Placing To Privatization (Money)


When a stockbroking firm, or several of them, have a large line of shares to sell, and sell it directly to institutional investors, it is known as a placing. As a private investor, you won’t get the benefit of this – only in an indirect sense, as those shares often go into pension and life insurance funds.

Poison Pill

This is the term used to describe tactics used by companies that strongly object to being taken over by other companies. The company being bid for will do its damndest to swallow a ‘poison pill’; one way might be acquiring another company to make it look less attractive to the marauding bidder trying to take it over. Alternatively, it could find a legal technicality that would prevent a takeover, or take on board a truck load of very unappealing debt! Naturally in any bid situation, shareholders get pretty excited because, nine times out of ten, they’re quids in whatever happens (see Asset Stripper, White Knight).


A group or a range of assets owned by one person or a company. You, for example, might own a house and some shares and a bar of gold. This is a portfolio of assets. It’s a term often applied to a range of investments such as shares and bonds (see Diversification, Portfolio Management).

Portfolio Management

Anybody can manage a portfolio for him or herself. You can own a group of shares and that’s classed as a portfolio. What you or I cannot do is manage a portfolio for others unless we are authorized to do so. Before people can get their mitts on our cash, you’ll be relieved to know that they need a number of pretty high-powered qualifications and special authorization to do so. Only then can you safely hand it over to them. They are generally called fund managers (see Financial Services Authority, Fund Management).

Pre-emption Rights

When a company needs to raise cash via the stock market, its existing shareholders are given the right to purchase any new shares it might issue. This stops their share being diluted to less than the original percentage they owned. It is called giving those existing shareholders pre-emption rights. If they decide not to take up their rights, the rights themselves are traded on the stock market, which gives outside investors the opportunity to purchase them in order to buy into the shares (see Dilution, Nil-Paid Rights, Rights Issue).

Preference Shares

Here, the term share is a bit misleading. Preference shares are not like ordinary shares, or ‘equity’. They are actually more like bonds in that they almost always offer a fixed return, also known as a dividend. This contrasts with ordinary shares, which may or may not pay out a dividend, depending on how well a company is doing. The good news is that ‘prefs’, as they are commonly known, rank ahead of ordinary shares in terms of dividend payout. And in a worst case scenario, should a company go belly up, preference shareholders will be paid out before ordinary shareholders. The bad news is that although these shares are arguably less risky and ‘safer’ than ordinary shares, investors in these will miss out on any good news and capital appreciation that the ordinary shares might achieve. And if the company runs into a rough patch, it can waive the dividend payout to preference shareholders as well as to its ordinary shareholders. To discover the order of payout in the event of a company going bust, see Shares.

Preliminary Announcement

A company makes one of these two or three months after the end of its financial year. They’ll announce what wonderful profits (or losses) they’ve racked up, how much they owe in taxes and what they intend to pay to you, dear investor, by way of dividend. The Stock Exchange gets first notification of the ‘prelims’, followed by the press. Most of us only find out the results from the newspapers the following morning, by which time the City analysts will have long got hold of them and be furiously crunching away at the numbers in order to get on to their big clients and give their opinions as to whether things look rosy or bleak for the company.


Basically means the difference between the price of something and its ‘real’ underlying value. An example is when shares are issued on the stock market in the form of a new issue. If the shares, once they are traded, rise above the level at which they were originally priced, they are said to be at a premium.

Premium is also the word used to describe the money you pay when you buy options, rather like insurance premiums (see Call Option, Put Option, Derivatives – Options). And, of course, it also means the money insurance companies extract from us on a regular basis.

Premium Bonds

These bonds are vigorously promoted as a tax-free investment. But there is a major catch. The interest your money earns on the bonds is pooled with the interest earned by all the other ‘investors’ and distributed in the form of monthly prizes from a computerized draw to the lucky few. Most of the poor saps that own premium bonds get nothing, that’s niente, nada, nichts, diddly, zilch.

Present Value of Money

The value now of money that is to be received in the future. It often describes the stream of income you might expect to get over several years from an investment. The City whiz-kids use a complicated mathematical calculation called ‘discounted cash flow’ to work out the present value of money. This enables them to price the investments (see Discounted Cash Flow).

Price/Cash Flow Ratio

The price/cash flow of a company is worked out in the same way as a price/earnings ratio:


Although price/cash flow is clearly not as good a measure of a company’s profitability as its price/earnings ration, what it does do is enable the number crunchers to make international comparisons between the shares of companies as it eliminates all the different accounting practices used in various countries (see Cash Flow, Price/Earnings Ratio).

Price/Earnings Ratio – P/E

Also known as the p/e ratio, price/earnings multiple, earnings multiple, p/e multiple, or just multiple, which can get confusing to the uninitiated. But it’s very simple, I promise! It’s just another basic maths calculation:


The number you get is a clue that tells you what the market is expecting of this share in terms of future price performance. The City bods obsess over the prospective (future) p/e of a company. When a share is on a high multiple, it means that the stock market has great expectations of a company. The City expects it to exhibit fast growth and a stellar trajectory. A low multiple can mean it’s either a dog (see Dog), growth within the company is pretty sluggish and the shares are not likely to go great guns, or the City has missed the virtues of the shares, which are due to be re-rated upwards. But let us be clear on one thing. The market can and does often get it wrong. Also bear in mind that a p/e ratio is only one of many tools used by the professionals to establish the value of a share. It is by no means the be-all and end-all. A low p/e number taken in isolation doesn’t automatically mean that a company’s shares are good value. There could be very good reasons why the shares are cheap. Certain types of company, like asset-based property ones for example, can’t be sussed out using a p/e ratio. Don’t get me wrong; it’s a useful number just as long as it is taken in context with all the other info about a company (see Price/Cash Flow Ratio, Price/EBITDA Ratio).

Price/EBITDA Ratio

Exactly the same as p/e ratio (see Price/Earnings Ratio). The only difference is that the earnings number is taken ‘before interest, tax, depreciation and amortization’. The reason many City analysts use this figure is not because they like to make things as complicated and incomprehensible as possible, although you might think that. No, it is simply to iron out accounting differences between companies in different countries. Using a price/EBITDA ratio just means analysts can make meaningful comparisons between companies. For example, if one company depreciates its assets faster than another does, then it is better to look at earnings before depreciation (see Amortization, Depreciation).

Primary Market

When shares or bonds are offered on the stock market for the very first time (like a virgin) they are known as ‘primary market’ offerings (see Secondary Market).

Prime Rate

The American phrase meaning base rate (see Base Rate, Central Bank, Interest Rate).


When you act as principal in a transaction (especially when buying something) you risk your own capital. In the City it’s the term often applied to traders, market-makers and stockbrokers who buy shares for their own ‘topic’. Naturally they do so with a view to making a profit, but it is pretty risky stuff, because they can (and do) get it wrong! When they make money it’s big money, but the converse it true when they lose it (see Jobber, Market-Maker, Trader).

Private Equity

This fancy phrase describes investors in companies that aren’t quoted on any stock market. They like to keep their affairs private as the name suggests. The companies they invest in are usually developed mature businesses with strong cash flows, which means banks can also lend money for the deal, ie, the purchase of the company. There are also venture capital trusts that invest in private equity (see Venture Capital, Venture Capital Trust).


The floating of previously state-owned utilities and industries on the stock market. Initiated by the Conservatives in the early 1980s, one of the consequences was that it made millions of us into share owners. Long-term holders of these shares will have made a pretty packet by now, so who’s complaining?

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