(NOTE REGARDING THIS SAMPLE FILE: Some of the hyper-links in this file
are to other chapters of this strategy manual, which are not accessible
from this web site, since only this file and the Table of Contents file
are provided as free samples on this web site. -- M. Jenkins, author)
ACCOUNTANT--A shy, retiring, denizen of large downtown office
buildings, the species Beancounteris self-effacius is often deceptively
obsequious in appearance and eager to please, yet potentially dangerous
to the financial health of those who must deal with members of this odd
clan. This mainly nocturnal, balding creature frequently is known for
its uncanny creativity in arranging and presenting financial numbers in
novel and complex ways that totally conceal and obscure the underlying
reality from civilians. Its victims, who are often confused and lulled
into a false sense of security by the bland assurances of these seemingly
mild-mannered and trustworthy creatures of the night, will awaken one
morning to find themselves suddenly impoverished, while the beancounter
has migrated to its usual nesting place, Brazil. See also, "Assassins,
Certified Public."
ANTITRUST LAWS--Laws designed to prevent unfair
business practices, including monopolies or other activities
intended to reduce competition. In Wall Street Raider, as
in the real world, your company may be sued by competitors
for antitrust damages or by the public for price-fixing, and
may also be restrained by various government enforcement
agencies from taking over competing companies in an
industry that your company or companies already dominate.
In both the real world and Wall Street Raider, the main effect
of such laws is usually to punish companies that are too
successful and well-run.
BAD DEBT RESERVE--For banks, an accounting entry on
their books, designed to be a "reserve" for anticipated future
bad debt losses. The reserve is evaluated each quarter and
if it is too low, an amount is added to the reserve and
charged as an expense against operating income of the bank.
Actual bad debts, when incurred, are thus applied against
(reduce) the reserve, rather than being charged directly
against income. Thus, bad debt expenses tend to be spread
out more evenly, over a period of years, rather than all
bunched in the year when the debt is recognized as having
gone bad.
BALANCE SHEET--A financial statement that shows a
company's (or player's) assets, liabilities, and net worth,
with net worth being what is left after subtracting total
liabilities from total assets.
BANKRUPTCY--In simple terms, going broke; either
because the debtor (a person or a corporation) can't pay
debts as they come due, or in some cases because the value of
remaining assets is far below the amount owed, even though
the debtor may still have considerable amounts of cash.
In Wall Street Raider, a player is ejected from the game
in utter disgrace if he or she goes bankrupt. If a corporation
goes completely bankrupt, all of its assets are used to pay
off as much of its debt as possible, and the lenders (bank
and any bondholders) take bad debt losses on the rest; all
stock of shareholders usually becomes worthless and is canceled.
In a "Chapter 11" bankruptcy, the company continues in business,
while its capital structure is "reorganized." See "CHAPTER
11 BANKRUPTCY" below.
BEAR MARKET--A grim, pitiless stock market, where
all your stocks are plunging to new depths every day, and
where everyone else is losing gobs of money, too. This is
different from a BULL MARKET, where all your stocks are
plunging to new depths every day, while everyone else, from
your barber to the cabbie to the shoeshine boy, is bragging
about how they are getting filthy rich in the stock market.
BOOK VALUE--Net worth. In the real world, "book"
value usually refers to the COST of a company's assets, as
carried on its books, less the amount of its debts. (Cost
doesn't necessarily bear any relationship to what the assets
are currently worth.) In Wall Street Raider, all marketable
assets (stocks and bonds) are reflected at current market
value, so "book value" or "net book value" in Wall Street Raider
more nearly reflects a company's net worth and creditworthiness.
However, a company's stock may trade at much more or less than
its "book value," depending on whether its business is highly
profitable or not and other factors.
BUBBLE--The name given to a rip-roaring bull market
in retrospect, after the souffle has collapsed and everyone but
the insiders who got out early has been left with nothing more
than the sleeves of the vest. A "bubble" is invariably followed
by years of plunging stock prices, soaring unemployment, angry
recriminations, and endless government hearings and investigations
by the same foxes who were supposed to be guarding the hen house
while the bubble grew to grotesque proportions.
BUSINESS ASSETS--In Wall Street Raider, the operating
assets of a business; a catchall term to describe plant and
equipment, inventory, receivables, trucks, planes, ships or
whatever kind of operating assets a company invests money in to
increase the size of its business and its sales. In Wall Street
Raider, $1 of business assets is assumed to result in $1 per year
of sales. ("Non-business assets" in Wall Street Raider would
include cash, bonds, stocks of other companies or, in the case of
a bank, its loan portfolio. These are all "intangible" assets.)
