Investing Vocab

Here's the full glossary — every term and phrase that appears anywhere in the quiz, including the wrong answers.

Bull market — A sustained period of rising stock prices, typically defined as a rise of 20% or more from a recent low. Investor confidence is high and optimism dominates.
"We've been in a bull market for three years — even cautious investors are seeing strong returns."

Bear market — A prolonged decline in stock prices of 20% or more from recent highs, usually accompanied by widespread pessimism.
"During the bear market of 2008, many investors panicked and sold at exactly the wrong time."

Correction — A short-term price decline of 10% or more from a recent high. Less severe than a bear market and often seen as a healthy reset.
"The market correction lasted six weeks before prices started recovering."

Recession — A significant decline in economic activity across the economy, typically defined as two consecutive quarters of negative GDP growth.
"During the recession, consumer spending dropped sharply and unemployment rose."

Dividend — A payment made by a company to its shareholders, usually from profits. Can be paid in cash or additional shares.
"She invested in stable blue-chip companies specifically because of their reliable dividend payments."

Bond — A debt instrument issued by a company or government. You lend them money and they pay you back with interest over a set period.
"He moved part of his portfolio into government bonds to reduce his exposure to stock market risk."

Yield — The income generated by an investment, expressed as a percentage of its cost or current value. Commonly used for bonds and dividend-paying stocks.
"The bond had a yield of 4%, meaning he earned £40 per year on every £1,000 invested."

Premium — The amount by which an asset trades above its face or intrinsic value. Also used in options trading and insurance.
"Investors were paying a premium for shares in the company because of its strong growth prospects."

Stock / Share — A unit of ownership in a company. Owning shares means you own a small percentage of that business.
"She bought 50 shares in the company and became a part-owner, entitled to vote at the AGM."

Index — A benchmark that tracks the performance of a group of stocks. Used to measure market health or as a basis for index funds.
"The index fell 3% on Monday after unexpectedly poor jobs data was released."

Diversification — Spreading investments across different assets, sectors, or geographies to reduce risk. If one area falls, others can compensate.
"After losing money on a single stock, he learned the importance of diversification."

Passive investing — An investment approach that seeks to match — not beat — the market, typically through index funds held long-term with minimal trading.
"Her passive investing strategy meant she simply bought an index fund every month and didn't try to time the market."

Day trader — Someone who buys and sells financial instruments within the same trading day, attempting to profit from short-term price movements.
"Day trading sounds exciting, but most day traders lose money over the long term."

Value investor — An investor who looks for stocks trading below their estimated intrinsic value, on the belief the market has mispriced them.
"As a value investor, he was more interested in unglamorous, overlooked companies than the latest tech darlings."

Short seller — An investor who borrows shares and sells them, hoping to buy them back at a lower price and profit from the difference.
"The short seller bet against the company and made a significant profit when the fraud was exposed."

Dollar-cost averaging (DCA) — Investing a fixed amount at regular intervals regardless of market conditions. Reduces the impact of volatility on the average purchase price.
"By investing £200 every month, she used dollar-cost averaging to avoid the stress of trying to time the market."

Market timing — Attempting to predict market movements and buy or sell at the optimal moment. Widely considered unreliable even for professionals.
"He kept waiting for the perfect moment to invest — a classic example of failed market timing."

Value averaging — A variant of dollar-cost averaging where you adjust the amount you invest each period to keep your portfolio growing at a fixed target rate.
"Unlike DCA, value averaging required him to invest more when markets fell and less when they rose."

Momentum investing — Buying assets that have been rising on the assumption they will continue to rise, and selling those that are falling.
"The momentum investor rode the tech rally for two years before the sector reversed sharply."

P/E ratio (Price-to-earnings ratio) — A company's share price divided by its earnings per share. Used to assess whether a stock is over or undervalued relative to its profits.
"The company had a P/E ratio of 35 — high by historical standards, suggesting investors expected significant future growth."

Dividend yield — The annual dividend per share divided by the share price, expressed as a percentage. Shows how much income you receive relative to what you paid.
"The utility company offered a dividend yield of 5%, making it attractive to income-seeking investors."

Liquidity — How easily and quickly an asset can be converted to cash without significantly affecting its price.
"Property has low liquidity — you can't sell half a house overnight if you suddenly need cash."

Buy the dip — The strategy of purchasing an asset after a short-term price fall, on the expectation that the long-term trend is upward.
"When the market dropped 8% in a week, many retail investors saw it as a chance to buy the dip."

Contrarian investing — Going against the prevailing market mood — buying when others are selling and being cautious when others are euphoric.
"Her contrarian instincts led her to buy during the crash while everyone else was selling in panic."

Arbitrage — Exploiting price differences for the same asset in different markets to make a risk-free profit.
"Traders used arbitrage to profit from the momentary price difference between the same stock on two different exchanges."

