Cold Call To Cyclical Shares (Money)

Cold Call

Uh oh. If you get a cold call, which is a call from the blue from a total stranger trying to flog you something in the investment field, you should just politely say, sorry you’re not interested in the venture, whatever it is, and put the phone down. If someone keeps bugging you, report him or her to the Financial Services

Authority because what they’re doing is illegal (see Financial Services Authority).

Collective Funds

Millions of people elect to pool their money into large funds such as unit trusts, investment trusts, tracker funds, etc. These are all different types of collective funds. They spread the cash (hence the risk) over a very wide range of shares and assets, which the individual’s small amount of money couldn’t possibly do. Why? Because the cost of spreading our relatively paltry sums of money over the wide range of assets that funds hold would be prohibitively expensive. They get massive economies of scale; the larger the fund, the cheaper it gets to buy and sell shares. Whilst we pay commission of, say, 1.5 per cent per share transaction, the funds might pay 0.2 or 0.3 per cent, simply because of the sheer volume of money that they are throwing around (see Active Management, Investment Trust, Managed Funds, Tracker Funds, Unit Trust).


Something you have to pay if you want to buy and sell shares or get someone to professionally manage your money. Also, when you ask independent financial advisers (IFAs) for advice on a mortgage, health insurance, or life insurance, be absolutely clear that they are not altruists and they can earn very generous commissions for their advice. Endowment policies and investment bonds pay advisers very high commissions in particular. The good news is that new rules mean that IFAs must offer you the option of fees-driven advice or commissions. It’s a good idea to check what the advice is going to cost you in pounds and pence in order to satisfy yourself that you are not just paying commission in the form of ‘fees’ (see Independent Financial Adviser, Stockbroker).


Just as there is a Stock Exchange, so there is a commodity exchange, where commodities are traded. The kinds of commodities traded there are raw materials. ‘Soft’ ones include coffee, cocoa, sugar, soya, even pork bellies. ‘Hard’ ones include gold, silver, copper, lead, zinc, etc.


‘Hullo, ‘ullo, ‘ullo. What’s a nice stockbroker like you doing with this rather tasty bit of inside information? You’re not going to do a spot of insider dealing on me, are you, my son?’ Hopefully not, or it’s go to jail, do not pass go and certainly do not collect £200.

Compliance is the department in a big stockbroking or investment banking firm that has the unfortunately dreary task of nit-picking and checking that everybody within the organization follows the rules and doesn’t take advantage of their privileged position to, heaven forbid, make money. But I thought that’s why everyone works in the City, guv. There couldn’t possibly be any other reason to work in that goldfish bowl, could there? Surely not job satisfaction? Unless I’ve really got it wrong and the City is populated with the most altruistic souls in the country. Anyway, I digress. The compliance department keeps its beady eye on the activities of its staff and makes sure they don’t do illegal things like insider trading, etc (see Chinese Walls, Front Running, Inside Information, Insider Dealing).

Composite Interest Rate

The favourite ploy of building societies is to show off with loud proclamations of ‘Come and save with us, get 6 per cent here!’ Of course as soon as you are lured into putting your hard-earned cash into their savings accounts, loud cries of indignation ensue when you get your interest statement. Hey, you cry, how come you said I was going to get 6 per cent but I’ve only got 4 per cent? Well, did you really think the UK government would just let you hang on to all the interest (called the gross interest) without saying a dicky bird? With tremendous consideration and thoughtfulness, just in case you forget to pay it later on, they lop a composite tax rate off the money upfront before it reaches you. This tax is just a bit lower than the basic rate of income tax. Oh, and if you happen to be a higher-rate tax-payer, don’t think they’ll neglect you there. You’ll have to pay back to the government the differential between the composite rate tax and the higher band of tax.


Oh, the wonderful effects of compounding. This is when interest earns interest. Say you have £100 on deposit in year one. It is earning 10 per cent interest. In year two, you will have £110 on deposit, earning interest. Each year, interest will be earned on the higher, aggregate figure. Over the long-term, this has a very significant effect on the value of money saved or invested.


This type of company is also called a diversified industrial. It is one that has gobbled up all kinds of businesses that have a wide spread of activities, usually unrelated to one another. A good example would be a company that owned a bottle-top manufacturing business, a power-drill making company, as well as a fruit importer.


Something you may feel your financial experts don’t give you enough of. When you buy or sell shares or bonds, you pay for them or receive money. The consideration, rather considerately, is the amount you pay or get before commission charges and stamp duty.


Before your imagination really takes flight and you start thinking Starship Enterprise space age consol, let me console you. That it isn’t. This is a City colloquialism for government consolidated bonds. The popular name for a government bond is gilt. Consols are unusual in that they are bonds issued by the government’s consolidated fund, not the treasury. As they were issued in the Napoleonic era, they are all undated, ie, there is no date by which the government has to pay the money back to the lender.

