J Curve To Long-Term Investment (Money)

J Curve

Economic gobbledygook for things getting worse before they get better, following an event like the lowering of interest rates. It’s a funny J-shaped squiggle on a chart. The reason why this economic phrase has its name is because the bottom of the letter ‘J’ dips down and then goes up!

Jobbers

In the good old days, long before deregulation, the City was a much smaller pond than it is now. It was a cosy little club and there were clearly defined lines between different functions. The jobber was a principal, ie, he risked his own capital buying and selling shares. Stockbrokers would come up to him and ask, ‘What’s your price in Bloggins plc?’ and the jobber would make and give a price. How would he know what price to make? you ask. Sheer mathematical genius? Actually, no. He would be tuned in to the supply and demand for a particular share, and would adjust his prices accordingly. It was all very civilized (well, most of the time) and business transacted took place on the Stock Exchange trading floor. Things changed dramatically with the advent of the deregulation of the UK stock market (Big Bang) in 1986. Fixed commissions were abolished and the City opened its doors wide open to anyone who had enough capital to set up a brokerage firm. Today, all the jobbers have been absorbed into large, conglomerate-style banks that are multifunctional – they are stockbrokers, jobbers, corporate financiers, even bond issuers all rolled into one. You name it; these large corporate monoliths do it. Jobbers are now known as market-makers (see Chinese Walls, Dual Capacity, Market-Maker, Single Capacity).


Jobbing Backwards

Something we all do, but shouldn’t. It’s when we say things like ‘If only I had bought shares in Microsoft ten years ago I’d be a multimillionaire by now’ or ‘If only I had known that Groggle plc shares were a complete dog, I would never have bought them’. Jobbing backwards is when we use the benefit of hindsight to make ourselves completely miserable as we contemplate things we should or shouldn’t have done! However, I concede that it is useful to analyse one’s investment cock-ups, if only to ensure that they won’t happen again. And reading this topic from cover to cover will help you down that hallowed path! But once you’ve dissected where and why and how things went horribly wrong, move on, and don’t allow the bitter taste of regret to affect your future investment judgement calls and decisions. If I had a tenner for every ‘If only!’ I’ve uttered in my short little life I’d be ridiculously rich by now!

Junk Bonds

Like junk food, these are bonds that make you feel momentarily good but can have nasty side-effects afterwards. As the name implies, they are not the creme de la creme on offer to investors in the bond world. More like curdled creme. Junk bonds should carry a high-risk health warning. In order to compensate investors for this higher risk, the borrowers who issue them (companies that are on a shaky financial footing) pay a higher rate of interest than the more solid, safe ones. But buyer beware (caveat emptor for all you posh Latin speakers). The sexier it looks the riskier it usually is. Me, I do not have the bottle to put my money in this type of investment. Other more swashbuckling types who like to take big bets may find these attractive. More seriously, these bonds have poor credit ratings (see AAA, Bonds, Credit Rating, Mezzanine Finance).

Kondratieff Cycle

Nikolai Kondratieff thought up the Kondratieff Cycle long before Sir Clive Sinclair invented the electric version. He was a pretty clever Russian who measured the big up and down undulations of the world economy. He basically observed that it has a tendency to make big up and down swings every 50 to 60 years or so. The Great Depression in the 1930s was the last major downward leg. Obviously, in between these super-cycles pinpointed by Kondrati-eff, he identified lots of little mini-cycles, up and down blips of global economic activity. If his thesis were correct, it would imply that we’re due for a serious downswing sometime soon. The only problem is that history doesn’t necessarily act as an accurate guide to the future. For example, it is possible that the time span of these super-cycles has lengthened. Which would mean a major economic glitch might be several years away. In any case, there seems little wisdom in panicking unduly yet. Incidentally, Kondratieff was awarded a special prize for his intellectual prowess. An extended stay at Stalin’s luxurious Siberian salt mines!

Lagging Indicator

Economic-speak. It describes economic indicators whose numbers are published after the event. An example: inflation figures for April don’t show up in government statistics until June, so it is a lagging indicator (see Leading Indicator).

Leading Indicator

Anything that seeks to project forward into the future is a leading indicator; hence the stock market is one. Why? Because if it starts to drop heavily, it could be warning us of worse economic times to come, such as a recession.

As well as doing a spot of crystal ball gazing, City economists zealously focus on specific lagging government statistics in order to try and predict the future. So lagging indicators can also be leading ones! These statistics are usually issued monthly and include stuff like manufacturing output, the retail price index (see Retail Price Index – RPI), producer price index and many others that you really do not need to worry about just now. The month-by-month numbers mean nothing in themselves. The main thing to note is that the City whiz-kids are looking for a trend that will give them valuable clues about the future direction of the country’s economy. Every so often they throw a complete wobbly about, for example, a higher than expected RPI number – this is an indicator of inflation. They run around like headless chickens in horror and panic, and the stock market takes a dive. The funny thing is that for ages no one pays attention to these numbers. Then out of the blue, they take on an earth-shattering significance and have a major, albeit short-term, influence on the market.

