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Web Express Guide Sheffield Edition No. 22 April 2005
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Investment Jargon Made Easy: Part 2

Investment terms can be mind-boggling. Help is at hand in the form of Keith Emery with Part 2 of Investment Jargon Made Easy.

by Keith Emery

Investment Trust
A listed company which holds a portfolio of shares collectively owned by the shareholders. Because this is a “closed” investment, the share value can fluctuate above and below the actual value of the share portfolio.

Literally open ended investment company. Opposite to an investment trust because there is no real limit to the amount of money invested.

Offer Price
The bid/offer spread can be up to 5%. You buy at the bid price and sell at the offer price. So the share has to go up by over 5% for you to make a profit!

You pay for the right to buy an item on a set date at a set price. You can choose not buy the item if the price falls but you will have lost the money paid for the “option”.

Price/Earnings Ratio (P/E Ratio)
Divide the net profit of the company by the number of ordinary shares and divide the current earnings per share. A P/E ratio of <10% could be a buying signal. Over 20% and it starts to look expensive.

Rights Issue
A company wants to raise more money so it offers existing shareholders the right to buy more shares – usually at a discount.

The name could be misleading as it refers to stocks and shares of all types.

Stop Loss
Fixing a point at which you will sell a share to restrict losses to (say) 5%. Doesn’t always work that well because the share may fall below the limit you have set. But a good discipline.

Unit Trust

Bit like options. Getting more popular.

The return on an investment compared with its capital value. If you buy a house for £100,000 and get £8,000 rent then the yield is 8%. If the house value doubles to £200,000 and the rent stays the same then the yield drops to 4%.

Click here for part one of Investment Jargon made easy!

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