BUYBACK--A transaction, such as an LBO ("leveraged
buy-out") or a "Greenmail" buyback, in which a corporation
buys (and cancels) its own stock from certain shareholders,
which will tend to increase the per share value of the
remaining shareholders' stock, if the company's stock is
bought back at a discount to net worth per share.
CD'S OR CERTIFICATES OF DEPOSIT--Interest-earning
deposits in a bank. In Wall Street Raider, all cash of players
and companies (except banks) is assumed to be fully invested
at all times in CD's, earning interest quarterly. It is
not necessary in Wall Street Raider to convert CD's back to
cash to spend the money. The "CD Rate" is the rate of interest
players and companies earn on their cash, and is the rate that
banks pay out on CD deposits.
CALL OPTION--An option to buy a stock at a specified
price over an agreed period of time. The person who buys a
call option is betting that the underlying stock is going
to go up. The person who sells, or sells short, a call option
is betting that the stock will either go down, go nowhere, or
only will go down slightly.
CAPACITY GROWTH--Growth in "business assets" such as
plant and equipment. In Wall Street Raider, as in the real world,
an industry's profitability will tend to suffer if industry-wide
capacity (supply) grows faster than demand for that industry's
product for very long (or will tend to improve if demand grows
faster than supply).
CAPITAL CONTRIBUTION--Money injected into, or
"contributed" to a subsidiary corporation by its controlling
shareholder. In Wall Street Raider, the controlling
shareholder must own 100% of the subsidiary's stock before
it is allowed to make a contribution of capital to the
subsidiary. A capital contribution is used to move money
from a parent corporation to a subsidiary when the subsidiary
needs the funds for some reason, such as when the subsidiary
has a tax loss carryover that will shelter any income it may
earn from investing the funds.
CHAPTER 11 BANKRUPTCY--Also sometimes referred to
as "operating bankruptcy," where the debtor continues in
operation, rather than being dismantled. A less severe
form of corporate bankruptcy, Chapter 11 Bankruptcy (or
reorganization) is sort of a "halfway house" where the
troubled corporation gets some relief from its debts, in
the hope that it may survive. In Wall Street Raider, this
means that the stockholders and junk bond holders have to
write off part or all of their stock or what the company
owes them, and the bank also writes off a (smaller) percentage
of what the bankrupt company owed the bank.
In Wall Street Raider, as in the real world, the shareholders
are usually completely wiped out in a bankruptcy reorganization,
and the bondholders take a much larger hit than the banks. The
bank loans are "senior" to the bond indebtedness owed to the
bondholders. In practical terms, this means that bank presidents
don't want to give up riding to work in chauffeured limousines,
so you and other small investors need to lose your savings you
invested in the bankrupt's bonds, and give up eating regularly,
rather than have their bank suffer a loss along with you.
CONSOLIDATED TAX RETURNS--In the Windows version of
Wall Street Raider, as in the real world, a company that owns 80%
or more of another company will generally file "consolidated"
tax returns with the subsidiary company, where the taxable
income of the two is combined, and a single tax is paid. If
one company has taxable income, and the other a loss, corporate
law usually provides (and Wall Street Raider requires) that the
company that has taxable income compensate the "loss company"
for the taxes saved by utilizing some or all of the "loss
company's" tax losses. This is all done automatically in Wall
Street Raider.
In the real world, consolidated tax returns can't always
be filed, such as in situations where the parent company is
incorporated in a different country than the subsidiary, but
Wall Street Raider does not impose that limitation. All 80%-owned
(or greater) subsidiaries pay tax on a "consolidated return"
basis in Wall Street Raider.
CONTROLLED CORPORATION--In Wall Street Raider, a
corporation that is at least 20% owned by a player (and by
companies he or she controls), or by a single corporation, is
considered to be under the control of its largest shareholder
(and of whomever might also control that shareholder company,
if anyone). Thus, if you own 51% of company ABC, you control it.
If you also own 10% of company XYZ, and ABC owns another 10%,
you may also control company XYZ, unless some other player or
corporation owns 20% or more of XYZ.
CPA--Certified Public Assassin. A CPA firm is a
supposedly independent outside auditor, paid handsomely by
the company that it audits, to "certify" that it has reviewed
a company's financial statements, and has blessed the numbers
that the company's financial officers have made up, no matter
how absurd and outlandish those numbers may be, and no matter
how close to its financial deathbed the company issuing the
rosy financial statements may be.
