User Name Password Service
  Learning Center  |  Modern Portfolio Theory  |  FAQ  |  Glossary  |  Tara Home
 
   

A B C D E F G H I K L M N O P Q R S T U V W X Y Z

A

Actual Return - The net return on a capital investment since the inception date or since the last trade. Calculating time-weighted holding-period returns is the professional standard while a more intuitive dollar-weighted return calculation is more useful to an individual investor. TPS™ provides time-weighted, dollar-weighted, and geometric returns for its customers.

Adjusted Benchmark Strategy - A possible portfolio rebalancing strategy. This strategy combines the Benchmark Strategy with the Managed Strategy. First, the Benchmark Strategy signals a trade when the TPS™ portfolio is expected to outperform the Market Index. The Managed Strategy recommends a trade if the value of the TPS™ portfolio increases by the user-specified upper filter (default is 2%) or if it decreases by the lower filter (default is -1%).

Aggressive Strategy - This rebalancing strategy will trigger a trade if the scenario's expected return exceeds the current portfolio's expected return.

Alpha -The extent to which an asset or portfolio's actual return exceeds or falls short of the expected return - the expected return is a function of the stock or portfolio's Beta. When positive, alpha is often referred to as "extraordinary" or "abnormal" returns.

Analysts' Rating Change - This stock screening filter is based on reports compiled by Standard & Poor's. Using the basic search engine, an investor can screen for stocks with revised research analysts' forecasts.

Annual Target Return - The annualized rate of return an investor desires by managing his or her own investments. This annual target return is always compared to both the existing portfolio and a new scenario's expected return. If an investor sets his or her target return too high, the TPS™ engine will rarely suggest a trade. In addition, an investor should also consider that the higher the annual target return, the higher the implied risk; hence, fewer stocks will be included in the recommended portfolio.

Ask Price - The purchase price for a security. For example, if the ask price for IBM is $100 ½, an investor would pay $100.50 for each share purchased.

Asset Class - The category each asset or security belongs to (e.g. Large Cap Stocks, Small Cap Stocks, International Stocks, Bonds, or Cash).

Asset Allocation - The distribution of investment dollars among asset classes such as stocks, cash, bonds, etc.

Asset Constraint - A restriction placed on an asset, in terms of the minimum and/or maximum weighting allowable within a given portfolio.

Average Return - Historical average return on an asset or portfolio over some specified period of time.

Average Correlation - see Correlation.

Back to top

B

Back Test - This feature is unique to Tara Advisors Co. Back Test will test the historical performance of the Aggressive, Benchmark, Managed, Buy and Hold, or Adjusted Benchmark strategies. The Back Test function does not calculate the historical performance of a given set of securities. TPSTM assumes that market conditions fluctuate randomly; thus, using statistical analysis, the Back Test function tests rebalancing strategies as opposed to testing the performance of a given portfolio.

Balance Sheet - A snapshot of the investor's financial status. Figures in the balance sheet originate in the general ledger, where all account activities are credited and debited. The balance sheet is based on historical cost.

Basic Screen - Via the TPSTM Basic Screen, stocks can be screened by general categories such as industry, exchanges traded on, S&P stock groupings, etc.

Benchmark Strategy - An investor's goal to beat the overall market benchmark's performance. In a rebalancing recommendation using this strategy, the scenario's expected return will be greater than the actual and expected returns for both the current portfolio and the market benchmark. This strategy should only be used if the investor's goal is to beat the market benchmark regardless of whether he or she earns a positive return. Many fund managers choose this option as their performance is always judged relative to a specified benchmark such as the S&P 500.

Beta - The measure of risk associated with general market or economic conditions. This systematic risk cannot be "diversified away." Beta is used in the TPS™ engine to optimize portfolios of securities.

Bollinger Band - Average historical stock price ± one standard deviation. For example, if the average stock price during the last 25 days is $10 and one standard deviation is $5, then the Bollinger Band is between $5 and $15. Statistically speaking, the Bollinger Band indicates that there is a 67% chance the stock price for the next 25 days will be between $5 and $15. This option may be selected when using the Technical Screen to screen stocks. The Bollinger Band option on the Technical Screen selects stocks whose recent price exceeds the Bollinger Band.

Bonds - Fixed income debt instruments issued by governments or corporations.

Buy and Hold - A strategy for buying portfolios of equity securities or mutual funds with solid, long-term growth potential. The underlying value and stability of the investments are important, rather than the short or medium-term volatility of the market.

