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Decoding the investments lingo

Decoding the investments lingo

By Chrissi Morillo, SunLife

 

Oftentimes, when a layperson is approached by someone who would talk about opportunities of being invested in the market, we get one of two responses: a wave of a hand, not to indicate a welcoming remark but instead means “not interested”, or a puzzled look.

 

This resistance from prospective investors, when asked, actually point to one prevailing reason –investing is perceived to be just too complicated to understand, especially given the highfaluting words and inconceivable figures of speech being used in the discourse.

 

I had the chance to prove this myself by doing a casual survey with some family and friends.

 

Most terms used in the financial industry seem intimidating, especially with the regular use of Greek letters, such as alpha and beta.  While in the book of Revelation, alpha is used to mean “first”, nothing to that effect is implied in its investments application as a gauge of performance on a risk-adjusted basis; so does beta being “second”, even if it logically follows alpha in the Greek alphabet.  Beta is a statistical measure used to ascertain the tendency of a security’s returns to respond to swings in the market.

 

On the other hand, the term inflation is actually a staple in market update presentations and business news, but is still seen as a big word by many.  It aptly derives from the word “inflate” as it indicates an increase, although not to be confused as “a sudden increase in the value of investments.”  On the contrary, inflation does otherwise.  Inflation, simply put, is the increase in the overall prices of goods and services in the economy.  This phenomenon of inflation is actually one compelling reason to prefer investments over your regular bank savings account.  Case in point, a regular savings account earns below 1% per annum in interest, while overall increase in prices is seen by the government to average at 4.64% this year.  Hence, essentially, money kept in savings accounts loses its value over inflation – the interest earned actually barely covers for the increase in consumer prices.  Key learning from this would be: enhance, or at least preserve, the value of your money by looking into investment products that at least give you a return that beats inflation.

 

Aside from the highfaluting financial jargons, investment professionals, fondly use metaphors and interesting acronyms, particularly in technical (or charts) analysis.

 

MACD is not the short name or ticker, in investments parlance, for the publicly listed stock of McDonald’s in the U.S; neither does it stand “for Market Asset Company Dividends”.  Chartists use the MACD (Moving Average Convergence / Divergence) as one of the indicators to predict price movements of stocks, commodities, and exchange rates, among others.  It shows momentum of price increases, or alternatively, declines; thus, the call for a “buy”, or “sell”, respectively.

 

Dead cat bounce does not have anything to do with bounced checks, which are returned due to insufficient funds or uncollected deposit.  Technical analysts use the metaphor dead cat bounce to regard a short rise in price followed by a price decline of a stock, derived from the idea that “even a dead cat will bounce if it falls from a great height”.  It is specifically described as a continuation pattern that looks in the beginning like a reversal pattern, but would eventually decline further from the prior low.

 

Decoding the investments lingo indeed takes some effort.  Unfortunately, human instincts would dictate: do not get into something you do not understand.  Hence, we just lose the prospective investor, just right there; without even getting to the next level of introducing the available investment products that would actually satisfy their various needs.

 

This phenomenon of shying away from the perceived complex world of investments is reflected in the recent statistics: last year, total assets held in trust and those managed by investment companies in the Philippines amounted to PhP 2.46 trillion, 28% lower than the PhP 3.43 trillion maintained in bank deposits. Moreover, in 2008, the Philippine Stock Exchange reported that less than half of 1% of Filipinos make investments in the form of equities.

We have allowed many good investment opportunities pass us by.  It’s time to break the barriers of investing.

 

A lot of financial institutions engaged in the business of asset management have started their financial literacy advocacies to promote awareness of the benefits of investing.  Hopefully, all these efforts will bear fruit as we see continuous growth in the industry that advances financial freedom for Filipinos.

 

A myriad of opportunities await those who finally decide that it’s time.  Put your money where it rightfully belongs.  Start investing now.

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