CYCLICAL--As applied to an industry, an up-and-down
or boom-and-bust cycle that is typical of the industry, where
demand grows very rapidly for a while, and then stops or
shrinks for a while. In other words, an industry that is not
characterized by steady or predictable growth.
DEMAND DEPOSITS--Non-interest-bearing deposits in
a bank, which the bank can lend out at interest. In Wall Street
Raider, banks' demand deposits usually grow at a rate of about 3
to 5% per year. See "CD's OR CERTIFICATES OF
DEPOSIT" above.
DIVIDEND--A distribution of profits by a corporation
to its shareholders, usually in the form of cash. In Wall Street
Raider, dividends are always in cash, except for distributions
which occur in the liquidation of a subsidiary into its parent
corporation.
DIVIDEND PAYOUT RATIO--The percentage of a company's
annual reported earnings that is paid out to shareholders
as regular dividends. State or national laws usually prohibit
a company from paying out dividends when net worth is negative,
although an exception is generally made for dividends paid out
of current earnings, where the company is currently profitable
("springing dividends"). In Wall Street Raider, the dividend
payout ratio for a company is applied to the last full year's
earnings to determine the amount of dividends paid out at the
end of a quarter (no dividend is paid if the previous year was
a loss year).
DIVIDEND YIELD--The rate of return on investment in a
stock, based on the dividends it pays, expressed as a percent
of the current value of the stock. For example, if a stock
sells for $100 a share and pays an annual dividend at the
rate of $6 per share, the dividend yield would be 6% (6/100).
EPS--An abbreviation for "earnings per share." If a
company in Wall Street Raider has 100 million shares of stock
outstanding, and it earns $4.00 per share, that means it earned
a total of $400 million. A company's EPS is usually a major
determinant of its stock price, in the real world as well as in
Wall Street Raider.
EQUITY METHOD OF ACCOUNTING--A recognized method
for corporations to account for their investment in subsidiary
corporations, usually subsidiaries in which they own at least
20% of the stock, but not enough stock to "consolidate" the
subsidiary's finances with the parent company's in full.
However, the parent is allowed to include its percentage share
of the subsidiary's earnings (or losses) in the parent's
reported earnings. Wall Street Raider adopts this latter
rule for any company that owns 20% or more of another company
(even if it does not control the other company), and also
adopts it even if the parent company owns less than 20% of
the subsidiary, if both are controlled by the same player
or company.
FDIC--Abbreviation for "Federal Deposit Insurance
Corporation," the U.S. federal agency that insures bank
deposits, in case a bank goes broke. In Wall Street Raider,
the FDIC may force a bank to cut or eliminate dividend payments
if in financial trouble. Or, as in the real world, if a bank
gets in too deep a financial pit, the FDIC may pull the plug
by taking over the bank, canceling the stock held by former
stockholders and reviving the bank, under new ownership, often
after an injection of new capital to restore the bank to solvency.
FTC--Abbreviation for the U.S. "Federal Trade Commission,"
the federal agency that acts as a watchdog (more often as a
sleeping watchdog) to prevent consumer fraud and other unfair
trade practices. It also may occasionally wake up long enough to
block mergers and takeover attempts that it feels could tend to
reduce competition in the marketplace, or just to create the
appearance that it is actually doing something, rather than just
sleeping on the job. In Wall Street Raider, various U.S. or
foreign government agencies may also intervene to block planned
mergers, liquidations, or LBO/Greenmail transactions.
FEDERAL FUNDS--Funds banks borrow from each other to
meet certain Federal Reserve requirements, usually on a very
temporary basis. In Wall Street Raider, this term refers to
money that banks borrow from each other or elsewhere when they
run short of funds and have no more bonds to sell off. "Federal
Funds" or "interbank borrowings" are quickly paid off in Wall
Street Raider when a borrowing bank obtains the money to do so.
FRAUD--The chief industry on Wall Street, Fleet Street,
Bay Street, and other major bourses/gambling dens around the world,
responsible for creating thousands of extremely lucrative jobs, all
of them funded by sucking up the life savings of millions of the
"little people" -- those unfortunate souls who actually work for a
living. For performing this necessary service to society (separating
the weak and the stupid from their loot), the most successful cads,
cons, liars, frauds, poltroons and mountebanks are frequently awarded
honorary doctorates at places like Harvard and Oxford.
