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Analysts : by ‘financial analysts’, we mean experts hired by banks, brokerage firms, institutional investors or even listed companies themselves. Their job is to monitor as closely as possible the evolution of a number of companies, usually in the same sector (in which they specialize). They analyze on a continuous basis the fundamentals of these companies, such as turnover, profit margins, debt load, evolutions in the prices of raw materials, competitive environment etc. They then publish an opinion on the ‘health’ of these companies and the evolution of their business results. Companies are usually followed by several analysts at the same time. The opinions of all analysts following an individual company are consolidated to create what is called the ‘consensus’. Since they are less subjective and less sensitive to interpretation than their famous ‘recommendations’, the quantified analyses published by analysts are our favored indicators.

Arbitrage : analysis of the expediency of keeping one stock holding vs. replacing it with another showing better promise, and acting accordingly.

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Contrarian  : the stock market is said to be a ‘contrarian’ market because it features people of equal wisdom who hold diametrically different views about each stock, and who act accordingly (buyers and sellers). A seller is selling a stock because he thinks that the stock is going to lose value. At the same time a buyer is buying that same stock, hoping that it will rise. That contrarian characteristic of the market can be explained notably by the varying investment horizons of different investors.

COR : an indicator developed by Stock Engineering to quantify short-term variations in the Thrust of a stock. A stock’s Thrust integrates all relevant CORs. The website publishes on a weekly basis the COR of each stock, expressed as a number between -3 (strong downward trend) and +3 (strong upward trend). This value is listed in the stock portfolio (subscribers) and in the «  Stock Details » sheet (‘more info’ button).

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Delta Close (Δclose ) : expressed in percent, itrefers to the degree of variation of a stock’s closing price over a well-defined period. So « Δclose 1 year » shows the (positive or negative) evolution of the closing price over the last 12 months, while « Δclose 3 months » shows the (positive or negative) evolution of the closing price over the last 3 months.

Dividend : companies producing a yearly profit often distribute a part of it to their shareholders, i.e. to the people owning shares in the company. This is a way to encourage shareholder loyalty as it offers shareholders, who have invested their money in the shares of the company, some kind of ‘rent’ on their investment (the dividends) in the same way that they would receive interests on the money put on a savings account. Net dividends are equal to pre-tax dividends reduced by the amount of any tax due on dividends.
Stock Engineering’s method does not take dividends much into account, as they only represent a very small portion of potential gains.
You should however be aware that if you buy a share before the dividend payment is due and still hold that share when the payment day comes (even if it is the next day), you will receive the entire dividend. Of course, on that very day, the price of the stock will drop by an amount roughly equal to the dividend per share.

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Earnings per Share (EPS) :   this refers to the net profit (earnings) generated by a company over a well-defined period (an accounting period) divided by the number of shares issued by the company. EPS thus represents the theoretical gain of a shareholder owning a share over the corresponding accounting period. The EPS value is the result of an extremely accurate calculation by analysts and is always published. Computing it may require the adjustment of net profits to take into account possible under- or overvaluations and one-off operations. The EPS value is (too) often regarded as a key criterion to select a stock. Yet, while EPS is a good indicator of the general health of a company, it only has a limited influence on the company’s stock price, since the market has already taken EPS into account to determine the current stock price (the current price has ‘integrated’ the EPS value). On the other hand, stock price variations are often triggered by changes in EPS forecasts published by analysts. A single revision, while significant, is not enough and must be confirmed by other analysts.

Eurostoxx : the Eurostoxx index (ISIN EU0009658186) is a ‘broad’ index created in June 1998 and calculated since then by the Dow Jones company. It aims to trace the evolution of the European market at the level of large, medium-sized and smaller companies. It includes 300 of the largest companies from the 11 (12) Eurozone countries before (after) 2001. It is computed on a daily basis. Its reference value (100) is based on Dec. 31, 1991. The selection of companies included in the index is updated each quarter. This broad index is itself a subset of another broad index, the Stoxx index, which covers the entire EU-15 plus Switzerland (16 countries, more than 600 companies).