Short selling — Borrowing a security, selling it immediately, then buying it back later at a (hopefully) lower price to return it and pocket the difference.
"Short selling is high risk — if the price rises instead of falls, your potential losses are unlimited."

EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of core operating profitability that strips out financing and accounting factors.
"Analysts compared the two firms using EBITDA because it removed the distorting effect of their different tax structures."

Asset allocation — Deciding what proportion of your portfolio to hold in different asset classes — such as equities, bonds, cash, and property.
"As she approached retirement, she shifted her asset allocation from 80% equities to 60% bonds."

ETF (Exchange-traded fund) — A fund that holds a basket of assets and trades on a stock exchange throughout the day, like a share.
"He bought an ETF tracking the S&P 500 rather than trying to pick individual US stocks."

Mutual fund — A pooled investment vehicle managed by a professional. Unlike ETFs, mutual funds are priced and traded once per day after market close.
"The mutual fund had a solid 10-year track record, but its annual management fee ate into the returns."

Net asset value (NAV) — The total value of a fund's assets minus its liabilities, divided by the number of shares. The 'true' per-share value of a fund.
"Mutual fund orders are executed at the end-of-day NAV, not the price at the moment you place the order."

ESG investing — Investing based on Environmental, Social, and Governance criteria, screening out companies that cause environmental or social harm.
"She chose ESG funds because she didn't want her money invested in fossil fuel companies."

Pairs trading — A market-neutral strategy where you buy one stock and short another related stock, profiting from the relative movement between them.
"The hedge fund used pairs trading — long on one airline, short on another — to profit regardless of overall market direction."

Thematic investing — Investing in a broad trend or theme (e.g. artificial intelligence, clean energy) rather than individual companies.
"His thematic approach meant he bought an entire clean energy ETF rather than betting on any single solar company."

Long/short equity — A strategy used by hedge funds that takes long positions in stocks expected to rise and short positions in stocks expected to fall.
"The fund's long/short equity strategy meant it could make money in both rising and falling markets."

Value investing — Finding and buying stocks that appear to be trading below their intrinsic value, as estimated through analysis of fundamentals.
"Value investing requires patience — the market may take years to recognise what you believe a company is truly worth."

Growth investing — Focusing on companies expected to grow faster than average, often accepting a higher P/E ratio in exchange for future earnings potential.
"Growth investors flooded into tech stocks during the 2010s, accepting sky-high valuations on the promise of future profits."

Index investing — Buying funds that track a market index rather than trying to select individual winning stocks.
"Index investing is the strategy most consistently recommended by financial economists for ordinary long-term investors."

Short selling (losses unlimited) — The key risk of short selling: because a stock's price can theoretically rise without limit, losses on a short position are potentially unlimited.
"He'd underestimated the risk — when the stock tripled in price, his short position resulted in catastrophic losses."

Volatility — The degree to which an asset's price fluctuates over time. High volatility means large swings; low volatility means steady, predictable movement.
"Cryptocurrency is known for extreme volatility — a coin might rise 40% one week and fall 50% the next."

VIX — The Volatility Index, often called the 'fear gauge'. It measures the market's expectation of volatility in the S&P 500 over the next 30 days.
"When the VIX spiked above 40, traders knew the market was in a state of serious anxiety."

Irrational exuberance — A phrase used to describe asset prices driven to unsustainable levels by investor enthusiasm and speculation rather than underlying value.
"Looking back, the dot-com bubble was a textbook case of irrational exuberance — valuations made no rational sense."

Reversion to the mean — The statistical tendency for extreme performance to move back toward the long-run average over time.
"After three years of exceptional returns, analysts warned that reversion to the mean was likely — and they were right."

Catching a falling knife — Trying to buy an asset that is still falling sharply in price, risking buying in before the bottom is reached.
"He tried to catch a falling knife by buying shares in the collapsing retailer — and lost another 40% within a month."

To the moon — Informal slang for an asset whose price has risen dramatically and rapidly.
"When the meme stock tripled in a week, retail investors on social media were convinced it was going to the moon."

Don't put all your eggs in one basket — An idiom capturing the principle of diversification — if everything is in one place and it fails, you lose everything.
"His financial adviser's first piece of advice was simple: don't put all your eggs in one basket."

A rising tide lifts all boats — The idea that when a sector or theme does well, most companies within it benefit — the basis of thematic investing.
"During the AI boom, a rising tide lifted all boats — even mediocre software companies saw their share prices double."

Be fearful when others are greedy, and greedy when others are fearful — Warren Buffett's encapsulation of contrarian investing: the best opportunities arise when everyone else is panicking.
"She kept Buffett's quote on her desk as a reminder not to follow the crowd when markets turned volatile."