Wednesday’s Word: Securitization

By Eric Peters, Spring 2018 IAC Student Intern

Securitization is a process that has been developed, essentially, to take various types of debt instruments that were rarely traded and turn them into tradable securities, resulting in greater liquidity.  As such, the goal of the securitization is threefold: 1.) increase the liquidity of debt instruments, 2.) lower the cost of capital to borrowers, and 3.) increase the efficiency of financial markets. Continue reading

Wednesday’s Word: Boiler Room

By Ben Dell’Orto, Spring 2018 IAC Student Intern

In addition to inspiring a Hollywood movie, Boiler Rooms are a common scheme to pressure investors into purchasing an investment that most likely is not a good one for them. The scheme involves a large group of “salesmen” trying to attract as many investors as possible to the scam. The most common method is through cold calling, where the schemers use high-pressure sales tactics to encourage the potential investor on the other end of the phone call to take advantage of an investment that will yield “high returns” and “no risk” but is only available for a short time. FINRA notes that the caller will often attempt to explain the miracle investment by suggesting that it is founded in an emerging industry or will “play off recent events” to lend legitimacy to the lie. One recently-busted scam in England took advantage of the rising wine industry, and this blog reported on a recent FINRA report of scams increasing on this side of the pond.

While previously usually conducted over the phone, the SEC adds that boiler rooms now may use “emails, text messages, social media, and other means.” These methods lack the pressure created by a persuasive voice speaking directly over the phone, but can still be effective by suggesting that the time to buy is limited, or by pestering with frequent messages.

The most important thing to remember to avoid falling victim to a Boiler Room scheme is to

Take.

Your.

Time.

The fraudsters behind this kind of scheme are relying on a quick decision, so taking a moment to run a broker check and an internet search of the investment before buying will save you from taking a big loss.

Wednesday’s Word: Unit Investment Trust

By Esmat Hanano, Spring 2018 IAC Student Intern

The Financial Industry Regulatory Authority (FINRA) has released its annual Regulatory and Examination Priorities Letter. One of the biggest priorities for FINRA in 2018 is monitoring the use of Unit Investment Trusts, or UITs. What exactly is a UIT you may ask? Continue reading

Wednesday’s Word: CryptoKitties

By W. Dowdy White, Spring 2018 IAC Student Intern

Stop what you are doing and read this right meow. If you haven’t been living under a rock for the past two years, the odds are that you have heard of popular blockchain technologies, that underlie cyrptocurrencies, like Bitcoin, Ethereum, or Litecoin.

If you have been living under a rock, there are new digital currencies that are “described as peer-to-peer virtual currenc[ies] that [are] used like money – [they] can be exchanged for traditional currencies, such as the U.S. dollar, or used to purchase goods or services . . . .” Unlike the U.S. dollar, these currencies are neither backed by any government, nor are they bound by a central governing authority.

Have you ever been on Facebook or another social media site when you receive a notification from one of your friends or followers asking you to play a certain game that involves throwing digital birds at buildings or maintaining a digital farm? Of course you have. Well, there is a new similar gaming fad presently overwhelming cryptocurrency users that is known as CryptoKitties. Yes, kitties – digital felines to be exact.

CryptoKitty example from http://www.cryptokitties.co/

Currently, users of the Ethereum currency known as ether can purchase digitally animated cats that live and breed on an ether user’s blockchain. CryptoKitties is a company that describes its game product as “one of the world’s first games to be built on blockchain technology . . . [that includes] cryptocollectibles . . . .” Instead of your typical currencies, this game allows you to “buy, sell, or trade your CryptoKitty like it was a traditional collectible  . . . .” Moreover, you can feed your CryptoKitty as well as breed it with other CryptoKitties to produce new offspring, which the company promises will be as unique as you are.

Why the heck are these so popular? According to the New York Times, over 180,000 people have signed up for CryptoKitties. Additionally, a variety of people have spent about $20 million in ether, and more than 10 million kitties have sold for over $100,000 a piece. It seems that many CryptoKitty owners feel that the game offers a sense of childlike wonder and simplification to the complicated and sophisticated world of cryptocurrencies, and people seem to be responding well to their new digitally furry friends.

Why do you need to know about this? Continue reading

Wednesday’s Word: Bear Market

By Abigail Howd, Spring 2018 IAC Student Intern

A bear market is a prolonged period when investment prices continuously drop. According to FINRA, bear markets are often “accompanied by economic recession, rising inflation, or rising interest rates.” A decline of at least 20% in the market index usually indicates we are a bear market. To date, the longest bear market in United States history happened during the Great Depression when stock and bond prices dropped for four consecutive years!

Bear markets often lead to graveyard markets which refer to an overall decline of new investments. This decline occurs for two reasons. The first is that investors who already own holdings would lose large sums of money trying to liquidate their declining investments. The second is that potential investors are hesitant to invest at all during a bear market. Continue reading

Wednesday’s Word: Dow Jones Industrial Average

By Alisa Radut, Spring 2018 IAC Student Intern

The Dow Jones Industrial Average is a well-known stock market index of thirty major companies, including McDonald’s, Wal-Mart, Visa, and, as of 2015, Apple (for the complete list click here).  This index informs consumers how stocks in these major companies traded on the stock market are doing in general.  As the second oldest market index (since October 1, 1928), the Dow originally intended to measure the activities of companies dealing with heavy products, such as those used in construction.  Today, however, it no longer focuses only on industrial companies.  The Dow’s companies have significantly changed scope and are considered to be leaders of the economy.  Why do consumers care about the Dow? Its beginnings in a self-sufficient U.S. economy exhibited an independence from what was happening in other economies around the world.  Back then, everyone’s income moved in the same direction, and the Dow was a great indicator of the economy’s health.  According to an article in The New York Times, today the Dow is a “rough measure of stock performance.”  The wealth of a few top companies do not accurately represent as many Americans today as it used to.  The New York Times has criticized this measure as a reflection of investors’ own reactions rather than a useful indicator of how the market is actually performing. Continue reading

Wednesday’s Word: Beta

By Eric Peters, Fall 2017 IAC Student Intern

Beta, the measure of a stock’s tendency to move up and down with the market, is the most relevant measure of any stock’s risk.  Individual investors generally hold portfolios rather than the stock of only one company because the risk of an asset held as part of a portfolio is less risky than the same asset held in isolation.  Combining stocks into portfolios reduces risk, but does not completely eliminate it.* Continue reading