Contingent Liabilities

Accounting-speak again. These are debts that may or may not materialize for a company and are terribly nebulous by nature. A company has to mention the possibility of this in its accounts by way of a footnote, though let’s face it, it isn’t exactly going to advertise the fact that a horrible big hole might appear in its profits, is it? It’s up to the investor reading the accounts of a company to try to assess what might be the worst case scenario. A little footnote mentioning guarantees of major liabilities in the future or an impending legal case can be worrying.


When you buy options in shares or other financial things like currencies, you buy them in contracts. Each contract is always the same size. An options contract in a FTSE 100 share, for example, consists of 1,000 shares (see Derivatives – Options).

Contract Note

When you buy or sell shares from a stockbroker, they have to send you a bit of paper that tells you all the details about the share deal. Boring but necessary stuff, like the time and date they dealt for you, the amount of money you have to pay and when you have to pay them. You’ll be liable for stamp duty if you’ve bought shares. It’s a good idea to hang on to this bit of paper for the far-flung future when you might want to sell your shares and have to calculate the amount of grim capital gains tax that you’ll have to pay. Which, in a way, is good news because it means that the shares have gone up in value (see Settlement, Tax – Capital Gains Tax).

Conversion Premium

This phrase is related to that hybrid investment, the convertible (see Bonds, Convertibles). By now you’ve sussed that a convertible is just a bond that gives you the right to convert it into shares at some point in the future. The conversion premium describes the amount by which the bond looks overvalued. Why should it become overvalued, you ask? Because when investors like the look of the underlying shares of a company that has convertibles on offer, they pile into them en masse in raptures of delight because they are hooked by the attractions of the right to ‘convert’ the convertible bonds into shares. This drives the price of the convertibles up, thus creating the ‘conversion premium’. The investors are thrilled to bits as they’re getting the fixed return of a bond, with the added excitement of making money on the underlying shares as and when they convert it into shares. If a convertible isn’t displaying a conversion premium, then take it as read that investors aren’t in the least bit enthused about converting it into shares (maybe the shares look dreary and dull) and they are viewing the convertible as a pure bond.

Conversion Rights

This just describes the right to convert a bond into shares.

Convertible Loan Stock

Loan stock is just another way of describing corporate, or company bonds (see Corporate Bonds). Convertible loan stock differs from the above in one important way. Instead of automatically paying you, the lender, back the money owed to you at the end of the life of the loan, the borrower can elect to convert the loan into its shares and give you the shares instead. This is hunky dory if all is going well for the company, but rather unpleasant if the shares are bombed out!

Convertible Preference Shares

By now you are savvy with the idea that a preference share is not like an ordinary share at all. It is really more like a bond that pays a fixed dividend to the owner, and in the event of a company going bust, a preference shareholder is in line to be repaid before an ordinary shareholder. And you know what a convertible is (see Convertibles). So it follows that a convertible preference share just lets you convert what is effectively a bond into a share at some point in the future. There are usually certain fixed times and prices at which this can be done, but you can see the attraction for some people who don’t like to take excessive risks. The hybrid attraction of these is the same as for convertibles (see Bonds, Preference Shares, Shares).


A convertible is a bond that gives you the option to convert it into shares at certain fixed times. As a bond, it pays a fixed rate of interest to the lender, but with the added spice of the investor being able to convert it into a share at a fixed price at some point in the future if it is favourable for him to do so. It’s like hedging your bets. Obviously this type of investment often gives holders the best of both worlds. They get a bond, which can turn into a share. And it goes without saying that they’ll only convert the bond into shares if it’s in their interest to do so (see Bonds, Conversion Premium, Shares).

If a City trader offers to sell you his convertible, think twice before accepting. It might not be that sexy soft-top Mercedes SL500 you would give your right arm for. It might just be a forlorn piece of paper that looks suspiciously like an IOU.

Corporate Bonds

Bonds are mainly issued by governments and companies looking to borrow money, effectively they are bits of paper that are IOUs. The UK government issues gilts and companies issue corporate bonds. Another phrase for corporate bond is ‘loan stock’, but you will find that corporate bond is the more commonly used. There are different classes of these, the most secure being a debenture, followed by secured loan stock and the obviously less secure unsecured loan stock. Because there is an element of risk attached to lending money to companies, they compensate for this risk by offering interest rates that are better than the interest paid by building society deposits or government bonds, which are effectively perceived to be risk-free, as nine-and-a-half times out of ten they are. Just as with most other bonds, the company usually fixes a set date to redeem the loan, and in the meantime, they make regular interest payments to the lender (see AAA, Bonds, Credit Rating, Gilts).

