Day Rates
Day rates are the rates a drilling contractor receives for a drilling rig from an oil company, or operator. Oil companies and contractors will typically agree on a total price for a contract. By dividing the total contract cost by the number of days in a contract, drillers come up with their dayrates. They fluctuate widely, but are a big indicator of the health or tightness of the drilling market — look out for fleeing investors if a dayrate is even slightly lower, no matter what the circumstances!
Delisted
When a company’s stock is removed from an exchange, it is delisted. The reason may be good, such as the company merged with another or decided to switch exchanges. But reasons may also be bad — not abiding by exchange rules or no longer meeting financial or size thresholds for continued listing.
Requirements vary on different exchanges, but one example often mentioned is that on the Nasdaq, share price has to remain below $1 for 30 consecutive trading days for a company to be delisted based on share price alone. Companies, however, may appeal, probably arguing that they will soon be in compliance, so the delisting process can be lengthy.
Derivatives
Securities whose value is derived from a separate underlying asset. Examples of derivatives are: collateralized mortgage obligations (CMOs) and other types of mortgage-backed securities, interest-only (I/O) and principal-only (P/O) strips derived from debt instruments, and other types of asset-backed securities.
Devaluation
A currency devalues when its value declines in relation to one or more other currencies. Let’s say that on Monday $1 bought five rubles and that today, after the devaluation, it buys 10 rubles (not actual figures). Under this scenario, the ruble has devalued by 50%.
Why do countries let their currency fall in value? Well, some do it on purpose, usually to try to boost their exports and decrease their imports.
How does that work? Let’s imagine I’m a Russian vodka exporter and I charge 100 rubles per bottle. On Monday, one bottle cost foreigners $20 (100 divided by five). Today, at the new exchange rate, one bottle costs $10 (100 divided by 10). In theory, Russia sells a lot more vodka and other goods because they are cheaper in dollar terms — and exports go up.
At the same time, foreign goods become more expensive to locals with rubles, so imports go down.
However, sometimes devaluations are forced on a country when it can no longer defend its exchange rate. Russia, before its devaluation, was spending dollars and buying rubles to try to keep the ruble at the rate it wanted. But, the market kept selling rubles, and the government was in danger of running out of dollars. Therefore, it gave up and let the ruble-selling continue unabated, and, of course, its exchange rate to the dollar decreased.
Devaluations can have a lot of negative effects. Inflation can go up. Foreign debts become more difficult to service, and they reduce confidence among the people in their currency.
Diluted Earnings
Earnings per share calculated as net income divided by the number of common shares if all warrants and stock options were exercised and all convertible bonds and preferred stock were converted. This, as opposed to basic earnings is now the accepted earnings number on which analysts should publish estimates and with which investors should calculate price-to-earnings ratios.
Distressed Securities
When a company falls upon hard times and its stock and bonds fall in value, they are said to get into distressed level. These securities then become attractive to distressed investors, commonly called “vultures,” who hope to gain if the company’s fortunes improve. (And a whole slew of bankruptcy lawyers who hope to gain if the company’s fortunes don’t improve.)
Diversification
A risk-reduction method by which you spread your assets among many different investments. The idea is that if you have some money in, say, a big-cap fund and some in a small-cap, then you’ll get the gains of whichever class is outperforming at the time. Another way to think about it: Don’t put all your eggs in one basket.
The mighty Dow. This stock index, first set by Wall Street Journal founder Charles Dow back in 1896, is the litmus paper that the world uses to test the U.S. stock market. Not that it’s very good litmus paper — there are only 30 components in the index that Dow Jones oversees, and they are not weighted by their market capitalization.
Occasionally Dow Jones will fiddle with the index a bit — when that happens, the stocks being added generally get a boost from their addition to index funds and the like. In 1999, Dow Jones booted Old Economy stalwarts such as Sears and Goodyear in favor of newer names including Microsoft and Intel — the Dow’s first two Nasdaq issues.
Dogs of the Dow
Also known as the Dow Dividend theory. An investing strategy that entails rating Dow stocks by dividend yield from highest to lowest at the beginning of each year and then buying equal dollar amounts of the top 10.
Each year, dividend yields are recalculated, new stocks in the top 10 are added and ones that don’t make the cut anymore are sold. Kinda kooky, but since it was first formulated in the book Beating the Dow back in 1972, its made investors enough money that the “dogs of the Dow” theory puts buying and selling pressure on stocks at the beginning of each year.
Dollar-Cost Averaging
An investment strategy by which the fund-holder invests fixed sums over time systematically, without regard to the share price at the time. The idea is that by setting aside a dollar amount, rather than focusing on share price, you end up buying more shares when the price is low and fewer when the price is high.
Truth is, if you have the skill, and luck, to market time, you’re probably better off trying to market time. But few have the skill and luck, so dollar-cost averaging is a next-best strategy.
Downstream
“Downstream” refers to oil and gas operations after the production phase and through to the point of sale, whether it be the gas pump or the home heating oil truck. Most major oil companies are known as “integrated” since they combine the “upstream,” or exploration and production aspects of the oil industry with downstream operations, including oil refining and marketing or natural gas transmission and distribution.
Duration (Bond)
Duration is an approximate measure of a bond’s price sensitivity to changes in interest rates.
If a bond has a duration of 6 years, for example, its price will rise about 6% if its yield drops by a percentage point (100 basis points), and its price will fall by about 6% if its yield rises by that amount.
A bond’s duration changes with time and as its price and yield change, however.
Why? Duration measures the time it takes to recover half the present value of all future cash flows from the bond. The discount rate for calculating the present value of the cash flows is the bond’s yield. So as a bond’s price and yield change, so does its duration.
For example, a bond with 10 years till maturity and a 7% coupon trading at par to yield 7% has a duration of 7.355 years. At a yield of 6% (price 107 14/32), its duration is 7.461 years. At a yield of 8% (price 93 7/32), its duration is 7.246 years.