Back to top

C

Calculator Frequency - The frequency an investor invokes the TPS™ algorithm. Professional investors and traders can increase the frequency and lower their upper and lower limits to take advantage of short-term price changes. Clicking the "RUN" button on the TPS™ applet or application will manually invoke the Tara algorithms.

Capital Gains - A realized profit on the sale of an investment is considered capital gains. In a taxable account, capital gains are taxed at different rates depending on the holding period of the investments. A capital gain is categorized as long-term if held for more than one year, while a capital gain is short-term if held less than one year.

Cash - The TPS™ definition of "cash" is an asset which is highly liquid (i.e. easily bought or sold and converted into cash) and virtually risk-free. Money market funds are considered "cash" because investors can easily buy or sell shares of money market funds and because the return is almost guaranteed.

Cash Dividend - A cash dividend occurs when a corporation decides to distribute a portion of its earnings or profits to shareholders in the form of a cash payment.

Cash Flow for the Firm - Cash flows arise from the operating, financing, and investing activities of the firm. This is used in conjunction with share price data to compute the Cash Flow to Price Ratio in our Stock Screener. Please see, Cash Flow to Price (CPR).

Cash Flow for the TPSTM Portfolio Account - The general ledger generates all relevant financial statements, one of which is the Statement of Cash Flows. Click the "Cash Flow Statement" button on the right panel of our menu table to view changes in cash.

Cash Flow to Price (CPR) - Computed by dividing the firm's per-share cash flow by the price per share. This is a possible search criteria in the Stock Screener's selection of candidate stocks for a portfolio. Investors with an interest in value stocks often consider this ratio. Note that the higher the CPR, the lower the expected return on the investment.

Cash Rate - This is the interest rate earned on an investor's cash account with his or her broker. Note that this rate of return is used when computing the portfolio's rate of return, since a portfolio consists of both cash and securities. The TPS™ engine assumes that the interest earned on cash accounts is equal to the yield on a 3-month Treasury bill. Securities' expected return is probably higher than the cash rate.

Cash Retained or Minimum Cash Reserves - Cash position as a percentage of the TPSTM portfolio.

Commission - The fee paid to a broker to execute a trade, based on the number of shares, bonds, options, and/or their dollar value.

Compounding - Compounding refers to the reinvestment of returns, whether the returns are interest income, bond income or dividends from stocks or mutual funds.

Constraint - Restriction (See Asset Constraint).

Correlation (Coefficient) - Correlation measures how two assets' returns move together. Two assets that are perfectly negatively correlated (-1) tend to simultaneously move in opposite directions. Two assets that are perfectly positively correlated (+1) tend to simultaneously move in the same direction. A correlation of 0 indicates that there is no relationship at all between the price movements of two assets.

Back to top

D

Defined-Benefit Plan - An employer's promise to pay employees a fixed amount each year at retirement. Regardless of the rate of inflation, employees will receive a pre-determined amount.

Defined-Contribution Plan - An employer contributes a stated amount of money each year to a retirement account (such as a 401(k)) for its employees. Employees are usually responsible for choosing investments in these accounts. Income taxes are deferred for contributions or earnings until the proceeds are withdrawn after age 59 1/2.

Dietz Return - Simplified or "rule-of-thumb" return for the Dollar Weighted Return (DWR). This return computes the Internal Rate of Return (IRR) on an investment based on various cash flow activities including cash investments and withdrawals. Please see DWR. TPSTM monitors all cash flows into and out of an account. This return is the true return on an investment, apart from the holding period return often used by a portfolio manager. The Dollar Weighted Return is normally lower than the Time Weighted Return (holding-period return). If there are no cash withdrawals or deposits, DWR and TWR are equal.

Diversification - Investing in negatively correlated securities to avoid excessive exposure to market risk. In general, a portfolio is considered diversified with 15-20 stocks; however, in addition to the number of assets, it is important to include stocks or funds that are not highly correlated.

Dividend Yield - The annual dividends paid by a company divided by its stock price. For example, if a company with a stock price of $100 paid a total annual dividend of $1 a share, its dividend yield is 1%. The dividend yield is also referred to as the current yield and is expressed as a percentage.

