Eighteen Financial Terms That Define Our Time

By Justin Carbonneau (@jjcarbonneau) —

Market events and periods of time bring about new terms, definitions and areas of focus and importance for investors. One generation of investors may grow up using one set of terms, but over time, these change and evolve, and this is more likely to happen during major market events and during periods where both fear and greed are accentuated.

Here are a number of words, phrases or acronyms that help define our current market environment. Some of them have come into existence more recently, where others have been around for a while but hold more importance today than in the past. Ten years from now there will be new market lingo that investors will be paying attention to, but for now here are the terms that stand out to me.

Great Financial Crisis (GFC): Even though the Great Financial Crisis happened roughly 13 years ago, this period still has important implications. Hundred-year-old financial institutions fell, people lost jobs, the U.S. equity and housing markets fell precipitously and the Federal Government back-stopped the banks and credit markets. Many of the other terms we’ll talk about are derivative effects from the GFC.
Quantitative Easing (QE): Quantitative easing is a tactic used by the Federal Reserve to help keep interest rates low by buying U.S. bonds and mortgage-based securities. QE was used after the GFC as a way to suppress interest rates and spur economic growth. Before the GFC, the Fed’s balance sheet was less than $1 trillion. Today it stands at over $8 trillion.
ETFs: Exchange traded funds (ETFs) have been around for many years, but increased interest in passive and low cost investing along with the structural advantages of ETFs (transparency, trade during the day, washing out of capital gains) have contributed to the dramatic rise in ETF assets.
NIRP: Negative Interest Rate Policy (NIRP) is when a central bank targets a nominal rate below 0%. The theory in support of a NIRP is that it would encourage borrowing, incentivize lending, decrease saving, and increase spending and investment.
FOMO: Fear of missing out (FOMO) can come into play in the markets when you look around and see everyone else, except yourself, making money. FOMO can cause an emotional reaction that results in investors making a decision so that they don’t lose out on the opportunity everyone else is getting.
TINA: There Is No Alternative (TINA) relates to the level of interest rates and stocks. Long term treasury rates have fallen so far that many argue investors have been pushed out into riskier assets like stocks because there is no other good alternative in making decent returns.
YOLO: You Only Live Once (YOLO) describes the attitude of younger investors who decide to take very risky and bold bets on stocks, options and other investments without much regard for losing money or taking on too much risk because they value the experience in the present moment more than what the future may hold.
Payment for Order Flow: Online brokerage firms and apps like Robinhood don’t charge investors commissions for trading because they make part of their profits from payment for order flow, which is when market makers, who trade and make money between the bid and ask on a trade, compensate brokers like Robinhood for directing trades to them.
Fractional Shares: Most online brokers now offer investors the ability to invest in fractional, or less than one share of stock. For example, if a stock is trading at $100 per share, investors can now by a piece of that share, say 10% for $10.
Direct Indexing: Direct indexing allows an investor to replicate an index, like the S&P 500, but hold the individual stocks vs. buying the index through an ETF or mutual fund. Falling commissions, the ability to buy fractional shares and advancements in technology have all contributed to the rise of direct indexing.
Meme Stocks: Meme stocks are stocks that rise in popularity and price due to the attention they receive on social media platforms and messages boards mostly used by retail investors.
Cryptocurrency (cryptos): Cryptocurrencies are digital currencies or assets that can be used to buy goods and services but use a secure online ledger, known as the blockchain, to track transactions. Bitcoin and Ethereum are two of the most popularly and widely held cryptocurrencies.
W/S/B. Wall Street Bets is a message board forum on Reddit where investors talk about and exchange investment ideas. Many of the meme stocks like GameStop, AMC and others have emerged from investors at Well Street Bets taking a position and promoting the opportunity to other investors participating on the message board.
Short Interest: Tracking companies with high short interest is nothing new and high short interest was often considered a red flag for investors. But the growing importance of retail traders and forums like W/S/B where high short interest stocks can be bought, thus producing a short squeeze forcing these stocks to be bought, has turned high short interest stocks into potential opportunities.
Intangible Assets: More and more of a company’s value, particularly in the technology sector and other asset light companies, are in the form of intangible assets – i.e. patents, intellectual property, the knowledge and education of employees and other forms that are not physical assets on the balance sheet.
Factor Investing: Factor investing involves buying stocks that score highly based on certain fundamental or investment factors that look for and rank stocks based on value, momentum, quality and low volatility metrics.
Shareholder Yield: Companies can return cash to shareholders in a number of ways – they can pay a dividend, paydown debt or they can buy back stock. These are all shareholder friendly uses of cash and the combination of buybacks + debt repayments + dividends is what is known as Shareholder Yield.
Micro Bubbles: Determining if a market is bubble is hard to know for certain, but as Charles Schwab strategist Liz Ann Sonders recently noted, there are micro bubbles, or pockets of the market, that look to be in bubble territory. These areas of the market are so inflated that even under the absolute best-case scenario, their valuations can’t be reasonably supported.

Justin J. Carbonneau is VP at Validea & Partner at Validea Capital Management.
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