Corporate Earnings Growth

This is an important number that City analysts watch obsessively like hawks. Companies listed on the Stock Exchange issue their main results once a year, with quarterly updates for the really big companies. What analysts obsess over is not the actual number, ie, not the £5m Bloggins plc is making this year, but its progress, ie, how much did profits grow by? Is that £5m substantially more than it was last year? Was growth reasonable, given the inflation rate and other economic factors? A paltry 2 per cent qualifies as stagnation, but if profits roared ahead by 20 per cent, analysts are in nirvana. I don’t need to tell you how fickle they can be if a company fails to deliver. Merciless with companies that show a glimmer of a fall in profits, they slash profit forecasts, and this in turn means that a company can go from ‘darling glamour’ to ‘nobody loves me anymore’ and it is dumped wholesale, leading to its share price collapsing. Then, rather predictably of course, the shares become oversold. And guess what? Those same analysts who gasped with horror at the slight hiccup in corporate earnings growth for Blog-gins plc are on the rampage again, advising everyone to pile in because the shares now look cheap! As long as the forecasts for corporate earnings growth keep changing, it’s great for the City stockbrokers because the institutions pile in and out of shares as they are told to. The brokers earn their fees on the ‘buy’ and ‘sell’ side, so they win either way! (See Earnings per Share, Price/Earnings Ratio.)

Corporate Finance/Financier

This is the department in the investment banking world (see Investment Bank) that is populated with busy worker bees called corporate financiers. These individuals are usually very wan and pale, on account of the fact that they never see the light of day. Corporate finance is without doubt the most gruelling job in the City, much worse than stockbroking. What these poor people do is all the work behind transactions involving companies. They help companies to raise money via the stock market, or advise them on what businesses to buy up or which businesses to sell. Working with accountants and lawyers, corporate financiers make sure that deals go smoothly. And very often, they do tons of work on a project that involves endless due diligence (see Due Diligence, Investment Bank – Mergers & Acquisitions).

Of course there are compensations for this very unsociable existence. Corporate finance departments get paid a truckload of money in fees, but before you get too envious, remember that they only get those dazzling fees if the deal comes off. When a transaction fails to materialize, these guys get a miserable little fee for all their blood, sweat and tears. Don’t you want to weep at the injustice of it all? Someone should set up a benevolent fund for burnt-out corporate financiers.

Corporate Governance

This is the posh-sounding phrase of the moment that basically stands for the management of a company ensuring that they act in the shareholders’ best interests, and at the same time do the ‘right thing’, ie, run it with integrity. It deals with very complex issues, like environmental stuff, so bad corporate governance would be doing something like dumping toxic waste into rivers even though it would technically enhance shareholder value, because of course doing that would save the company money, which in turn would mean there would be more money to pay dividends to shareholders. But it’s still a no no in good corporate governance terms. And of course Enron goes down in history as a company where corruption and hidden losses equalled very bad corporate governance indeed!


Not the Green Shield stamps you may remember collecting all those years ago. Nope. This is a physical coupon all right, in that you get to detach it, as you would a stamp from the perforated paper it is attached to. But the bit of paper in question is a bond. The coupon is one of a series that you have to detach from the bond to get its interest payments (see Bonds).

Covered Warrants Crash

A crash can follow an extended period when all share prices have been going up and up without any really good fundamental reason behind the rise, such as good growth in profitability. The excessive optimism and euphoria driving it has a manic feel (see Financial Manias) and everybody in the whole world seems convinced that the stock market is going to the moon. Then a bolt from the blue will strike that suddenly shatters this ebullient confidence. People get all fearful and insecure, and there is a stampede for the exit. The mass exodus out of shares causes a precipitous fall in share prices, which is called a stock market crash. These crashes, which happen from time to time, are exacerbated by the fact that the professional traders, who deal minute by minute and have nerves of steel, then see an opportunity to make money by heavily ‘shorting’ stock (see Short). And then the futures girls and boys wade in and do the same (see Derivatives – Futures, Hedge Funds), and the market plunges even more steeply, scaring investors even more. Small investors need to be strong-minded and often, instead of panicking out of good-quality shares, they’d be better off taking a big slug of brandy and doing what the professionals do, which is to take advantage of the weak market to buy the best-quality shares at the lowest possible prices.


Gulp. Let’s hope you keep these to the bare minimum. Your creditors are the people to whom you owe money. The creditors of a business are the people to whom the business owes money, such as suppliers, banks, H M Revenue & Customs etc.