GDP--Abbreviation for "Gross Domestic Product." See
definition of "GROSS DOMESTIC PRODUCT" below. (Formerly GNP,
Gross National Product)
GOLDEN PARACHUTE--Large sums of money and benefits paid
to departing executives of large companies, typically paid to reward
them for running their company into the ground, or thoroughly
looting it. Managers who steal over $100 million rarely go to
prison; more often, they are given honorary doctorates at
prestigious universities, for being generous enough to share
some of their ill-gotten loot.
GREENMAIL--A practice made popular in recent years
by certain corporate raiders who take a large position in a
target company's stock. Management of the target company,
fearful of a takeover that would cause them to lose their
jobs, stock options, chauffeured limousines, palatial homes,
Learjets and other God-given rights, quite consistently find
it to be in the company's best interest to buy back the raider's
stock holdings for a price well above current market prices, in
exchange for a promise by the raider to go away and pick on
some other company. The money extracted from the target
company is frequently referred to as "greenmail," perhaps
due to the uncanny resemblance of such a payment to its
somewhat less savory cousin, blackmail.
In Wall Street Raider, a "greenmail" buyback can be made
of the stock held by a non-controlling corporate shareholder,
but not of stock held by a player, and not of stock held by
a company controlled by the same player whose company is
paying the greenmail. That would be a blatant form of fraud --
not merely immoral, but illegal. Too blatant, even for
Wall Street.
GROSS DOMESTIC PRODUCT-- An economic statistic that
represents the estimated value of all goods and services
produced in a country in a year, which is a measure of an
economy's overall size and its level of activity.
HOLDING/TRADING COMPANY--A corporation that does not
actively engage in business itself, but instead holds the stocks
of one or more operating subsidiaries. In Wall Street Raider,
any company, other than a bank or insurance company, that no longer
has any "business assets," is classified as a "holding/trading
company." In Wall Street Raider, once a company has become a holding
company, it can enter into any industry you choose for it, other
than banking or insurance, by using the "Corp. Assets" command
button on the Transactions Menu to acquire business assets from an
existing company in that industry.
INSURANCE IN FORCE--A technical term used in the insurance
industry to describe the amount of insurance a company has
written, and which is still in force. In Wall Street Raider,
it is used more loosely, and is deemed to be proportional to
the insurance company's "policy reserves." See definition of
"POLICY RESERVES" below.
INVESTMENT ANALYST--On Wall Street, a highly-paid, highly
skilled specialist, one whose job it is to analyze the investment
outlook for companies and to get caught napping when a company
surprises everyone by filing for bankruptcy, shortly after the
investment analyst has issued a "strong buy" on the company's
stock, and attested to the company being "sound as the dollar."
Synonyms: "Eternal optimist; scoundrel; huckster; charlatan."
JUNK BONDS--In Street language, high-yielding,
high-risk bonds issued by companies of dubious creditworthiness,
often for the purpose of taking over another company or for a
"leveraged buy out" in which the company buys back most of its
own stock, allowing holders of a few shares (usually management)
to become the only remaining shareholders.
In Wall Street Raider, junk bonds are any bonds issued by a
highly-leveraged, risky corporation; they pay interest at a rate
that depends on their credit rating. As in the real world, companies
in Wall Street Raider that issue a lot of junk bonds face a high
risk of bankruptcy if their business hits a few rough spots. Not
all corporate bonds are considered junk -- if a company's credit
rating is BBB, A, AA, or AAA, the corporate bonds are not "junk,"
but are considered to be "investment grade" bonds. (At least
until they are later downgraded to "junk," after the skeletons
come out of the closet.)
Any bonds rated BB or lower (B, CCC, CC, C, or D) are very
risky, however, and are thus quite properly called "junk bonds."
To Wall Street insiders, "junk bonds" are those that are issued
with neither the hope nor the intention of ever paying back the
principal amount thereof to the investors/suckers who are
unfortunate enough to buy the stuff.
To certain churlish types, who have repeatedly been badly
burned by investments in these unsavory securities, junk bonds
are known as "certificates of confiscation."
LAWYER--The larval form of a politician.
LBO OR LEVERAGED BUY OUT--A transaction in which one
or a few people buy a small part of the stock of a company
and then have the company borrow enough money to buy out
all of the other shareholders, so that the buyers obtain
most or all of the stock of the company with little or no
investment on their part. In some cases, they may even
extract dividends from the company afterwards, in order to
quickly recoup part or all of their investment (or more).
