Reference

Terms and Definitions

The vocabulary used across THR research, defined the way the desk uses it. Where a term has more than one common meaning, we state which one we mean.

Filter terms109 of 109 terms shown

A

Accelerated depreciation: Depreciation methods that expense more of an asset's cost in its early years and less later. They lower taxable income sooner without changing the total amount deducted over the asset's life.
Accretion / dilution: An analysis of whether a deal raises (accretive) or lowers (dilutive) the acquirer's earnings per share. Dilution also describes existing shareholders owning a smaller percentage after new shares are issued.
Active tail hedging: Protection against large market declines that is adjusted over time, for example by buying, rolling or selling options as prices and volatility change. The aim is to manage the ongoing cost of protection rather than holding a fixed hedge.
Actual loss: A loss that has been realized by selling below cost, or a current value below the principal invested. It differs from a drawdown, which measures a fall from a peak that may still be above cost.
Aggregation problem: The difficulty of combining many different items or behaviours into one meaningful total, such as adding unlike machines into a single figure for capital or treating a market as one average buyer. Aggregate figures can hide the variation that actually drives outcomes.
Alpha: Return in excess of what exposure to the market, or to a stated set of factors, would explain. Alpha is a residual: it depends entirely on which factors were included in the model.
Amortization: Spreading the cost of an intangible asset, such as a patent or software licence, over its useful life. The word also describes repaying a loan through scheduled payments of interest and principal.
Average true range (ATR): The average, over a stated window, of each day's true range: the largest of the high-low range, the high minus the prior close, and the prior close minus the low.

B

Backtest: A simulation of how a rule-based strategy would have performed on historical data. Backtests systematically overstate results unless survivorship, look-ahead, and costs are handled.
Balance sheet: A statement of what a company owns (assets), what it owes (liabilities) and the owners' residual interest (equity) at a single date. Assets always equal liabilities plus equity.
Basis point: One hundredth of one percent. 25 basis points is 0.25%.
Beer distribution game: A supply chain simulation created at MIT in which players run a retailer, wholesaler, distributor and factory with delayed orders and limited information. It shows the bullwhip effect, where small changes in consumer demand grow into large swings in orders further up the chain.
Benchmark: A passive reference return against which a strategy is measured.
Beneficiation: Processing that raises the value of ore by removing waste (gangue) minerals, producing a higher-grade concentrate and a waste stream called tailings. Crushing, grinding, flotation and magnetic separation are common steps.
Beta: The sensitivity of a security's return to the market's return. A beta of 1.2 means the security has historically moved about 1.2% for each 1% move in the market.
Blended return: The weighted sum of constituent returns over a window. THR sector baskets report blended returns from end-of-day closes and stated weights.

C

Capital and operating costs: Capital costs (capex) are the upfront spending to build or expand a project, such as the plant, equipment and mine development. Operating costs (opex) are the recurring costs of running it, often quoted per tonne of ore or per unit of product.
Cash flow: The movement of cash into and out of a business over a period. The cash flow statement divides it into operating, investing and financing activities.
Conditional value at risk (CVaR): The average loss in the worst cases beyond the VaR threshold, also called expected shortfall. It describes how bad losses are when they do exceed VaR.
Consolidated leverage ratio: A measure, usually defined in a loan agreement, that divides the total debt of a company and its subsidiaries by their combined EBITDA. Lenders set a maximum level as a covenant, and breaching it can trigger default provisions.
Contribution to return: A constituent's weight at the start of a window multiplied by its return over the window. The contributions of all constituents add up to the blended return.
Cost delta: The difference in cost between two producers, processes or scenarios, such as a project's unit cost compared with the marginal producer's. A wide cost delta indicates how much a price can fall before a producer stops being profitable.
Critical mineral (critical material): A mineral or material considered essential to economic or national security whose supply is at risk of disruption. Governments publish official lists, such as the US Geological Survey critical minerals list.
Customer acquisition cost (CAC): The total sales and marketing spend needed to win new customers, divided by the number of customers gained. It is usually compared with the revenue or profit a customer brings in over their lifetime.