Dollar Weighted Return - Represents the investor's true return on his or her investments when all cash deposits and withdrawals are taken into account. This calculation resembles the internal rate of return based on uneven cash flows. Also see Dietz Return. TPSTM calculates the true return on an investor's portfolio by looking at cash flows. This measures the rate at which an investor's wealth has actually grown. The Dollar Weighted Return (DWR) is approximated by the Dietz Return.

Dow Jones Industrial Average - DJIA. One of the oldest and most widely quoted market indicators. The DJIA is made up of 30 blue chip stocks selected by the editors of the Wall Street Journal. The DJIA is a price-weighted index. That means that each stock's proportion in the index is determined by its price per share. The higher the price, the more the stock contributes to the overall index.

Back to top

E

EDGAR - Electronic Data Gathering and Retrieval. The Securities & Exchange Commission (SEC) uses EDGAR to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.

Efficient Frontier - A set of portfolios that maximize expected returns at each level of portfolio risk. Each point on the Efficient Frontier curve represents a portfolio that achieves the highest return at a given level of risk.

EPS - Earnings Per Share. Total earnings divided by the weighted-average of the number of common shares outstanding. Earnings per share can be stated for a specific period of time, such as quarterly.

Equity in the TPSTM Portfolio Account - Total assets less liabilities in an investor's account. If there are no margin purchases nor short sales, the assets in the portfolio account will be equal to equity. TPSTM records and compiles all account activity to generate accurate financial statements. The Valuation Option of TPSTM will determine real net worth at current market value.

Expected Return - A weighted-average of possible future returns weighted by the probabilities associated with different states of the world.

Back to top

F

Filter x% - Lower and upper bounds used in a managed trading strategy. If the portfolio rises in value by a percentage that is larger than the upper filter, a trade will be recommended. When the portfolio's value declines by more than the amount specified as the lower filter, a rebalancing trade will be suggested.

401 (k) (see also defined contribution) - A tax-deferred retirement account in which an investor may contribute pre-tax earnings. In many cases, an investor's employer will match a portion of his or her contributions.

403 (b) - A tax deferred account similar to a 401(k), but for non-profit organizations (such as public schools, hospitals, and charitable organizations).

Fundamental Screen - The TPSTM Fundamental Screen shows possible criteria for screening candidate stocks according to a company's various fundamentals such as Price-Earnings Ratios, Price-to-Book Ratios, Earnings Forecasts, etc.

Back to top

G

General Ledger - A record of all transactions in double-entry bookkeeping format. When securities are bought in cash, TPSTM debits securities and credits cash. When securities are sold, the opposite is true. These records are used to create the Income Statement, Balance Sheet, and Statement of Cash Flows for each portfolio account.

Geometric Return - Annual average compounding returns for a portfolio. It represents, on a yearly average, the rate at which an investor's wealth grows. All holding periods are adjusted for the number of days a portfolio is held, then converted into a compound return per year. It shows how each dollar invested grows in a year.

Golden Cross - Occurs when the stock price moves over and above an arbitrary moving average that the user specifies.

Back to top

H

Holding Period Return - Percent rise or fall in the value of a portfolio since inception or since the last trade. The holding period return is the Time Weighted Returns (TWR). See also Time Weighted Return. TPS™ disregards any cash activities unrelated to securities transactions. For example, any cash additions into the account are subtracted and withdrawals are added to calculate this return. If you are managing funds pooled from more than one person, this is the only way a manager can report his or her fund's performance. So, this measure of returns is important to professional fund managers.

Back to top

I

Implied Risk - There is a trade-off between the expected return and the level of risk associated with any investment. Obviously, the higher the expected return, the higher the implied risk; and conversely. The TPSTM engine will calculate the amount of inherent risk associated with a specified annual target return. A number close to one indicates that the risk of an investment is about the same as the average market risk. A number greater than one, e.g. 1.25, means that an investment will be 25% riskier than the market average. A number less than one, let's say, 0.80, means that an investment will be 20% less risky than the market average. An increase in the target return can be interpreted as an investor's increasing willingness to undertake larger risk. In the TPSTM algorithm, a lower level of risk will suggest that more stocks be included in the portfolio. Similarly, the higher the implied risk, fewer stocks will be chosen. In a bullish market, an investor might want to set the implied risk a little higher, while during a bear market an investor might want to diversify more than usual.