Credit Rating

It’s not just you and me who are checked out for our creditworthiness, but companies and countries are too. This is because they borrow money (in the form of bonds and loans) on such a large scale, that the lenders like to have some idea as to how likely, if at all, the borrower is to default. So three main credit rating agencies (Standard & Poor’s, Moody’s and Fitch IBCA) check out their creditworthiness. These agencies have teams of number crunchers continually analysing and sweating over company accounts and the like. In doing so they’re assessing how risky it is for you and me to lend our hard-earned cash to various borrowers. They have devised scoring points to assess the riskiness of lending. The highest rating is usually triple A (AAA) to indicate minimal credit risk, and the scale goes steadily down as the risk of lending increases (see AAA, Bonds, Corporate Bonds, Gilts).


Not the pale-blue toothpaste that’s guaranteed to prevent your teeth dropping out, but a paperless system of dealing with the settlement of shares. Settlement is the tedious, but necessary admin that’s required when you’ve bought or sold shares. You can hold these on electronic file with CREST if you choose. Alternatively, if, like me, you rather enjoy owning bits of paper called share certificates, CREST obligingly sends those out to shareholders, too. The system is run by CrestCo Ltd, now owned by the Euroclear group, website: (see Account, Dematerialized Shareholding, Settlement).


In a Stock Exchange sense, this just means ‘with’, as opposed to ‘without’.


When you buy shares that are quoted ‘cum-capitalization’, it means you are entitled to get the freebie or ‘bonus’ shares that the company has just issued to its existing shareholders (see Bonus Issue). The financial press symbolize the term as ‘cc’ and it’s found next to the share price details in the newspaper (see Ex-Capitalization).


When you buy shares or bonds and they are ‘cum-dividend’, this means that you, as the new owner of them, are entitled to receive the next dividend to be paid. The financial press symbolizes the term as ‘cd’ and it’s found next to the share price details in the newspaper (see Ex-Dividend).


When you buy shares ‘cum-rights’ it means you have the right to participate in anything that’s going on with the company specifically at that time. It could be a rights issue, a bonus issue or a dividend payout, etc. When you are not entitled to these things it’s called ‘ex-rights’. In the financial press, cum-rights is signalled as ‘cr’, and ex-rights is ‘xr’ (see Ex-Rights).

Cumulative Preference Shares

These are preference shares with a little extra safeguard attached. If the company that issued these experiences a problem in paying its dividends to shareholders, then as soon as it can pay dividends again, cumulative preference shareholders are in line to receive any outstanding dividends before ordinary shareholders do so (see Preference Shares).

Current Account

Economic-speak. This describes how much money comes in and out of a country in terms of short-term trade flows, ie, goods and services, etc (see Capital Account).

Current Assets

Accountancy-speak describing those things owned by a business that most closely resemble cash in its portfolio, or could become cash in a short period of time, usually within one year. It includes cash, of course. They are to be found in the balance sheet of a company’s accounts.

Current Liabilities

What a business owes other people, and which are due to be paid within one year. The numbers are to be found in the balance sheet of a company’s accounts.

Current Ratio

This is yet another City number to crunch. It’s a relation of the acid test ratio. The purpose behind it is to give a very rough and ready guide to see whether a business is solvent, ie, has enough cash to pay its bills. It’s a nice easy one to wrap your head around, thank goodness. The mathematical equation is:


Obviously, a number greater than one is good, whereas less than one starts to look a bit shaky. The acid test is simply a more stringent version of the current ratio (see Acid Test Ratio, Current Assets, Current Liabilities, Ratios).

Cycle – Business/Trade

Economies go up and down in cycles. At least that’s what history shows us. There are good times and bad times; periods of boom followed by bust and recession.

The stock market anticipates the future, so when people put money into shares it is because they expect the companies they are investing in to increase their profits, hence they expect the outlook for the economy to be buoyant. Billionaire trader George Soros very convincingly argues that the stock market not only anticipates the future but actually affects the outcome. So you could say that economic cycles are influenced by human mass psychology. When we are happy and optimistic about the future, we see everything in a positive light and tend to spend much more and keep splurging. This pushes the stock market higher, we feel even wealthier, and then start to borrow money. This usually creates a debt spiral, as we borrow more and more until something happens that acts as a catalyst to change the mass mood. When we fear what the future holds and our confidence vanishes, we pull our belts in and slow right down on the spending front. In this scenario, the world seems to be coming to an end. This negative sentiment is reflected in the sluggish economy, and is otherwise known as a recession (see Bear Market, Boom/Bust, Bull Market, Kondratieff Cycle).

Cyclical Shares

These are shares that are very sensitive to changes in the economic cycle. When times are good they flourish and when times are bad they suffer adversely. Examples are building companies, manufacturers and luxury goods makers. Lots of investors try to outsmart the market by watching these shares to try to guess when the next economic upturn or downturn is coming. This is a pretty risky way to make decisions about investing in shares. For one thing, the market can and does get it wrong. So it’s better to buy shares that have a convincing story over the long haul, and which are not subject to the vagaries of fashion, whim or market sentiment (see Defensive Shares).

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