D

Debt: Borrowed money that must be repaid, usually with interest, such as bank loans and bonds. Lenders rank ahead of shareholders if a company fails.
Diminishing value (declining balance): Depreciation calculated as a fixed percentage of an asset's remaining value each year, so the charge falls over time. The term is common in Australian and New Zealand tax practice.
Discounted cash flow (DCF): A valuation method that estimates the value of a business today by projecting its future cash flows and discounting them at a rate that reflects their risk. The result is highly sensitive to the growth, margin and discount rate assumptions.
Diversification: Spreading capital across assets, sectors or regions so that a poor result in one holding has less effect on the whole portfolio. It reduces company-specific risk but cannot remove the risk of the market as a whole.
Dividends: Distributions of a company's profits to its shareholders, paid in cash or additional shares when declared by the board. They are not guaranteed and can be cut or suspended.
Dollar-cost averaging (DCA): Investing a fixed amount on a fixed schedule regardless of price, so more units are bought when prices are low and fewer when they are high. It spreads the timing of purchases and removes the need to pick an entry point; the Portfolio Designer models such a schedule but does not place it.
Double declining balance: An accelerated depreciation method that applies twice the straight-line rate to the asset's remaining book value each year. An asset with a five-year life is depreciated at 40% of its remaining value annually.
Drawdown: The decline from a prior peak to a subsequent trough, expressed as a percentage of the peak. Maximum drawdown is the largest such decline in a series.

E

EBITDA: Earnings before interest, taxes, depreciation and amortisation, a rough measure of operating earnings before financing and non-cash charges. It is not defined under GAAP and ignores capital spending and working capital needs.
Equity: The owners' residual claim on a company, equal to total assets minus total liabilities. The term also refers to the shares that represent that ownership.
Equity method: The way a company accounts for an investment over which it has significant influence, usually a 20% to 50% stake. It records its share of the investee's profit in its own income and adjusts the investment's carrying value, while dividends received reduce that value.
Escrowed shares: Shares held by a neutral third party until stated conditions are met, such as a vesting period ending or a merger closing. Until release they cannot be sold or transferred, which protects the other parties to the deal.

F

Factor: A measurable characteristic used to rank securities, such as momentum or value. A factor portfolio holds the highly ranked names and, in long-short form, sells the lowly ranked ones.
Fair value through other comprehensive income (FVOCI): An IFRS 9 classification in which changes in an investment's fair value go to other comprehensive income, a part of equity, rather than to profit or loss. For equity investments held this way, the gains are not moved into profit when the investment is sold.
Fair value through profit or loss (FVTPL): An IFRS 9 classification in which changes in an investment's fair value are recorded in profit or loss each period. Reported earnings therefore move with the market value of those holdings.
Fat tails: A distribution in which extreme outcomes occur more often than a normal (bell curve) distribution predicts. Financial returns are generally fat-tailed, so models that assume normality understate the chance of large moves.
Free cash flow: Cash generated by operations minus capital expenditures. It is the cash left over that can repay debt, pay dividends, buy back shares or be reinvested.
Free cash flow yield: Trailing twelve-month free cash flow divided by market capitalisation.

G

GAAP (Generally Accepted Accounting Principles): The accounting standards set by the Financial Accounting Standards Board that US companies use to prepare financial statements. They make reported results comparable across companies and periods.
Gross profit: Revenue minus the cost of goods sold. It shows how much a company earns from making and selling its products before overhead.

H

High-water mark: The highest value an account or fund has reached. A drawdown from the high-water mark is the decline from that peak, which can occur while the account is still above the money originally put in.
Hit rate: The share of closed positions that were exited above their entry price. Hit rate says nothing about the size of wins and losses.

I

Index fund vs. ETF: Both track an index at low cost, but an index mutual fund is bought and sold once a day at its closing net asset value, while an ETF trades on an exchange throughout the day like a stock. In the United States, ETFs are often more tax efficient because of how their shares are created and redeemed.
Interest income: Income earned on cash, deposits, bonds or loans a company holds. For most non-financial companies it is reported below operating income because it is not part of the core business.
Internal rate of return (IRR): The discount rate at which a project's net present value equals zero, used as a measure of its expected annual return. Higher is better, but it can mislead when comparing projects of very different size or duration.
International Financial Reporting Standards (IFRS): Accounting standards issued by the International Accounting Standards Board and required or permitted in most countries outside the United States. They cover the same ground as US GAAP but differ in areas such as inventory and development costs.

L

Leverage: The use of borrowed money to increase exposure or fund operations, which magnifies both gains and losses. It is commonly measured with ratios such as debt to equity or debt to EBITDA.
Leveraged buyout (LBO): The acquisition of a company funded mostly with borrowed money, secured by the target's own assets and cash flows. The buyer, often a private equity firm, aims to reduce the debt and later sell the company at a gain.
Limit order: An instruction to buy at or below, or sell at or above, a stated price. Execution is not guaranteed.
Long-tail risk: The risk of rare events with outsized consequences, the outcomes that sit at the far ends of a return distribution. They are easy to underestimate because they appear infrequently in historical data.
Long-term debt: Borrowings due more than twelve months after the balance sheet date. The part due within the next year is shown separately as the current portion of long-term debt.
Look-ahead bias: Using information in a backtest before it would have been available in practice, such as applying quarterly earnings on the last day of the quarter rather than the reporting date.
Loss leader: A product sold at or below cost to attract customers who are expected to buy other, profitable products. Retailers and razor-and-blade business models are the classic examples.