In Wall Street Raider, a player (or a company controlled by
the player) can sometimes do an LBO by buying minimal control
of a target company (say 20%), and then having the company
borrow or issue junk bonds to finance a buyback of the
other 80% of its stock (using the "LBO/GreenMail" command
button in the Transactions Menu), leaving the acquiring
player or company with 100% ownership of a highly leveraged
corporation. It can be a great strategy if the company does
well. If things don't work out, though, all the added debt
(leverage) can result in a financial meltdown for the LBO'd
company -- which happens more often than not when a company
is that massively leveraged with debt.
LIBOR RATE--The name given to a benchmark interest
rate, usually quite low, which is the rate banks charge each
other for overnight loans. LIBOR is an acronym, which stands
for "London Interbank Offer Rate." In the real world, various
interest rates on loan instruments are based on the LIBOR rate.
In Wall Street Raider, it is used only as the rate at which
banks pay interest on interbank loans, and is loosely related
to the Prime Rate.
LINE OF CREDIT--An amount a lender, such as a bank,
agrees in advance to lend to a customer, if the customer
wishes to borrow it. In Wall Street Raider, each player and
company normally has a line of credit allowing him or it to
borrow up to a maximum of 1 times net worth. To have a line
of credit, your financial situation must demonstrate, basically,
that you don't need to borrow. Bankers are, in short, the type
of people, as Alan Abelson once put it, who will only lend you
an umbrella on a sunny day.
In Wall Street Raider, a company or player can usually borrow
on a line of credit until its debt is equal to 100% of net
worth. Thus, if you have $500 million cash and no debt, you
can borrow up to $500 million on your line of credit. If playing
at Difficulty Level 2 or 3, a player may be able to borrow up
to 2 or 3 times his or her net worth, if he or she obtains control
of the lending bank.
LIQUIDATION--A corporate transaction in which a
parent corporation, in effect, merges a wholly-owned subsidiary
corporation into itself, so that all of the assets, debts, etc.
of the subsidiary become property or debts of the parent, and
the subsidiary corporation ceases to have any further activity,
and ceases to exist. In Wall Street Raider, as in the real
world, such liquidations of wholly-owned subsidiaries are
usually non-taxable events.
LITIGATOR--An often despised subspecies of the much-feared reptilian
species Lex disputatis; half literate, half alligator; known for its aggressive,
ferocious, pit bull-like characteristics, and its penchant for going for the
opponent's jugular and the client's pocketbook, often simultaneously. Like
others of its species, heavy infestations of Lex disputatis intimidatum are
found in California, New York, or wherever there are large concentrations of
filthy lucre, on which it thrives.
The litigator subspecies is easily recognized by its sharp tongue and
elbows, quick reflexes, its habit of toting large briefcases (often filled
only with peanut butter sandwiches), and its highly developed aptitude for
lying to and hypnotizing judges and juries. As it multiplies at an
exponential rate under favorable breeding conditions, it is widely
considered a pest throughout its range, and large infestations are often
mistaken for clouds of devouring locusts.
LOAN PORTFOLIO--The loans made by a bank, on which
it hopes to earn interest. The value of a bank's loan
portfolio is offset by a reserve for potential bad debts.
See definition of "BAD DEBT RESERVE" above.
In the new (Windows) version of Wall Street Raider, banks invest
some of their funds in consumer and mortgage loans, as well as
making business loans to players and corporations. Consumer
loans are made at high interest rates, but the banks have
frequent large charge offs for bad consumer loans. Mortgage
loans earn much lower rates, but have far fewer bad debt
charge offs.
Corporate loans and loans to players earn interest rates
based on the banks' Prime Rate, which is the lowest rate
charged, to AAA credit-rated borrowers (and, in Wall Street
Raider, to nearly bankrupt, D-rated borrowers, in the forlorn
hope that this might help them recover and somehow pay off
their debts). Other borrowers pay higher rates that depend on
their credit rating.
LOBBYIST--In America, a political courtesan; one who
greases the wheels of the political system; a legal bribe-giver.
Lobbyists are recognizable by their Gucci shoes, Louis Vuitton
briefcases, Beltway addresses, Aspen chalets and unlimited expense
accounts, or, more recently, by their neatly pressed Chinese People's
Liberation Army Generals' uniforms. Noted for their self-proclaimed
public spiritedness and altruism, lobbyists aver that they provide
foreign travel junkets, first-rate hookers, and suitcases full of
cash to high-ranking government and political party officials solely
out a sense of civic duty, all with no expectation whatsoever of
receiving any quid pro quo.