Eurostoxx Index : see Eurostoxx.

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Gain : the performance achieved on a stock investment is computed as the difference between the selling price and purchase price for that stock. If the performance is positive, the investor makes a gain. In the opposite case, the result is a loss. The gain will be described as 'gross gain' or 'net gain' depending on whether brokerage fees and market taxes are integrated into (i.e., subtracted from) the gain. An ‘effective gain’ takes place when the share is actually sold, while a ‘potential gain’ may exist as long as the investor keeps the share in his/her portfolio.

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IDSE : this acronym stands for « Identification Stock Engineering ». This is our own code used to identify a stock without any ambiguity.

ISIN : this acronym stands for « International Securities Identification Number ». This is the new 12-character alphanumeric coding scheme using a unique international code for each security (the first two letters always refer to the country in which a security was issued). This coding scheme has been used by many financial marketplaces since 30th June 2003.

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Leveraging : using debt can enable a company to « do more ». If what it does is profitable, using debt will enable it to generate additional profit. If this additional profit is higher than the interest burden on the company’s debt, the ‘leveraging effect’ is said to be positive. Of course if the company’s activity is not profitable, using debt produces an increase in losses (losses generated by the additional activity, augmented with the interest burden on loans). Leveraging thus cuts both ways. While it is interesting when the cost of borrowed money is lower than the profit margin of the company’s additional activities, it may become deadly in the opposite case.

Line (of securities, shares) : the term ‘line’ is used to describe, within a portfolio, a set of identical shares (often with the same purchase price and date, and always from the same company).

‘Long’ system : dynamic stock trading system developed by Stock Engineering in which stocks are bought as soon as their OREC turns green and sold as soon as their OREC turns red. This system is called ‘long’ because, while it remains highly dynamic, it generates a lower portfolio turnover than the short system. See the ‘Performance’ section on the site.

Loss  : the performance achieved on a stock investment is computed as the difference between the selling price and purchase price for that stock. If the performance is positive, the investor makes a gain. In the opposite case, the result is a loss. The loss will be described as ‘gross loss’ or ‘net loss’ depending on whether brokerage fees and market taxes are integrated into (i.e., added to) the loss. An ‘effective loss’ takes place when the share is actually sold, while a ‘potential loss’ may exist as long as the investor keeps the depreciated share in his/her portfolio.

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Market efficiency : a market is called ‘efficient’ when all financial information available at anytime is immediately reflected in stock prices. In such a market, all stocks are always quoted at their rightful price and future evolutions are impossible to predict. Such a market is also called ‘market in equilibrium’ or ‘perfect market’.

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OREC : stands for Overal RECommendation. This is the final opinion about a share published by Stock Engineering, taking into account various fundamental, technical and behavioral parameters. A share’s OREC can be ‘Recommended’, ‘Can be kept’ or ‘Inadvisable’. On the website, ‘Recommended’ is always associated with green, ‘Can be kept’ is associated with a pale color (beige or ivory), while ‘Inadvisable’ is always red. An OREC for each stock is provided in individual portfolios (for subscribers only), in lists of recommendations (these are always green ORECs), in ‘à la carte’ stock lookups and ‘Stock Details’ sheets. Subscriber portfolios also list a four-week OREC history for each share.

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Performance : this site uses ‘performance’ to refer to the return achieved by a stock portfolio, capitalizing gains systematically when shares are sold and without taking into account dividend payments (which therefore provide an additional return). Performance is referred to as ‘gross performance’ if brokerage fees and stock market taxes are left out. Gross performance can be compared to index performance, since index values are computed in this way. Net performance is obtained by subtracting any brokerage fees and stock market taxes from gross performance.