Income/Expense - Cash income and expense records for each TPSTM portfolio. Cash income may consist of dividends received and interest earned on a cash account, while cash expenses may include commissions paid, exchange fees paid, and other interest paid. TPSTM compiles an income and expense statement based on records shown in the general ledger for each portfolio account. Income is credited and Expense is debited. Net income after expenses are deducted will become a part of the equity in the account. Examine this income/expense statement to find out how much cash has been earned and spent in a particular portfolio account.

Index - A composite of securities or economic data that provides a benchmark for measuring the performance of financial markets or the economy. The S&P 500 is an index against which individual stocks and mutual fund performances are often measured.

Index Fund - A mutual fund whose objective is to match the returns of a particular index, such as the S&P 500, a group of large US companies.

Individual Retirement Account - see IRA.

Inflation - We refer to increases in the price of goods and services over time as inflation.

Inflation Risk - If the rate of inflation is higher than the rate of return on investments, money invested today will be worth less several years from now.

International Equities - Stocks of companies domiciled outside the United States.

Investment Horizon - Period an investor plans to invest. There are several choices to make, i.e., 1, 2, 3, 5, 7 and 10 years. If an investor's investment horizon is three years, the TPSTM engine examines stocks that have been listed for at least 3 or more years on a specified exchange. So, Investment Horizon is closely related to the Listing Period for each stock. The investment planning horizon may be one or two years or as long as ten years. The TPSTM engine does not recommend stocks that have not been listed on an exchange for less than one year.

IRA - Individual Retirement Account. A tax-deferred account in which an investor is allowed to contribute up to $2,000 each year. The contributions may be pre-tax depending on whether he or she also has a 401(K). Investors may not withdraw the funds in the account until they are 59 ½ years old, or they may be charged a 10% penalty.

Back to top

K

Back to top

L

Large Cap Stocks - Publicly traded companies with a market capitalization of over $11 billion. The asset class or category represented by the S&P 500 index.

Liability - Liability is the amount of money that a portfolio account owes. For example, if one buys stocks on margin, the margin loan amount would represent the account's liability. Similarly, if one goes short, the securities loaned would be the liability.

Liquidity - An asset that can be easily bought or sold is considered liquid. Money market funds are perhaps the most liquid asset.

Lower Filter - The percent by which an investor will tolerate when his or her portfolio declines in value before invoking a rebalancing trade. When the TPSTM portfolio falls in value by this lower bound filter, in percentage terms, the TPSTM engine will trigger a trade signal. A recent study in finance suggests that this lower bound, along with the upper bound, should be a function of various transaction costs. In the TPSTM engine, the default value is -5%. However, an investor may wish to increase or decrease it; however, a substantial increase or decrease is not recommended.

Back to top

M

Managed Strategy - A portfolio rebalancing strategy utilizing an investor's arbitrary lower and upper filter percents based on general market movements. An investor should invoke TPSTM if either the portfolio rises by more than the upper filter or falls by more than the lower filter, since the last trade. The purpose is to adjust an actual portfolio's composition to an optimal composition, as market conditions change.

Margin Trade - Margin trade is buying stock on credit. In the U.S., investors can buy stocks by borrowing up to 50% of the stock's full price. Note, however, not all stocks can be bought on margin. Federal Reserve Banks often release lists of such qualified stocks on a regular basis.

Market Benchmark - The market benchmark refers to various aggregate equity indexes such as S&P 500 Composite, Dow Jones Industrial Average, Nikkei Index, Russell 2000, etc. However, none of these measures of the market benchmark accurately portray "the" true market portfolio, which may be difficult to formulate. This is a drawback in implementing Modern Portfolio Theory at face value. The performance of a TPSTM portfolio is compared to a market index the investor selects. At the same time, the market benchmark index is used to measure a security's risk. However, Tara's proprietary system conjectures that there exists a series of optimal portfolios within a subset of all stocks. It is conventional to compare security risk to the risk of the market benchmark. This is the reason it is important to keep an eye on the movement of the market benchmark at all times.

Market Capitalization - Market capitalization (or 'market cap') measures the size of a company. A company's market capitalization is calculated by multiplying the total number of a company's outstanding shares by the current price per share. A company with 30 million shares and a current price of $40 per share has a market capitalization of $1.2 billion (30 million multiplied by $40). A company is classified as Large Cap if it is over $11 billion in market capitalization; Mid cap if it is between $1.7 billion and $11 billion in market capitalization; and Small cap if it is $1.7 billion or less in market capitalization.

