Australian Finance Podcast
📈 Market jargon buster: 10 common (and confusing) investing terms
19 May 2022
Transcript generated automatically by AI and may contain errors.
Chapter 1: What are some common investing terms explained in this episode?
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Kate Campbell, welcome to this very special Shares Month episode where we're going to bust some jargon.
Yes, episode two of Shares Month.
Yes, it is indeed. This is a good episode for anyone who is new to the stock market, anyone who is new to ETF investing, basically any type of investing. We are surprised it's taken us more than three years to do this episode.
Yeah, we have not busted much jargon in the past unless it was within an episode, but there's a lot of terms that we just use every day. You'll hear investors on the podcast use all the time that actually sometimes there's a little bit to know behind the surface. So in this episode, we're going to break it down, make it as
simple to understand as possible, because some of this can get a little bit confusing. This was actually a great idea suggested by our friends at EquityMates, who we did the Get Started Investing course with. They are all about breaking down the jargon, so they've done some great episodes called Pardon the Jargon.
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Chapter 2: What does it mean to buy shares, stocks, or equities?
So if you Google an ETF and you'll see this ETF aims to track the ASX 200 index. It'll probably say who created the index too. And so then you can actually look up that index itself and see what's contained in that index.
Yeah. So it's basically like a basket of something like this is saying, let's not even say the basket, it's just saying like what's going to be inside it. Yeah. And you'd use two examples there. You use the ASICS 200, which is our next piece of jargon. And there's another one which is popular called the Dow Jones. The ASX 200 is for Australian shares. There were 200 of the biggest shares.
The Dow Jones is in the United States. So if someone says the Dow Jones fell 1%, that's basically saying the United States stock market fell 1% today. And if the ASX went up 2%, we say the ASX or the Australian share market went up 2%. And it's important to remember that if we look at the ASX 200, there are 200 shares in there. So it's going to be spread out across all 200.
And with the Dow Jones, there are 30. So there's not as many. So that can bounce up and down a little bit more because one share can have more of an influence because there's only 30 of them. I hope that makes sense. There are others around the world. There are many. Basically, thanks to ETFs, every time an ETF comes out, they want an index to track.
So then the index provider is like, oh, we'll create one. We'll create one for renewable energy stocks and we'll find all these renewable energy stocks and we'll put them in this index and then you can track that.
Yeah. So you've got those common popular indexes that the news reporters are referring to, but then all of these thematic ETFs, which are maybe tracking cybersecurity companies or food companies, they will just create a customized index. And so there's many ETFs around the world where they have an index that no one else is using. It's just a unique index created just for them.
But whereas the ASX 200 index, many ETFs and fund managers will also be using that to track their performance. And it's a good way to, you'll see people maybe compare, I outperformed the index this year or my fund outperformed the index this year. And they're The big question is to ask which index you outperformed because they might be outperforming a bond index.
And so that's not really apples and apples. So people will often tell you how well they've done or how poorly their peers have done compared to a certain index. So ask what index it is, have a look at that index and make sure it's a similar comparison.
Yeah. So that's a good one. So think about it like when we say Australian property prices, it's the same thing. There's actually companies out there, like I think realestate.com.au does this. I think Domain does this. I think there are many different property data analytics businesses that do this, but they basically say Australian house prices fell 5% in March.
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Chapter 3: What is a brokerage fee and how does it work?
The bull is like, like ramming up and going up and the bear is swiping down. So when we say bullish, we mean it's going up. And when we say bearish, we mean it's going down.
Or you think it's going up or think it's going down.
Yeah, you think. So you might say, I am bearish or I am bullish. It doesn't mean it has gone up or down. It just means what you think is going to happen. So you might be bearish on Telstra shares, which means you think it's going to go down. And I might be bullish, which means I think Telstra is going to go up. That's basically it. But it's used a lot. It's used by analysts. It's used by brokers.
It's
It's used in the news. They have bulls and bears segments.
Bulls and bears, yeah. So you might have – this is a popular segment on most investing shows is they get the bull and the bear. So someone comes onto the show and they might present an investment and they say, are you bullish or are you bearish? And then they debate it basically. It's actually a good thing to do if you are investing in something to think about –
the bull case and the bear case. So what's the good scenario and what's the bad scenario?
Yeah. So someone might say they're bullish on the overall market. So they think the overall market's going up. They might be bullish on a particular company. They think it's going up. They might just be bullish about an idea or a concept or a theme.
I'm not going to stop you there. You said bullish on the market. When you say the market, what are you talking about?
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Chapter 4: What is the significance of blue chip companies?
And so that often sticks in our memory. Like I know I had an uncle who lost a lot of money in the tech crash of 2000. And so- Um, that will shape our views of investing as well.
And just keep in mind that most of the time, these are the things that people remember. Yeah. It's not the days where it goes up 1% or up 0.2%. It's the days where there's a big crash and that's scarred in their memory. Because typically what happens is we might have five years of five or 10% gains consistent.
Like it might not be straight up or straight down, but it might be just like consistently over time. And people don't notice that.
It's the slow, steady, boring part of investing.
Yeah. And they just expect that. But then as soon as it crashes, it's like, oh my Lord, what is happening here? And that's the thing that they remember because it's more visceral. It's scary. And typically what happens in those moments is people panic and sell. And so they do in fact lose money. But what we've seen... is that over the long term, you can just ride out the bumps.
Most of the time, over any stretch from like 10 years or more, it just pays just to ride out the bumps. It's painful, but it works. There are some statistics that I've read over time, and we've had Nick Majuli on the show before who talked about this. Um, so like only, you know, the stock market on average corrects, that's a 10% fall once every roughly a year. So on average, it will fall 10%.
Um, but only one in five of those turn into a proper crash. So if you think about that, you can just either try and panic all the time and predict when they're going to happen, or you can just accept it and move on. There will be scary times. There will be good times. There'll be good times that seem scary and bad times that seem good because the prices have fallen.
But it's a lot easier to deal with events like market crashes if you understand what you're investing in, you've done your homework, and you're investing with a long-term horizon. You're not trying to make a short-term bet on a particular theme or a share or an asset class.
I find that a lot of people go wrong because they don't understand what they're invested in. If you just look at the long-term performance, you've got to remember the stock market is here after hundreds of years of being in existence. And in that time, we've had wars, famines, recessions, depressions. We've had nuclear disasters. We've had Cold War. We've had invasions. You name it, we've had it.
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