Glossary
Plain-English definitions, cross-linked into the deep-dives.
A glossary for everything the workshop assumed. Each entry has a plain-English definition and a link into the section where the term gets used in context. Work-in-progress; let me know if a term is missing.
A
- Alpha
- Returns above what the market would have given you. The job of an active manager is to generate alpha; index funds explicitly don't. Frameworks → Two engines of return
- Amortization
- The accounting method for spreading the cost of an intangible asset (patent, software license, goodwill) over its useful life. The cash was spent up front; amortisation just allocates the expense across years on the income statement.
- Asset value
- The replacement cost of a business — what it would cost to build the same business from scratch today. Greenwald's first valuation lens; the downside floor. Frameworks → Greenwald 3-step
B
- Beta
- A measure of a stock's price volatility relative to the broader market. Beta of 1 means it moves with the market; 1.5 amplifies market moves 50%; 0.7 dampens them. Useful for portfolio-construction math; less useful as a measure of business risk (which is what value investors actually care about).
- Book value
- Total assets minus total liabilities, as reported on the balance sheet. The accounting estimate of what would be left for shareholders if the company were liquidated. Often very different from intrinsic value — especially for asset-light businesses where book value vastly understates the franchise.
C
- Capex
- Capital expenditure. Money spent on long-lived assets (factories, equipment, datacenters). Distinguished from opex (operating expenses, consumed in-period).
- Cap rate (capitalisation rate)
- The yield on an asset, calculated as annual income ÷ asset value. Most commonly used in real estate (rental income ÷ property value), but applies to any income-producing asset. The inverse of a multiple — a cap rate of 5% corresponds to a 20× multiple.
- Capital cycle
- The repeating loop where industry capex → oversupply → price crash → underinvestment → undersupply → price recovery → renewed capex. Used to time entries into cyclical businesses. Research → Stage 2 (Industry structure)
- Cash conversion
- How much of reported earnings shows up as actual free cash flow. High cash conversion = high earnings quality. Frameworks → Quality dimensions
- Compounder
- A business whose earnings grow sustainably for a long time, allowing returns from holding to compound. Edge typically comes from the market under-pricing how long the growth lasts. Frameworks → Two engines of return
- Compounding
- Reinvesting returns so growth applies on top of growth. The reason a 9% return beats a 7% return by orders of magnitude over 35 years. Retirement page
- Cost advantage
- A structural source of pricing power: producing or distributing for less than competitors can. Frameworks → The five moats
- Cost of capital
- The required return for the risk being taken. Used to discount future cash flows back to present value.
- Cyclicality
- How much a business's earnings swing with the broader economy or its industry's commodity prices. High cyclicality = lower earnings stability, lower multiple. Frameworks → Quality dimensions
D
- Dilution
- The reduction in existing shareholders' ownership percentage when the company issues new shares (for stock-based compensation, acquisitions, capital raises). A company with 10% annual dilution must grow earnings 10% just for per-share value to stay flat. Always look at per-share growth, not absolute growth.
- Dividend
- Cash paid out to shareholders from earnings. One of the two components of investment return (the other is capital gain).
- Downside protection
- Designing investments so the worst case is survivable. Buffett's "rule one: don't lose money." Value Investing → Downside-focused
- Drawdown
- The peak-to-trough decline in a portfolio or position. Drawdown math is non-linear: a -50% drawdown requires a +100% recovery to break even.
E
- EBIT / EBITDA
- Earnings Before Interest and Taxes / EBIT plus Depreciation & Amortization. Used to compare businesses across different capital structures and tax regimes.
- Earnings power value (EPV)
- What a business can sustainably earn at its current state, capitalized at cost of capital. Greenwald's second valuation lens. Frameworks → Greenwald 3-step
- Efficient market hypothesis
- The academic view that prices already reflect all available information. The workshop's pragmatic refinement: efficient in aggregate, not in specific assets; efficient long-term, not necessarily short-term. Slides → KEY 27 (Two observations about markets)
- EPS
- Earnings per share. A company's net income divided by shares outstanding.
- Enterprise value (EV)
- Market cap + net debt. The price of buying the whole business, debt and all. Used in multiples like EV/EBIT for apples-to-apples comparison.
F
- Free cash flow (FCF)
- Cash generated by operations minus capex. What's left to return to shareholders or reinvest.
G
- Growth value
- The extra value created by reinvesting capital at ROIC above cost of capital. Greenwald's third valuation lens — only positive when management can reinvest above hurdle. Frameworks → Greenwald 3-step
I
- Intangible assets (as moat)
- Brand, patents, regulatory licenses — non-physical assets that create pricing power. Ferrari, Hermès, pharma patents. Frameworks → The five moats
- Intrinsic value
- What a business is fundamentally worth, independent of what the market is pricing it at today. The "fundamental" side of the two-layer analysis. Value Investing → Two layers of analysis
- Incremental ROIC
- Return on the next dollar reinvested. Determines future growth quality. Frameworks → Quality dimensions
- IRR (internal rate of return)
- The annualised return implied by a series of cash flows in and out of an investment. Used heavily in private-equity and project-evaluation contexts. For a single buy-and-hold position, IRR ≈ CAGR; for positions with multiple buy/sell tranches, IRR is the right way to compute total return.