Market Movers - Market movers are stocks that lead the market index for the day. Market movers are used in momentum trading. TPSTM allows users to select stocks that have gained momentum in recent days or weeks. If an investor is technically inclined, they should include market movers in the screening process. The idea is to buy, if a stock is one of the top positive movers of the day; and to sell, if a stock is one of the top negative movers of the day.

Market Order - Dealers' highest bid and lowest ask is known as either an inside quote or a market quote. A market order means that a dealer pays bid when buying, while a dealer receives ask when selling. The difference between the bid and ask is the dealer's profits. The system utilizes the market order, although limit orders are also possible. Since the model takes the form of placing a basket order either to buy or sell, the TPSTM engine can best be utilized if market orders are used instead of limit orders. The chances of having orders simultaneously executed will be much greater with market orders.

Market Portfolio - The group of all stocks in the market. The S&P 500 Index usually serves as a proxy for all stocks in the market and is a commonly used benchmark when comparing performance and risk of portfolios or stocks.

Market Risk - Market risk is the risk that a stock drops because some event, such as a hike in interest rates, may cause the stock market as a whole to fall. Market risk is common to all securities of the same class. For example, all stocks always have the same market risk. The risk cannot be eliminated by diversification. Market risk is also known as systematic risk.

Maximum Stocks - The maximum number of candidate stocks an investor can analyze at a time, before running TPSTM. Note that if all investors hold the same portfolio, there are no profits to be made, given the efficient capital markets. Using TPSTM, if all investors uses the same query criteria, no two individuals will hold identical portfolios. This is a necessary condition if an investor hopes to earn excess profits. TPSTM will use the maximum number of stocks, twenty-five, out of all possible stocks that satisfy a general query. In this way, every investor's portfolio will be different, even if they all have the same query criteria; in addition, using these randomly chosen initial stocks, the TPSTLM engine will configure an optimal combination that will maximize the expected return while minimizing the overall risk.

MidCap Stocks - Publicly traded companies with a market capitalization between $1.7 billion and $11 billion.

Minimum Cash Reserves or Cash Retained- Cash position as a percentage of the investor's TPSTM portfolio. TPSTM invests in stocks after its investment in cash. Commissions will be deducted and dividends received will be added to the cash account in order to help manage the portfolio's cash position. When investing a large principal amount, it is recommended that an investor start with a larger, in percentage terms, cash position, and slowly reduce his or her cash position until fully invested in the desired amount of securities.

Modern Portfolio Theory - A set of principles that analyzes investment portfolios based on risk-return trade-offs and the diversification of investments intended to mute the effects of declines in the worth of specific portfolio holdings. For more information, please see the MPT page.

Monte Carlo Simulation - Monte Carlo simulation is a method by which investors can anticipate the probability of meeting specific financial goals at certain time periods in the future. This is accomplished by generating thousands of possible paths (or scenarios) that investments might take during the years until the investor is ready to retire or cash out.

Moving Average - The average of security or commodity prices in a given time period ranging from days to years with the objective to determine trends for the latest time intervals. As new variables are included in the calculation of the moving average, the last variable of the series is deleted.

Mutual Fund - Mutual funds pool money from multiple investors (shareholders) to buy stocks, bonds, and other securities for the benefit of their shareholders. Mutual funds offer individuals diversification and professional management, but they limit an investor's ability to control his/her holdings and tax liability. Fund owners pay an expense ratio, which is a percentage of their total investment amount.

Back to top

N

NASD - National Association of Securities Dealers. The largest securities-industry self-regulatory organization in the United States. The NASD develops rules and regulations, conducts regulatory reviews of members' business activities, disciplines violators, and designs, operates, and regulates securities markets and services for the benefit and protection of investors.

New 52-Week High - The highest price during the last 52 week period. The 52-Week High can be interpreted by chartists and technical analysts as a sell signal, if a stock reaches a price that surpasses the previous high over the last year.

New 52-Week Low - The lowest price during the last 52 week period. The 52-Week Low can be interpreted by chartists and technical analysts as a buy signal, if a stock reaches a price that falls below the previous low over the last year.

Back to top

O

On Balanced Volume (OBV) - Used to observe a change in trading volume for n-periods earlier. The OBV is a part of the technical query criteria. When selected from the Technical Screen, TPSTM will select stocks with an increase in trading volume.

