Investment Terms

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3-6-3 Rule

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Slang used to refer to an "unofficial rule" under which the banking industry once operated, which alludes to it being noncompetitive and simplistic.

The 3-6-3 rule describes how bankers would give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be playing golf at 3pm. This alludes to how a bank's only form of business is lending out money at a higher rate than what it is paying out to its depositors.

Many attribute the problems faced by the banking industry during the events that lead up to the Great Depression as reasons why the government implemented tighter banking regulations. These regulations controlled the rates at which banks can lend and borrow money. Unfortunately, the regulations made it difficult for banks to compete with each other and the banking industry became stagnant.

However, with the loosening of banking regulations and the widespread adoption of information technology such as the internet, banks now operate in a much more competitive and complex manner. For example, banks are now providing insurance, brokerage and other forms of financial services.

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A Ton Of Money

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A slang term used to describe a significant amount of money. The amount implied typically depends on the person, company or situation.

We may all have a different idea of what constitutes a "ton of money", but according to the Bureau of Engraving and Printing, a ton of $1 bills amounts to $908,000 - nearly $1 million!

If you're talking about a ton of coins, then it's a different story - a ton of quarters is worth $40,000, and one ton of pennies (363,000 pennies to be exact) is worth $3,630.

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Accounting Noise

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The effect of complex and extensive accounting rules that regulate financial statement reporting and are thought to distort a company's true operating performance.

Accounting noise can be seen as either a consequence of necessary rules regarding generally accepted accounting principles or a result of management's attempts to massage the numbers to present a rosier financial picture of the firm.

For example, a company that has recently undergone a significant merger may look very unprofitable on the income statement; because the merger may cause serious one-time charges for the company, it may be useful for investors to cut through the accounting noise to get a more accurate picture of the company's prospects.

Conversely, an underperforming company could engage in earnings manipulation, creating accounting noise to hide its poor performance.

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Acquisition Indigestion

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A slang term describing an acquisition or merger in which the companies involved have trouble integrating with one another. Acquisition indigestion may also describe a situation in which the purchasing company has difficulty making the most of a takeover.

Indigestion occurs when you eat too much or when you consume food that doesn't agree with your stomach. The same outcome relates to mergers and acquisitions that have gone sour, as companies may get indigestion when acquiring too many targets or purchasing firms that don't integrate well.

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Across The Board

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A market-wide directional movement, or a market condition in which most stocks and sectors are moving in the same direction. These movements are usually caused by market-wide events.

If you hear in the financial media that the "stock market is up across the board", it means that most of the stocks in the market are up on that day's trading. The term comes from the NYSE big board, a large board on which stock prices were once written; when the majority of prices were up or down, the movement was shown "across the board".

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Cluster Analysis

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An investment approach that places securities into groups based
on the correlation found among their returns. Securities with
high positive correlations are grouped together and segregated
from those with negative correlation. Between each cluster,
very little correlation should exist. Holding stocks in each
cluster provides the investor with a diversified portfolio.


Investopedia Says:
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Cluster analysis enables the investor to eliminate any
overlap in his or her portfolio by identifying securities
with related returns. This approach increases diversification,
which provides the investor will a less risky portfolio.
Cluster analysis has uncovered certain categories of stocks,
such as cyclical and growth stocks.