What is the Random Walk Theory? The Random Walk Theory, or the Random Walk Hypothesis, is a mathematical model of the stock market. Proponents of the theory believe that the prices of securities in the stock market evolve according to a random walk. A “random walk” is a statistical phenomenon where a variable follows no…
What are Fixed Income Securities? Fixed income securities are a broad class of very liquid and highly traded debt instruments, the most common of which is a bond. They generally provides returns in the form of regular interest payments and repayments of the principal when the security reaches maturity. They are different from equities, or…
What is a Blue Chip? A blue chip is a stock of a well-established corporation with a reputation for reliability, quality, and financial stability. Blue chip stocks are usually the market leaders in their sectors and have a market capitalization running into billions of dollars. They are the most popular stocks to buy, due to…
What is an Underweight Recommendation? When a market analyst designates a stock or security as an underweight recommendation, he or she is stating their belief that the stock will likely underperform compared to some benchmark stock, security, or index. Therefore, investors should devote a smaller percentage of their investment portfolio to holdings in that stock….
What is Currency Risk? Currency risk, or exchange rate risk, refers to the exposure faced by investors or companies that operate across different countries, in regard to unpredictable gains or losses due to changes in the value of one currency in relation to another currency. To illustrate how exchange rate can affect an investor operating in a…
What is the Money Market? The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less. It enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow needs. Money markets also allow individual…
What is the Mindset of a Trader? Being a trader is not just about formulating better strategies and performing more extensive analysis, but is also about developing a winning mindset. According to many studies of traders, what separates a winning trader from a losing one: It’s NOT that winning traders formulate better trading strategies It’s…
What is the Efficient Markets Hypothesis? The Efficient Markets Hypothesis (EMH) is an investment theory primarily derived from concepts attributed to Eugene Fama’s research as detailed in his 1970 book, “Efficient Capital Markets: A Review of Theory and Empirical Work.” Fama put forth the basic idea that it is virtually impossible to consistently “beat the…
What is Insider Trading? Insider trading refers to the practice of purchasing or selling a publicly-traded company’s securities while in possession of material information that is not yet public information. Material information refers to any and all information that may result in a substantial impact on the decision of an investor regarding whether to buy…
Stock Investing: A Guide to Value Investing Since the publication of “The Intelligent Investor” by Benjamin Graham, what is commonly known as “value investing” has become one of the most widely-respected and widely-followed methods of stock picking. Famed investor Warren Buffet, while actually employing a mix of growth investing and value investing principles, has publicly…
