eventually go on to make the rules they once broke. More can be found on this in Rule Breakers, Rule Makers by David and Tom Gardner, co-founders of the Motley Fool. Amazon, the online bookshop, is a good example of a Rule Breaker, as, potentially, is Freeserve.

Rule Makers: Companies which so dominate a market that they make the rules. Microsoft is a classic example. See Rule Breakers.

S

Security: A "security" is just a blanket way to refer to any kind of financial asset that can be traded.

Securities & Exchange Commission (SEC): The United States agency charged with ensuring that the U.S. stock market is a free and open market. All companies with stock registered in the United States must comply with SEC rules and regulations, which include filing quarterly reports on how well the company is doing.

Securities & Futures Authority (SFA): The people who regulate your stockbroker. Phone number: 0207 378 9000.

Securities & Investments Board (SIB): Now called the Financial Services Authority.

SETS: The Stock Exchange Electronic Trading Service (SETS) is the formal name for the electronic trading order system introduced on the London Stock Exchange in October 1997. All the FTSE 100 stocks and around 50 of the FTSE 250 stocks are traded on the SETS. All the other stocks are traded over the SEAQ system.

Share: A security that represents part-ownership of a company.

Shareholder: If you buy even one share in a company, you can proudly call yourself a shareholder. As a shareholder you get an invitation to the company's annual meeting, and you have the right to vote on the members of the Board of Directors and other company matters.

Short: "Going short" or "shorting" is betting that the price of a security will fall by selling shares that you do not own. If the price falls you can then buy the shares at the lower price, close the position, and pocket the difference.

The risk in shorting is that there is no limit to how high a share price can rise, and therefore no limit to how much you can lose if you have to buy back at a higher price to close the transaction.

SIPP: Self Invested Pension Plan. Like a Personal Pension Plan, but the plan holder calls the shots in terms of which investments fill the plan.

Small Cap: See Market capitalisation.

Spread: See Bid-Offer Spread.

Stag: A short-term trader who subscribes for new issues in the hope of selling them immediately they are listed for a quick profit. See Day Trader.

Stamp Duty: A tax you pay on buying shares (0.5%) or buying properties (1%). In the latter case, stamp duty starts to be charged at £60,000.

Standard and Poor's 500 Stock Index (S&P 500): An index of 500 of the biggest and bestest companies in American industry.

Stock Exchange: A place where stocks and shares are bought and sold. The London Stock Exchange serves this function in the UK.

Stock Split: US name for a bonus issue.

Stock: The same as a share and used more commonly in the USA. A share of stock (confusing, yes -- just use the two interchangeably, everyone else does) represents a proportional ownership stake in a corporation. Investors purchase stock as a way to own a part of a publicly traded business.

Stockbroker: Woody Allen described a stockbroker as someone who invests your money until it has all gone. Normally it is a middleman who buys and sells shares on your behalf and earns commission on the transactions. Considered by many to be the fifth-oldest profession after prostitutes, pimps, tax collectors and accountants. See Execution-Only Stockbroker, Advisory Stockbroker, Portfolio Management and Securities & Futures Authority.

Surrender Value: Accurately reflects what you get if you cash in your endowment before its time. On average, it takes more than seven years for the surrender value to equal the money you've put in. Gasp!

Subsidiaries: A company in which between 50% and 100% of the shares are held by another company is deemed to be a subsidiary. It is normal practice to assume that the parent controls the subsidiary. It is important for accounting and analysis, because 100% of the revenue and profits down to the pre-tax level are ascribed to the parent company. The amount of profit due to the other shareholders is deducted at a line called minorities.

Symbol: An abbreviation for a company's name which is used as shorthand by share quote reporting services and various online sites.