Optimal Portfolio - The Optimal Portfolio is the portfolio that represents the highest level of statistical certainty for achieving maximum returns with minimal risks for a given group of assets.

Back to top

P

P/E Ratio - Price-earnings ratio or earnings multiple. Calculated by dividing price per share by earnings per share. The P/E ratio can be interpreted as how much the market is willing to pay now for the privilege of earning an infinite stream of a dollar every year in the future. Also known as PER. The price-earnings ratio can be used to screen for stocks on the Fundamental Screen. The lower the P/E ratio, the higher the abnormal stock returns. That is, a lower P/E tends to result in higher returns in excess of inherent risks. Although this anomaly has been questioned in academic literature, many professionals, especially fundamental analysts, consider the P/E ratio as one of the most important statistics in choosing stocks.

Portfolio - A combined collection of financial investments held by an individual, a mutual fund, or another entity.

Portfolio Optimization - The process of analyzing one's portfolio, maximizing expected returns for given risks, and rebalancing when necessary, to ensure optimal risk-adjusted returns.

Price Rate of Change - Used as a price momentum or velocity indicator. N-period percentage change in stock prices, but subject to the condition that the PROC is no less than -100 and no greater than 100. Once selected from the Technical Screen, TPSTM will consider stocks satisfying this query requirement when running its algorithms.

Price to Book - Price to Book Value. Computed by dividing price per share by the book value of equity per share. Value managers could use PBV as their query criteria. The lower the PBV, the higher the abnormal return. Value stocks often have lower PBVs, while growth stocks tend to have higher PBVs. Although this argument has been recently challenged, several top scholars regard PBV as one of the most important criteria to analyze.

Back to top

Q

Query - Several query functions are available in the Stock Screener, e.g. the general company query, the market value query, the fundamental query, and the technical query. This feature is helpful when creating a fund of a particular investment style, e.g. value funds, small cap funds, etc. An investor may also wish to enter and exit a particular industry, e.g. from high tech stocks to transportation, from transportation to textiles, etc.

Back to top

R

Rate of Return - Percent change in stock prices over a specified time period. All of the major calculations in TPSTM are based on perchange changes in stock prices. This is the only way to consistently compare returns among different securities. That is, a $10 return on a $100 investment would be equivalent to a dollar return on a $10 investment. Real returns are important as opposed to nominal returns.

Redemption - Repayment of a debt or preferred stock before the payment is due, at a premium price. Mutual fund shares are redeemed at net asset value when a shareholder's holdings are liquidated. Click this button to liquidate a stock portfolio in its entirety and move the balance to the cash account. TPSTM will suggest that all securities holdings be converted into cash, if target returns have been reached or the holding period return on the portfolio has plunged below "Stop Loss."

Relative Strength Index (RSI) - Percentage by which a stock price rises or falls compared to a benchmark in an n-period time frame. Computed by taking a ratio of the unit value of a stock to that of a benchmark, then converting the result into a percentage. When selected as a stock screening criterion, the Stock Screener will only select stocks that have outperformed the market benchmark.

Return Volatility - Also known as standard deviation; represents the variability or uncertainty of an asset or portfolio's return. Each asset has a different level of risk or return volatility. For a certificate of deposit at a local bank, there is very little uncertainty the bank will pay us the interest promised. For a company in emerging markets with uncertainty in its core business, the return volatility will be high because the company might experience different degrees of profitability each quarter.

Risk - see Return Volatility.

Risk-Adjusted Return - The return on an asset or a portfolio, adjusted for volatility; typically represented by the Sharpe Ratio. Risk-adjusted return is a very important performance measure because it will show whether or not a portfolio's returns are appropriate for the risks involved.

Risk Tolerance - As the value of a portfolio varies over time, each individual reacts differently. Some investors are not affected by big swings in the value of their holdings, while others feel very uneasy as their portfolio's value fluctuates. Different asset classes tend to fluctuate more than others, and therefore it is important the individual invests in a portfolio that is consistent with his/her level of comfort, or tolerance for risk.

R-Squared - A correlation measurement showing the volatility(in %) of a portfolio's returns that can be explained by returns (i.e. movement) on the market portfolio (i.e. S&P 500).

Back to top

S

S&P 500 - A composite of 500 widely held stocks used to measure the ups and downs of the stock market as a whole. The percentage returns of equity mutual funds are often compared to the performance of the S&P 500. Standard & Poor's selects the 500 stocks, which are meant to represent leading companies in leading industries.