MARKET SHARE--A company's percentage share of total
sales in a particular industry. In Wall Street Raider, this is
the same as the company's share of "business assets" in that
industry. In general, the larger a company's market share
percentage, the more profitable the company tends to be,
compared to other companies in the industry. Thus, it is a
good strategy to merge two or more companies you own (and
liquidate one into the other), if they are in the same
industry, so that they become one large company, with a
larger market share than either had alone, which will usually
improve profitability, due to economies of scale. During
the great "tech bubble" at the end of the 20th century, it became
the conventional wisdom that "market share" was more important
than profitability, leading many companies to expand wildly,
floating huge amounts of stock and junk bonds to finance their
rapid expansion. (Most of them are now bankrupt, or "penny stocks,"
at best.) Over-expansion works the same way in Wall Street Raider.
MERGER--In the real corporate financial world, the
term usually refers to a transaction where the assets and
liabilities of two companies are legally brought together
in a single "surviving" corporation. It also is often
used to describe stock-for-stock swaps between a company
and the shareholders of a target company, where the target
company ends up as a wholly-owned subsidiary of the acquiring
company. A "merger" in Wall Street Raider (using the
"Merger" command button
in the Transactions Menu) is of the latter variety.
The "Liquidate Sub."
command button can often be used in Wall Street Raider to effect
what is essentially a merger of the type described in the first
sentence of this definition, but only after one corporation
acquires 100% of the stock of the corporation to be liquidated,
either by purchase or merger.
P/E RATIO--Wall Street jargon for "price/earnings
ratio," or the multiple of earnings per share that a stock
sells for. For example, a $100 stock of a company earning
$5 per share would be said to have a P/E ratio (or earnings
multiple) of 20; that is, the stock sells for 20 times its
earnings per share. Stocks of rapidly growing companies
often sell at high P/E ratios, because the stock market is
"anticipating" much higher earnings in the future. Stocks
of all companies tend to sell at lower P/E ratios when
interest rates are at high levels (and vice versa). During
major bull markets ("bubbles"), investors are always told
by the experts that earnings, and therefore P/E ratios, are
no longer important, and thus can be ignored.
POLICY RESERVES--Accounting reserves insurance
companies are required to set up on their books when they
sell an insurance policy. Policy reserves are, in effect,
estimates of how much money the insurer needs to set aside
to pay future insurance claims. They might also be considered
as a kind of "loan" (without interest) from the insurance
company's customers. Most insurance companies make most or
all of their profits from investing these reserves for the
period between the time they collect a premium and when they
eventually have to pay a claim. For example, in a given
year, an insurer might take in $100 in premiums and pay out
$103 in claims and expenses, so that it would have an
underwriting loss of $3, but might earn $10 interest on
the "float" during the year, resulting in an overall profit
for that year. In Wall Street Raider, an insurer's
policy reserves are assumed to grow at the same rate as
its "insurance in force," defined above.
PRODUCTIVITY EXPENDITURES--In Wall Street Raider,
money a company spends each year on either R & D (Research &
Development), or on marketing/advertising, to try to improve
its profitability. The higher the percentage of sales or revenues
a company spends, the better its chances of improving long-term
profitability, but the high costs or R & D or marketing/advertising
will penalize the company's earnings in the short-term. It is a
form of short-term pain, for (hoped-for) long-term gain.
PUBLIC OFFERING--An issuance of securities for sale
to the public, usually (but not always) by the issuing company.
In Wall Street Raider, a Public Offering is a sale of new stock
by a corporation to the Public for cash, to raise new capital
for the corporation. (By contrast, a "private offering" is a
sale of stock to only one or a few investors--see "White
Knight," described in this Glossary, regarding a private stock
offering in Wall Street Raider.)
PUBLIC RELATIONS--An organized method of mass communication,
calculated to circumvent critical thinking and induce a state of
prolonged stupor; also, in politics, a term used to describe
relatives who feed at the public trough.
PUT OPTION--An option to sell a stock at a specified
price over an agreed period of time. The person who buys
a put option is betting that the underlying stock is going
to go down. The person who sells, or sells short, a put option
is betting that the stock will either go up, go nowhere, or
only will go up slightly.