M

Marginal cost pricing: Setting a price equal to the cost of producing one more unit. In commodity markets the price tends toward the cost of the highest-cost producer still needed to meet demand, which is why that producer is called the marginal producer.
Market order: An instruction to buy or sell immediately at the best available price. Execution is near certain; price is not.
Mineral reserves vs. resources: A mineral resource is a concentration with reasonable prospects of eventual economic extraction, classed as inferred, indicated or measured. A mineral reserve is the part of indicated and measured resources shown to be economically mineable by at least a pre-feasibility study, classed as probable or proven.
Model portfolio: A hypothetical portfolio run according to published rules. No client capital is traded.
Momentum: The tendency of securities that have performed well over the past six to twelve months to continue to do so over the next one to twelve months. Commonly measured as 12-month return skipping the most recent month.

N

Net change in cash: The combined result of operating, investing and financing cash flows for a period, plus any currency effect. It equals the ending cash balance minus the beginning cash balance.
Net present value (NPV) in mining: The sum of a project's future cash flows discounted to today, minus its upfront cost. In mining studies it is the headline figure, usually after tax at a stated discount rate such as 8%, and it moves sharply with commodity price assumptions.

O

Operating expenses vs. total expenses: Operating expenses are the costs of running the core business, such as selling, general and administrative costs and research and development. Total expenses add the cost of goods sold, interest, taxes and other non-operating costs.
Operating income: Gross profit minus operating expenses: the profit from a company's core business before interest and taxes. It is often used interchangeably with operating profit or EBIT.

P

Penny stocks vs. small-cap stocks: A penny stock is defined by its low share price, usually under $5, and often trades over the counter with thin liquidity. A small-cap stock is defined by company size, typically a market capitalisation of about $250 million to $2 billion, and frequently trades on a major exchange.
Position sizing: The rule that determines how much capital is allocated to a single idea.
Pre-feasibility study (PFS): An intermediate engineering and economic study that tests whether a mineral project is viable and selects the preferred way to develop it. Its cost estimates are typically accurate to about 25%, and it is the minimum study needed to declare mineral reserves.
Price discovery: The process by which buyers and sellers arrive at a market price through trading. The price reflects the information, expectations and supply and demand present at that moment.
Price fixing: An agreement among competitors to set, raise or hold prices instead of letting competition determine them. It is illegal under antitrust and competition laws in most jurisdictions.
Price torque: How much more a producer's earnings, cash flow or share price move than the price of the commodity it sells. Because much of a miner's cost is fixed, a 10% rise in the metal price can lift its margin by far more than 10%, and a fall cuts the margin just as sharply. (DataDeep Report on Gold Price Torque)
Price-to-sales and EV-to-sales ratios: Valuation multiples that compare a company to its revenue: market capitalisation divided by sales, or enterprise value (market capitalisation plus debt minus cash) divided by sales. They are used for companies without profits but ignore differences in margins.
Principal (contributed capital): The money actually put into an investment or account, before any gains or losses. In company accounts, contributed capital is the amount shareholders paid the company for its shares.
Private market investments: Investments in assets that do not trade on public exchanges, such as private equity, venture capital, private credit and private real estate. They are less liquid than listed securities and are valued far less often.

R

Realized gain: A profit locked in by selling an investment for more than its cost basis. In most tax systems a sale that realizes a gain is a taxable event.
Rebalance: The scheduled date on which a portfolio's holdings are recomputed and trades are assumed to occur.
Regulatory compliance: Meeting the laws, regulations and standards that apply to a business, from securities disclosure to environmental permits. Failures can bring fines, restrictions on operations or reputational damage.
Reinvested profits: Earnings a company puts back into the business, for example into equipment, research or acquisitions, instead of distributing them. They accumulate in retained earnings.
Retained earnings: The cumulative profits a company has kept rather than paid out as dividends. They appear in shareholders' equity on the balance sheet.
Revenue recognition: The rule that decides when a company records revenue, which is when it delivers the goods or services it promised rather than when cash arrives. ASC 606 and IFRS 15 set this out as a five-step model built on performance obligations and the transfer of control.
Risk management: The practice of identifying, measuring and limiting exposures that could cause losses. In a portfolio it uses tools such as position sizing, diversification, hedging and loss limits.
Risk-return tradeoff: The principle that a higher expected return generally comes with more risk of loss or volatility. How much risk suits an investor depends on their goals, time horizon and tolerance for losses.