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Recommendations : ‘recommendation’ usually refers to opinions published by financial analysts about individual stocks : Buy, Sell, Hold but also Accumulate, Reduce, Strong Buy, Strong Sell etc. This opinion is supposed to reflect all the information needed by the investor, and analyst recommendations should normally converge. This is not always the case, and you can often find analysts advising to ‘Buy’ and others recommending to ‘Sell’ the same stock at the same time. This is exactly what makes the stock market tick, since you always need sellers and buyers at the same time for a transaction to happen. If you are planning to buy, you will always find opinions that will support your view, and vice-versa. The market is called ‘contrarian’ because it features smart people that will hold diametrically opposed views at the same moment. This ‘contrarian’ characteristic and the sheer amount of available information make the investor’s task especially difficult.

Return : on this website we use the term ‘return’ to refer to the global performance of a stock investment, including both stock appreciation and dividends. ‘Gross return’ is used when brokerage fees and any stock market taxes are not included, otherwise the term ‘Net return’ is used.

Risk Number (RN) : an RN value is computed for each stock on the basis of its volatility. On the stock market, ‘volatility’ is the parameter most often used to assess the risk of owning a stock. If you own a portfolio of N stocks you might decide, assuming that all those stocks are equally ‘promising’, that you want to run the same level of risk for each of them. As a result, instead of investing the same amount of money in each of these N lines of stock (as many individual investors do), you should devote a higher amount to less risky stocks and a lower amount to riskier stocks. In other words, you will invest different amounts into each of your different lines of shares. RN indicates, for an investment capital of EUR 10,000, the number of shares you should buy to limit the risk on each line of shares to 1% of your capital. Of course it your stock market investment capital is not equal to EUR 10,000, you need to adjust the provided RN, multiplying it by the ratio «  Stock market investment capital/10,000 ». If you really wish to put a limit on total capital losses across all your share lines, e.g. to 1% * the number of lines (i.e. 10% of your stock market investment capital if you have 10 lines), you will need to sell your shares whenever they depreciate to the ‘ Stop parachute’ level, defined as follows :
your ‘ Stop parachute’ = purchase price * (100 – Stop%)/100 ;
When using this formula, the ‘ Purchase Price’ and ‘Stop%’ should be those applicable at the time of purchase. (See also ‘Stop parachute’)
NOTE – RN should not be higher than TN.

ROE : Return on Equity refers to the profitability of a company’s own capital. It is computed as the ratio net result/own equity. ROE thus reflects the way in which a company adds value to the capital provided by its shareholders. As such, this ratio reflects how efficiently the executives of a company manage their shareholders’ capital. Return on Equity includes both business return and any benefit from leveraging effect. If using debt enables a company to ‘do more’ and to generate more additional profits than the interest burden on the borrowed capital, ROE becomes higher than strict business return. On the other hand, leveraging creates a higher financial risk for shareholders : if the interest burden becomes higher than the additional profits generated through capital borrowing, leveraging becomes a loss-increasing factor. Long-term analysis should therefore favor strict business return. For the short and medium terms, ROE is the decisive factor.

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Security  : sometimes used to refer to shares or other trading instruments.

Share  : a share is a security representing a fraction of the equity capital of the company that issued it. A share gives its owner a number of rights, among which the most important are voting rights, the right to obtain information and the right to receive a share of the company’s earnings through dividend payments. The shares of public companies are bought on the stock market.
Shares are bought at a defined price (purchase price) and later sold at another price (selling price). If you sell for a higher price than you bought, you realize a capital gain. In the opposite case you make a capital loss.

‘Short’ system : dynamic stock trading system developed by Stock Engineering, in which stocks are bought as soon as their OREC turns green and sold as soon as their OREC is downgraded from green. This system is called ‘short’ because it leads to a higher portfolio turnover (investors buy and sell more often). See the ‘Performance’ section on the site.