R & D (RESEARCH AND DEVELOPMENT)--R & D expenditures
are funds spent to create new products or production processes
or to improve existing ones. Since R & D expenses usually
penalize current earnings, even though they may greatly
increase long run profits, managements are often tempted
to cut out R & D spending in the short term to make earnings
look better. In Wall Street Raider, companies in certain
industries are faced with this same choice between short-term
vs. long-term profitability, in deciding how much money to
spend on R & D. Besides lowering current earnings, a company
runs the risk that money spent on R & D projects will not even
pay off in the long run.
RESTRUCTURING--Selling the family jewels; throwing
out the baby with the bath water. Also, in financial parlance,
"downsizing" a company by selling off assets, jettisoning
employees by the thousands, looting the company pension plan,
and using other time-honored scorched-earth tactics to improve
the bottom-line profitability of the company, if it ultimately
survives the bloodletting. As Conan the Barbarian once said,
"Zat vich doesn't kill you makes you shtronger..."
(Or was that Conan the Contrarian???)
RETURN ON EQUITY--A way of calculating a company's
level of profitability; a percentage figure determined by
dividing its net income by its net worth. Returns on equity
are typically in the 10 to 15% range for most American
corporations. Returns over 20% are considered to be unusually
good. In Wall Street Raider, returns on equity tend to be
very much in the same range as in the real world.
SEC--Abbreviation for "Securities and Exchange
Commission," the federal agency charged with acting as a
watchdog over investment markets in the USA, which usually
behaves more like a lap dog. Its main job seems to be to get
caught napping each time a major investment fraud is perpetrated
against millions of investors. All publicly-traded companies
are required to regularly file financial reports with the
SEC, which from time to time takes legal action to prevent
the boiler-room types from fleecing the public investors
too flagrantly.
In Wall Street Raider, the SEC is merely another annoying
government agency that may intervene at inopportune times to
block those too-clever transactions you thought you could get
away with.
SHORT SALE--Selling a stock (or other investment vehicle)
that you do not own, by borrowing the stock from a person
who owns it and selling it now, with the hopes of buying
the stock back later at a lower price, returning the
shares to the owner, and making a profit on the decline
in the price of the stock. Of course, if the stock goes
up, and you have to buy it back, you will lose money on
the transaction.
STOCKBROKER--A professional person who dials for dollars,
dispensing free (nevertheless grossly overpriced) investment advice
to all who will listen, from an inexhaustible list of bad, worse, or
terrible investments, usually recommending that one buy a stock that
he or she, personally, is selling short; typically, a person who was
selling shoes or aluminum siding before the latest market frenzy, and
who will leave you dealing with pawnbrokers, not stockbrokers, once
your life savings have been reduced to pocket change.
STRADDLE OPTION--A combination of a call
option (to buy a stock at a specified price) and a
put option (to sell the stock at that same
specified price). The person who buys a straddle option is
betting that the underlying stock is going to fluctuate greatly
from the current stock price, by the time the put and the call
expire, and that either the put or the call option will be worth
a great deal at that time. The person who sells, or sells short,
a straddle option is betting that the stock will NOT fluctuate greatly
by the time the put and call expire. The call side of the transaction
will be worthless when expiration date arrives, while the put side
will have some value, if the stock price is below the "strike
price" (exercise price) of the options at that time; and vice versa
if the stock is above the strike price at expiration. (Of course,
neither side would have value if the stock price is at exactly the
strike price, but that almost never happens.) The only question
for the buyer and the seller of a straddle is: How MUCH value
will one side of the straddle have at expiration? More than
the price paid for the options? Or less?
STRIKE PRICE (OR STRIKING PRICE)--The price at which a
put option or call option is exercisable. Sometimes also
called the "exercise price."
TAKEOVER--The act of taking "control" of a corporation,
by acquiring enough of its voting stock to elect a majority
of the board of directors, thus allowing the person doing
the takeover to direct the actions of the corporation. In
Wall Street Raider, a takeover may be effected through a cash
tender offer for stock held by the Public, using the "Buy
Stock" command button in the Transactions Menu, or by a
stock-for-stock merger, using the "Merger"
command button. On Wall Street, a takeover is that step which
immediately precedes the looting of a once-healthy corporation.
In Wall Street Raider, the player or company doing a takeover
must always obtain a minimum of 20% of the target company's stock
in order to gain control. Also, in Wall Street Raider, you can
buy up to 15% of a company's stock on the open market, which will
tend to run up the price of the stock somewhat. However, if you
are acquiring (in total, counting existing holdings) more than
15% of a company's stock, you have to do so by a Tender Offer at
20% above the current market price. (The "Buy Stock" command
automatically computes the correct purchase price either way,
depending on whether you are making open market purchases of 15%
or less, or "tendering" to acquire more than a 15% interest in a
company.)