Sales to Price or SPR - Computed by dividing the firm's per-share cash flow by the price per share. This statistic offers useful information to value investors. A lower SPR might indicate a value opportunity.

Scenario Portfolio - Scenario portfolios indicate optimal portfolios at different points in time. Note, however, adjusting the investor's current holdings to these optimal portfolios would be subject to various transaction costs and subject to the condition that one should expect at least a higher return from moving to a newer scenario portfolio.

Securities - Securities are defined as any investment instrument by a common enterprise for profit, with management performed by another party.

Sharpe Index - The Sharpe Index is a measure of a portfolio's performance. It displays the amount a portfolio is expected to earn over and above the risk-free return relative to the portfolio's risk as measured by volatility.

Sharpe Ratio - A ratio of return to volatility; useful in comparing two portfolios in terms of risk-adjusted return. This ratio was developed by Nobel Laureate William Sharpe. The higher the Sharpe Ratio, the better - a high Sharpe ratio implies the portfolio or stock is realizing sufficient returns for each unit of risk. The Sharpe Ratio or the Risk-Adjusted Return allows investors to compare different assets or different portfolios. It is calculated by first subtracting the risk free rate from the return of the portfolio, then dividing by the standard deviation of the portfolio.

Short Selling - Selling stocks that the investor does not own. That is, one can borrow stocks from brokerage houses and sell them. One can sell short if he or she believes the price will decline. Profit is determined by the price at which one borrows at, less the price at which one buys a security back at. Some short sales may involve naked positions which means the investor does not own the stocks to cover the short position. Although short selling might be a good strategy in a down market, it involves an unlimited loss if the stock price goes up instead of down.

SIPC - The Securities Investor Protection Corporation. The SIPC protects customers of broker-dealers registered with the United States Securities and Exchange Commission, thereby promoting confidence in United States securities markets. The protection is against losses caused by the financial failure of the broker-dealer, but not against a change in the market value of securities in customers' accounts at the broker-dealer. Though created by the Securities Investor Protection Act, SIPC is neither a government agency nor a regulatory authority. It is a nonprofit, membership corporation, funded by its member securities broker-dealers.

Small Cap - Publicly traded companies with a market capitalization of $1.7 billion or less. The asset class or category usually represented by the Russell 2000.

Standard Deviation - A statistical volatility measure that describes the range in which prices fluctuate. The greater the standard deviation, the greater the volatility of the price movement. It is believed that the actual stock price will vary within one standard deviation in both directions, plus or minus, about the securities' expected return with a 67% probability. This is a part of the TPSTM engine's risk computations, which represents a deviation about the expected return on securities or portfolios.

Stochastic (ST) - Also known as a momentum price velocity indicator. Stochastic can be computed for a given time period, e.g. 10 days or even 52 weeks. Computed by dividing the difference between the day's closing price and the n-period historical low by the range between the n-period historical high and low, multiplied by 100. Some economists have found that anomalous returns are associated with momentum trades.

Stock Dividend - Stock Dividends occur when a corporation pays a dividend in stock rather than cash.

Stock Screening - Everyone has different investment styles. For example, some may prefer small cap stocks, large caps, growth, or value stocks. TPSTM offers various stock screening utilities to satisfy the investor's style preferences. Stock screening is limited to 25 stocks.

Stock Split - When a stock splits, a corporation increases its shares outstanding. As a result, the share price usually decreases, because the total value of the shares owned will remain the same. For example, if an investor owned 100 shares of a company that authorized a 2 for 1 split, he or she would then own 200 shares, 2 shares for every 1. Companies often use a stock split because their stock price is too high to attract interest or because they want to increase the number of shares outstanding.

Stop Loss - If your portfolio loses value by x percent since the last trade, TPSTM will liquidate the entire stock portfolio and temporarily hold cash until the investor decides to enter the market again.

Strategic Asset Allocation - The process of defining the broad categories or classes of assets that will form the foundation of one's portfolio, and what percentage of the total portfolio each asset class will account for. Broad asset classes include Stock, Bonds, International and Cash.

Style Analysis - Style analysis is a technique for evaluating a portfolio by comparing its historical return to that achieved by a set of basic investment categories called asset classes (such as cash, bonds, large-cap, mid-cap, etc.) Style analysis focuses on how a fund behaves, not on which securities the fund currently owns.

