TERMINOLOGY
C
COMPOUNDED ANNUAL GROWTH RATE (CAGR)
CAGR, or Compound Annual Growth Rate, is a handy way to figure out how much an investment has grown each year on average over a certain period. It's like saying, "If my investment grew at a steady rate every year, what would that rate be?"
Here's how you calculate it:
Take the value of your investment at the end of the period.
Divide it by the value at the start.
Raise the result to the power of 1 divided by the number of years.
Subtract 1.
CAGR smooths out the ups and downs to give you a clear picture of your investment's average annual growth. It makes it easier to compare the performance of different investments over time.
G
GLOBAL FINANCIAL CRISIS (GFC)
A Global financial crisis is a severe worldwide economic crisis that represents a period of extreme stress in global financial markets and banking systems. Typically the term “GFC” is now used to denote the market declines over late 2007 until early 2009.
P
PRICE-to-EARNINGS (P/E) Ratio:
If your company sells 10 apples for $10 each every year and each apple makes you $4 profit, you earn $40 of profit (“earnings”) annually. If someone is willing to buy your company for $200, they are prepared to pay a P/E ratio of 5X because 5 x $40 = $200.
PRICE-to-SALES (P/S) Ratio:
If your company sells 10 apples for $10 each every year, you make $100 of sales. If someone is willing to buy your company for $200, they are prepared to pay a P/S ratio of 2X because 2 x $100 = $200.
S
SURVIVORSHIP BIAS:
Survivorship bias in investments occurs when performance data only includes surviving or successful investments (funds, individual stocks, etc.), ignoring those closed/merged/bankrupted due to poor performance. This skews average performance statistics upward, creating an overly optimistic view of a investment strategy's success and misleading investors by excluding the failures from historical records.
T
TURN-AROUND INVESTMENTS:
When a company has been performing poorly as a business (losing money, losing customers, operates in dying industry, etc.) but there is a change to new management, or a new product developed, or some other significant trigger that (hopefully) turns the ship around. Some investors look for these situations and buy, expecting that if the business will improve in future, then the stock price should improve accordingly. Ability to assess the cause of poor performance, and the likelihood of success of any changes made, as well as a keen sense of timing, are critical to make this investment style work.
TWRR - Time-weighted Rate of Return
A method of measuring portfolio performance that ideally demonstrates the stock-picking ability of the investment manager, as it eliminates the distorting effects of cash additions and withdrawals to a portfolio. For a full mathematical description of how TWRR is calculated, see here.