S

Sharpe ratio: Annualised excess return over the risk-free rate divided by annualised standard deviation of returns. Highly sensitive to sample length.
Skewness: A measure of how lopsided a return distribution is. Negative skew means occasional large losses with more frequent small gains; positive skew means occasional large gains.
Solvency: The ability to meet long-term obligations as they come due. A quick check is shareholders' equity (assets minus liabilities); solvency ratios such as debt to assets and interest coverage examine it in more detail.
Sortino ratio: Annualised excess return divided by downside deviation only, ignoring volatility from positive returns.
Spread: The difference between the best bid and best ask price. Paid, in effect, on every round trip.
Stop order: An instruction that becomes a market order once a trigger price is reached. It manages exit timing, not exit price.
Stranded asset: An asset that loses much of its value before the end of its expected life because of regulation, new technology or changing markets. Fossil fuel reserves that cannot be developed under tighter climate policy are a frequently cited example.
Stress testing: Simulating extreme but plausible scenarios, such as a market crash or a sharp rise in interest rates, to see how a portfolio or company would hold up. It complements statistical measures that rely on normal market conditions.
Structured equity: Financing that combines ownership with debt-like protections, such as preferred shares with a liquidation preference, a guaranteed minimum return, or conversion rights. Companies use it to raise capital without issuing ordinary shares at their current price.
Sum-of-the-years' digits: An accelerated depreciation method that charges a declining fraction of cost each year, using the remaining years of life over the sum of all the years. A five-year asset takes 5/15 of its cost in year one, 4/15 in year two, and so on.
Survivorship bias: Testing on a universe that excludes companies that were later delisted or removed, which flatters results because failures are absent.

T

Tabular numerals: Digits of equal width so that figures align in columns. Used for all financial data on THR.
Tail-risk diversifiers: Holdings expected to hold their value or rise during severe market declines, which can offset losses elsewhere in a portfolio. Examples discussed in research include long volatility positions, trend-following strategies and high-quality government bonds.
Tax deferral: Postponing tax to a later period, for example through retirement accounts, accelerated depreciation, or holding assets whose gains are taxed only when sold. Deferral usually changes when tax is paid rather than whether it is paid.
Tax timing strategies: Choosing when income, gains, losses and deductions are recognised in order to manage the tax owed in a given year. Examples include accelerating deductions, deferring income and realizing losses to offset gains.
Temporary full expensing / instant asset write-off: Australian tax measures that let businesses deduct the full cost of eligible assets in the year they are first used instead of depreciating them. Temporary full expensing applied from 2020 to 2023; the instant asset write-off is a recurring measure with a cost threshold for smaller businesses.
Trim into strength: A market phrase for selling part of a position while its price is rising, rather than after it falls. It reduces the size of a position and realises some of the gain while keeping the rest.

U

Unicorn: A privately held startup valued at $1 billion or more. The valuation usually comes from the price paid in its latest funding round rather than from trading on a public market.
Units of production: Depreciation based on how much an asset is used, such as tonnes mined or hours operated, relative to its expected total output. It matches the expense to activity and is common in mining and energy.
Universe: The full set of securities a strategy may hold, defined by rules such as listing venue, liquidity, and price. THR also uses it for the set of companies the desk tracks.
Unpatented mining claim: A claim on US federal land that gives the holder the right to explore for and extract certain minerals without owning the land itself. It must be kept in good standing with annual maintenance fees to the Bureau of Land Management.
Unrealized gain: An increase in the value of an investment that is still held. It exists only on paper and can shrink or disappear as the price moves.

V

Valuation: An estimate of what a company or asset is worth, based on what it owns today and the cash it is expected to generate in future. Common methods are discounted cash flow, comparisons with similar companies, and the value of net assets.
Value at risk (VaR): An estimate of the loss a portfolio should not exceed over a set period at a given confidence level. A one-day 95% VaR of $1 million means losses larger than $1 million are expected on about 5% of days; it says nothing about how large those losses can be.

W

Winsorise: To cap extreme values at a stated percentile before further calculation, limiting the influence of outliers.

Z

Z-score: A value expressed as the number of standard deviations from the mean of its group. Used to make different variables comparable.