Systematic Return - The return of the overall market, usually represented by the return on the S&P 500.

Systematic Risk - Market risk, a risk that is attributable to market wide risk. This risk is a non-diversifiable risk because if the market collapses, most stock prices will fall. Another way to describe systematic risk is a risk factor common to the whole economy.

Back to top

T

Tactical Asset Allocation - Another name for Portfolio Optimization.

Tara Non-Trading Zone - This is useful if one utilizes the Managed Strategy. The Tara Non-Trading Zone sets the upper and lower bounds within which one can hold his or her current portfolio position. A portfolio that either increases or decreases outside this zone or limit, may require a rebalancing.

Target Return - The investor's target annual return on his or her portfolio. To be decided by the individual investor. Once the user specifies a target return, the TPSTM engine computes the user's inherent risk level. This feature is important in TPSTM, because it will ultimately decide how many stocks will be selected in the customized optimal portfolio.

Taxable - An account is taxable if any income is earned (e.g. dividends or appreciation of assets sold). Basically, any asset purchased that is not part of a special tax-advantaged account such as a 401(k), IRA, or 403(b), is considered taxable when earnings of any kind are realized.

Tax Deferred or Taxed at the end of the Horizon - An account is tax-deferred if taxes are only due when money is withdrawn after a specified date. The most common tax-deferred accounts are IRAs, 401(k)s, and 403(b)s. There are penalties associated with taking money out of these accounts before a specified date.

Tax Exempt or No Tax - A tax-free investment is one in which no taxes are required on any dividends or the appreciation of the asset when sold. Unfortunately, there are few of these assets or accounts. Municipal bonds are tax-free. Remember, state tax might be required even if federal taxes are waived.

TCG - Tara Consulting Group, Inc., the research and development arm of Tara Advisors Co. Click here for further details.

Technical Chart - Technical chart is a graph of stock price movements and trading volumes.

Technical Screen - This is an option in the Stock Screener. One can preselect a group of stocks whose price movements may satisfy certain criteria, e.g. Bollinger Band, Stochastic, Relative Strength Index, Moving Averages, etc.

Time Horizon - Time Horizon denotes the number of years (or months) of historical asset price data that an investor wants factored into the calculation for expected return.

Time Weighted Return (TWR) - Same as the holding period return. It represents a fund manager's performance. It disregards an investor's new cash investment and periodic withdrawal from the account. The holding period returns are compared to the investor's target return to decide when to rebalance. Merely adding additional cash does not change portfolio returns, unlike cash dividends. TWR ignores this additional cash investment when computing portfolio returns.

Back to top

U

Upper Filter - When a TPSTM portfolio rises in value by x percent, it will trigger a rebalancing recommendation. The upper filter will trigger a trade recommendation under the Managed Strategy in TPSTM. A recent study in finance suggests that this upper filter, along with the lower filter, should be a function of various transaction costs. TPSTM uses 10% as its default value. However, an investor may wish to increase or decrease it, but a substantial increase or decrease is not recommended.

Back to top

V

Valuation - A portfolio can be valued at market prices, or at book value based on historical cost. Market valuations are the basis of portfolio performance in the TPSTM engine. The market valuation can be found in Portfolio Performance or Portfolio Valuation, while the book value can be found on the balance sheet statement.

Value at Risk (VaR) - Measures risk in terms of potential financial losses on the current portfolio. It can be interpreted as the worst-case scenario an investor can expect to incur on his or her portfolio within a given timeframe and confidence interval.

Back to top

W

Wrap Account - A variety of financial services typically including investment advice, brokerage, and custody provided by a financial services firm to its customers for a fixed fee. The services are combined together, or "wrapped."

Back to top

X

XML - Extensible Markup Language. XML is a method for putting structured data in a text file. "Structured data" is spreadsheets, address books, configuration parameters, financial transactions, technical drawings, etc. Programs that produce such data often also store it on disk using either a binary or text format. The latter allows an investor, if necessary, to observe data without the program that produced it. XML is a set of rules for designing text formats for such data, in a way that produces files that are easy to generate and read (by a computer), that are unambiguous, and that avoid common pitfalls, such as lack of extensibility, lack of support for internationalization/localization, and platform-dependency.

Y

Z

Back to top

 

 
   
   
   

© 1999, 2000, 2002, 2006 Tara Advisors Co. All rights reserved.
Please refer to Privacy and Security Statements for terms of use.