Stock market investment capital  : this refers to the amount of money that you are willing to submit to the risks of the stock market. Of course this should never include all your assets but only a fraction of them. How big a fraction ? That decision is yours, based on your personality, your age and your personal situation. A good rule of thumb is to only invest in the stock market a sum which you will not need for at least 5 years and which you can afford to lose, at least in part, without getting into financial difficulties. Your investment capital will start as 100% cash, and will become an evolving mix of cash and securities as soon as you make your first purchase.

Stop parachute : Stock Engineering uses three ‘Stop parachute’ values :
(i) Stop parachute at date X, in % ;
(ii) Stop parachute on purchase by …, initial ;
(iii) Stop parachute on purchase by …, trailing ;
Those three values are listed, for each stock, on the « Stock Details » sheet. When a stock is falling, a stop parachute indicates the price at which you need to sell it in order to prevent possible ruin through that stock. If you follow our OREC recommendations, you will rarely need to use stop parachutes, since we will often have advised you to sell before reaching such a level. Sudden and unpredictable falls that leave no time to the OREC to adjust are often the result of sudden ‘news’ leading to an emotional overreaction by the market. In such cases, the market often recovers in a few days and the share jumps back up to its initial level. We are not in favor of stop orders, especially not permanent ‘hard’ stop orders on the market. First because they are used for speculative purposes by ‘Market Makers’ and second because they always cause investors to ‘sell low’. On the other hand, they offer a good protection against exaggerated risks, which explains why some investors will not work without them.
For those among you who want to work with stop orders, here is how to proceed :

Stop parachute (at date X), in percent : at the time of purchase, subtract this percentage from the purchase price. The resulting value is the price at which you need to sell if the stock price falls.
Note that this use of the stop parachute is an efficient complement to the Risk Number (RN) method : combining the two techniques offers a very good protection of your stock market investment capital, as it (almost) always restricts the potential loss to 1% of your capital multiplied by the number of lines in your portfolio.

Stop parachute on purchase by …, initial : this is the result of applying the above formula to purchases made when a stock’s OREC turned green, i.e. at the time when we started applying the ‘long’ or ‘short’ systems to that stock (the date is specified). If you buy your shares at the moment we recommend (and at the same price), you can use these stop parachute levels.

Stop parachute on purchase by …, trailing : As soon as a stock enters one of our systems, we continuously recompute the stop level (i) so that it is adjusted to take into account possible changes in the stock’s volatility and (ii) to make sure that it can only move one way : upward. This means that throughout the evolution of a stock’s price, its stop parachute level may stagnate or rise, but never fall. Of course this reduces your risk, and if you use a trailing stop order in combination with RN, the exposure of you stock market investment capital will be lower than 1% times your number of lines. You should keep in mind however that while stop orders will protect you from financial ruin, they also tend to reduce your performance. Reducing risk has itself a price.

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Thrust : the ‘Thrust’ of a stock is an indicator designed by Stock Engineering that measures at any time the degree of ‘upward boost’ of a stock. This indicator is based on earnings forecast revisions published by analysts for the current accounting period and the next one. It takes into account the extent of such revisions, their repetition, the degree of agreement between different analysts, surprises generated by result reporting as well as elapsed time, which dampens the effect of any announcement. The Thrust includes and keeps track of all punctual corrections (COR). Of course Thrust values change all the time. They are listed on the « Stock Details Sheet » of each stock, which is accessible through the « more info » button associated to each line of shares in the ‘stock search, ‘portfolio’ and ‘recommendations’ menus. Thrust values range from -3 (most unfavorable) to +3 (most favorable).

Trading : the fact of buying or selling shares on the stock market. ‘Trading’ is also used for other types of securities or goods such as currencies, oil…

Trading Number (TN) : this is the highest number of shares that can be bought or sold in one transaction without generating too much negative influence on the stock price. When someone places a buy or sell order ‘at market price’, the resulting price will be higher (or lower) depending on the number of shares affected by the trade. This is a result of the way the ‘order book’ functions. TN is computed on the basis of recent trading volumes on each stock.