Life Insurance

While I, as a single person, naturally debate the usefulness of a form of insurance that will only pay out when I am dead, there are millions of others who disagree and see it as a jolly useful thing, especially when the assured has a family to support. There are some that might wish to leave a handsome legacy to their pet duck or iguana, and who am I to cast a downer on such care and concern? Here are some of the different kinds of life insurance:

1. The cheapest and most straightforward type of life insurance is called ‘term assurance’. It assures a payout of a lump sum of money if you are unlucky enough to drop off the perch within a pre-agreed period (also called the ‘term’). However, it pays nothing if you have the temerity to survive that designated period. It is a very useful type of cover to protect your loved ones from being left horribly in the lurch if a bolt from the blue zaps you out of existence. It will assure things like the mortgage and school fees being paid, and prevent those left behind from experiencing dire penury. My instinct is that it’s usually best to take out more cover than you think you actually need.

2. Another type of life insurance covers you whilst you are alive. The most common variety is ‘whole of your life insurance’ and it is designed to pay out to your beneficiaries. There are about 500 policies to choose from and this tends to be more expensive as the policies have to pay out, regardless.

3. Then there is an endowment, ie, a life insurance policy that invests the premium money in funds. This life assurance policy pays out or ‘matures’ on a pre-agreed date, regardless of whether the policyholder dies or not. This is an altogether trickier proposition and one that needs careful thought (see Endowment).

Limited Liability

You’ll be thrilled to know that if you own shares in a limited liability company that goes belly up, you only lose the money you originally invested in the first place. Unlimited liability is the converse, and is really bad news. This is definitely NOT something you want to be a part of, because it means that if you are an investor in a company that goes bust, you’re liable for ALL its losses and debts.

Liquid Assets

Assets that you or a business possess that are closest to cash.

Liquidation

Sounds nasty, and guess what, it is! This is the rather squelchy word used to describe a business that has been forced to close, ie, gone bust. Official liquidators, who are usually accountants looking nothing like Arnold Schwarzenegger, are appointed to the business that’s writhing in its death throes to pick through the bones of what they can sell off and what they have to write off as unsaleable. They’re doing this unpalatable job to repay the people to whom the liquidated company owes money, ie, its creditors. These folks are repaid according to strict rules. For a list of the order in which shareholders of bankrupt companies get paid out, look under Shares (see Bankrupt, Receiver).

Liquid/Liquidity

It describes the ease with which you can get in and out of shares or indeed other investments. Therefore easily tradable things are known as liquid and things that are a real bugger to buy and sell are illiquid (see Illiquid).

Listing

When a company is brought to the stock market, it is ‘listed’ on the Stock Exchange. Another phrase meaning the same thing is ‘stock market quotation’ or ‘quote’.

Local Authority Bonds

Local authorities borrow money, just like the rest of us. The only difference is that they borrow tons more than we do. In return for getting their mitts temporarily on our cash, they give us a bit of paper called a bond promising to pay the loan back. In the meantime they pay interest on the money we’ve lent them, decent bunch that they are. The bits of paper are officially called local authority bonds or local authority stock. They have a lifespan of up to ten years. The only snag with these type of bonds is that although they behave just like other bonds, there is a very important distinction. You can’t flog them on to anyone else. They are not, repeat, not tradable on the stock market. This little fact renders them pretty inflexible. These type of bonds are really only useful for people who are happy to tie up their money for a long time and only expect a regular fixed income for themselves. They’re not suitable for those who might need sudden access to their cash in the near term. (See Yearling Bonds.)

London Stock Exchange Long

When a City type asks you if you are ‘long’ of something, do not feel embarrassed. It’s nothing personal. He is just making a friendly enquiry as to whether you are the proud owner of a particular share. This also applies to certain assets they (usually no longer) want. One example might be, ‘I’m long of an X-reg Porsche, great nick, CD player, Trafficmaster, hands-free mobile. Know anyone who’s short?’ Short naturally referring to the as yet unlucky individual who is not the proud owner of said Porsche (see Short, Square).

Longs

Also known as long-dated gilts, these are UK government bonds that have a lifespan of more than 15 years (see Gilts, Mediums, Shorts).

Long-Term Investment

This is all very subjective. To a trader, long term could mean a few minutes. To me, it means five to ten years. Sometimes when you’ve been stuffed into a share that’s been steadily dropping in value since you bought it, it becomes a long-term investment, ie, one you can’t afford to sell. The marketing blurb for funds always stresses the virtues of long-term investing, meaning at least five years. Yet fund managers are judged on their performance every three months. This short-termism is rampant in the City. So it’s no surprise that when a company delivers one set of bad results, the big players drop it like a hot brick and switch their attention elsewhere. The problem is that once the institutions have dumped the shares, it’s usually too late for you or me to sell our measly little holding in the same company. Bit like locking the stable door after the horse has bolted (see Short-Term Investment, Trader).

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