TAX AUDIT--A financial proctoscopic exam, performed by
malevolent and sadistic civil servants in a medieval setting,
without benefit of anesthesia.
TAX LOSS CARRYOVER--If a corporation has more losses
than income during a year, it will usually pay no taxes, and
the net loss becomes a "tax loss carryover" that can be used
to offset taxable income in another year. In the real world, a
corporation can carry back a tax loss to any of the 2 preceding
years, or carry it forward to any of the 20 following years,
until it is "used up." In Wall Street Raider, a corporation is
only allowed to carry a tax loss forward, not backward in time.
You can find out if a company has a tax loss carryover by using
the "Finan. Profile" command.
TENDER OFFER--An offer by a person or company to
acquire part or all of the stock of a company, usually made
at an attractive price (considerably above the current market
price of the stock). A "Tender Offer" is usually made as
part of a takeover attempt (see "TAKEOVER" above), and the
offer is usually only effective if a certain minimum number
of shares are "tendered" for sale. In Wall Street Raider,
a "Tender Offer" is made at a price 20% above the existing
stock price, and the offer is only effective if the buyer is
able to acquire the percentage of stock specified.
TICKER TAPE--In a broker's office, the moving
electronic display of stock prices which shows the price
of each trade of a stock (and the number of shares or "lots"
traded) that occurs on a stock exchange. Stock prices are
usually quoted in dollars per share and decimal amounts.
(In times past, the quotes were printed mechanically on a
narrow paper tape by a "ticker tape" machine--hence the
name.) In Wall Street Raider, the electronic "ticker tape"
moves across the bottom part of the screen, reporting a
random sampling of one of every 50 to 100 stock trades that
occurs in the 1500 + stocks that make up the Wall Street
Raider investment universe. Volume is not shown.
WHITE KNIGHT--A friendly or neutral company (often
quite large) that purchases a substantial percentage of
the stock of a company at the request of that company's
management, in order to keep the shares out of the hands
of a potential corporate raider who might attempt an
unfriendly takeover of the company. In Wall Street Raider,
the "Priv. Offer" command
button (on the Transactions Menu) can be used to implement
the "White Knight Defense," enabling a company to raise money
by selling substantial block of new stock to a "neutral"
company. The funds raised can then be used to "buy in"
("GreenMail/LBO" command
button) publicly-owned shares, if desired, in order to make
it difficult or impossible for an opponent to buy up enough
stock of the company to take control away from you.
WORKING CAPITAL--Money that a company has tied up
in non-productive assets such as inventory or accounts
receivable, as a necessary part of its business. In Wall
Street Raider, the more "business assets" a company has,
the larger the amount of cash it must invest in "working
capital," which, unlike cash that can be invested in CD's
or elsewhere, does not generate any investment income.
YIELD--The percentage rate of return on an investment,
such as the interest yield on a bond or certificate of deposit,
or the dividend yield on a stock. Yield is a percentage
calculated by dividing the annual income from the investment
by the value or cost of the investment. For example, a $100
stock that pays $6.00 per share in annual dividends would be
said to have a "dividend yield" of 6% ($6 dividend / $100 stock
price).
YIELD TO MATURITY--On a bond investment, the percentage
rate of return on the investment, if the bond is held until it
is paid off at its maturity date. While the "current yield" is
merely the annual interest payment divided by the price of the
bond, the Yield to Maturity involves a number of complex present
value calculations, which take into account the fact that the
price of the bond at present is either higher or lower than the
face amount that will be paid at maturity. Thus, a 7% bond
trading at face value (100) has a current yield of 7%,
and also a Yield to Maturity of 7%. But if it matures
in one year, and trades at 97, you will earn another
3%, approximately when it pays off at 100, so the
current yield on such a bond would be 7.22% (7 divided
by 97) and the effective "Yield to Maturity" would be
10.23%, assuming semiannual interest payments.
Bonds usually pay interest twice a year, although some pay
on a quarterly or monthly basis. In Wall Street Raider, bonds
pay interest quarterly (four times a year), so an 8% bond pays
2% each calendar quarter, for example, in Wall Street Raider.
The "yield to maturity" (YTM) figure shown for bond issues in
Wall Street Raider is computed using standard present value
equations, based on quarterly payments.
