Is a snap shot of the company’s financial situation at a point in time. It’s calculated by subtracting its debt and financial liabilities from its cash.

A group of financial securities that are managed by an investor (whether singular

or plural ie one person or a number of people). The portfolio might include stocks, bonds,

commodities, cash and funds, such as exchange traded funds or ETFs. (See Diversified

Portfolio).

An exchange traded fund or ETF is a fund traded on a stock exchange whose value is linked to an index. We prefer a market linked ETF to other forms of specialised ETFs that

may have higher undisclosed risks.

When a company makes a profit, it must pay a corporate income tax, which in Australia is 30%. The remaining profits can then be divided and sent to investors as a dividend. As the company has already been taxed on these profits, the Australian tax system allows the company to provide a ‘Franking Credit’, which reduces the tax investors pay on those dividends by the rate that the business paid in tax. At a very simple level, it stops your dividend from being taxed twice, and depending on your personal tax rate, can offset your own tax. This leaves more money in investors’ portfolios to invest in the market.

Not every company provides full or partial franking credits however, so it’s important to check.

A debt obligation issued by the United States government with a maturity of 10 years following the issue date. The note pays coupon or interest payments once every six months. The bond’s yield is based on anticipated inflation and is the key benchmark for interest rates world-wide, as well as a factor influencing the price of stocks.

Someone who buys an asset that is out of favour by the majority of investors. This is typically indicated by a lower than average price earnings ratio.

A term first coined by Benjamin Graham in his 1949 classic, The Intelligent Investor, which refers to buying a fixed dollar amount of a stock on a regular basis, which means you are buying more stock when prices are low and less stock in volume terms when prices are relatively high. No judgement is required on the part of the investor as to value. It is important to note that we advocate using Dollar Cost Averaging for market linked ETFs.

Is a portion of the company’s earnings that is paid to shareholders. Dividing this amount by the number of shares gives you the dividend per share (DPS).

Is the dividend, or DPS, expressed as a percentage of a current share price. It is normal for it to range from 1%-6%

A portfolio which contains a variation of investments, which reduce the overall risk of each individual investment.

The value of the expected cash flows generated by an asset discounted back to today’s value at a rate of interest appropriate for the risk of that asset.

A segmented portion of the stock market that encompasses companies with similar business activities. Examples include healthcare, mining and technology.

Offered directly from the company, where the investor does not receive dividends directly as cash; but instead are directly reinvested in the stock, usually at a slight discount such as 1%. The investor must still pay tax annually on the dividend income, whether it is received as cash or reinvested. The investor is also eligible for any franking credits offered by the company.

The process of reducing risk by buying assets whose returns are uncorrelated.

This is the actual money received and paid by the company and is sort of like truth serum.

Look for mis-matches, which can highlight fundamental differences between the story a company is selling to investors, versus what is actually happening. E.g. increasing inventories or debtors.

Net Profit After Tax after the significant or abnormal and extraordinary items. It is useful because it shows how much the company has made after subtracting all its expenses. From this amount, dividends are distributed.

The P&L is a summary of the revenues and expenses over the period, which STATEMENTS culminates in the bottom line profit or loss after tax.

Is the dividend, or DPS, expressed as a percentage of a current share price. It is normal for it to range from 1%-6%

Investing in stocks that appear to be trading at less than their fundamental value, which is based on the stream of cash flows forecast to be earned, discounted back to today’s value in dollar terms.

Calculation whereby returns are increased by interest on reinvested interest, expressed as a percentage.

Investing in stocks that are achieving above average growth, even when the share price appears expensive on the basis of forecast price earnings multiples.

The rate of increase in consumer prices, commonly measured by the consumer price index (CPI).

Australian Securities Exchange* – Australia’s market place or stock market for buying and selling listed securities, which include stocks, funds and derivatives, such as options.

Each security has its own specific code.

*also a listed company itself on the ASX with code, ASX.

FTSE – The UK’s market for buying and selling listed securities.

Companies that are listed on a stock exchange, in Australia’s case the ASX, which have market capitalisations of less than $500 million. Known for their growth potential.

A listed company issues shares of its stock for trading on a stock exchange. If a company is listed in Australia it is generally listed on the ASX, although other exchanges exist. The company has met the requirements of the Australian Securities & Investments Commission (ASIC) for selling shares to the public and has been accepted for trading onto the ASX, or other exchange. In the US, it has met the requirements of the Securities and Exchange Commission (SEC) and the exchange might be the New York Stock Exchange. It is a public company and each has its own code, typically 3 letters on the exchange. Eg. Commonwealth Bank of Australia has the ASX code CBA.