K
- Kill-thesis
- A written-down disaster scenario: "three years from today, this investment was a disaster. What happened?" If you can't write one, you don't understand the risk. Research → Stage 3 (Memo)
L
- Leverage
- The use of borrowed capital to amplify returns on equity. A company with debt is leveraged; a margin-account investor borrowing to buy stocks is leveraged. Leverage amplifies both gains and losses — and tends to be the mechanism behind catastrophic blow-ups (Long-Term Capital Management, 2008 bank failures, leveraged crypto positions). The value-investor preference is for unlevered or modestly-levered businesses.
M
- Margin of safety
- The gap between intrinsic value and the price you pay. The larger the gap, the more room to be wrong and still come out OK. Value Investing → Mindset
- Moat
- A durable competitive advantage — Buffett's term for what protects a business's returns from being competed away. Five recognized sources. Frameworks → The five moats
- Multiple
- The ratio of price to a fundamental — P/E (price/earnings), EV/EBIT, etc. The market's distilled view of a company's quality, growth, and risk. Frameworks → Price = E × M
- Multiple compression / expansion
- The multiple changing without underlying earnings changing. Most of Meta's 2022 drawdown was multiple compression, not earnings impairment. Frameworks → Meta example
N
- Network effect
- A product gets more valuable as more people use it. Meta, Visa/Mastercard, eBay's core marketplace. Frameworks → The five moats
O
- Opex (operating expenses)
- Day-to-day operating costs — salaries, rent, utilities, marketing — that are consumed in the period they occur. Distinguished from capex, which is spent on long-lived assets. A company classifying spending as capex when it should be opex is artificially boosting current earnings.
- Operating margin
- Operating income ÷ revenue. The percentage of each sales dollar left after paying for operations (but before interest and taxes). Higher is generally better; durability of operating margin through cycles is one of the cleanest measures of pricing power.
P
- P/E ratio
- Price per share divided by earnings per share. The most common multiple. A P/E of 20 means the market values one dollar of current earnings at $20.
- Perpetuity formula
- Present value of a constant cash flow stream = CF / r. The mathematical basis for "if your required return is 10%, you'd pay 10× earnings." Frameworks → Price = E × M (black-box intuition)
- Position sizing
- How much capital to allocate to a single idea. A function of conviction, margin of safety, downside, and quality of business. Research → Stage 4 (Sizing)
- Pricing power
- Ability to raise prices without losing volume. Foundational quality dimension — Ferrari has it, commodity producers don't. Frameworks → Quality dimensions
- Payback period
- How long an investment takes to return its initial cost. A retail-friendly framing of risk: a 5-year payback (20% annual return implied) is generally safer than a 20-year payback, because shorter payback means less uncertainty about distant cash flows. Useful for evaluating capex decisions inside a company.
Q
- Quality factor
- In academic factor-investing literature, "quality" refers to companies with high return-on-equity, low debt, and stable earnings. Used in factor-based ETFs and quantitative screens. The workshop's six-dimension quality framework on the Frameworks page is a more nuanced practitioner's version of the same idea.
R
- Re-rating
- The market changing the multiple it's willing to pay, usually because sentiment about the company changes. Most of an alpha generator's return comes from re-rating. Frameworks → Two engines of return
- ROIC
- Return on invested capital. How efficiently a business turns capital into earnings. Compared to cost of capital to determine whether reinvestment creates or destroys value. Frameworks → Quality dimensions
S
- Scuttlebutt
- Philip Fisher's term for ground-truth research — talking to customers, suppliers, competitors, former employees. Distinct from desk research. Research → Stage 2 (Deep read)
- Sum-of-the-parts (SOTP)
- Valuing a business by separately valuing each of its segments, then adding them up. Critical for Meta (Family of Apps vs Reality Labs) — the consolidated number hid that two very different businesses were trapped in one ticker. Frameworks → Meta example
- Screen
- A quantitative filter to narrow a large universe of stocks to a manageable shortlist — e.g., "all Japanese mid-caps with EV/EBIT below 10 and ROIC above 15%." Useful as a starting point for idea generation; never sufficient as a buy decision. A screen produces candidates, not theses.
- Short interest
- The percentage of a stock's float that has been sold short (i.e., bet against). High short interest can signal that sophisticated bears see something the bulls don't — worth investigating — but it can also be a trap (a short squeeze forces shorts to buy back at any price, sending the stock up artificially). Read the bear thesis before assuming the shorts are wrong.
- Switching cost
- The friction (in time, money, or risk) of moving from one product to a competitor's. Enterprise software, banking infrastructure, Bloomberg terminals. Frameworks → The five moats
V
- Variant perception
- A view about a security that differs from consensus and is well-founded. The whole point of research is to develop one. Research → Stage 3 (Memo)
W
- Working capital
- Current assets minus current liabilities — the short-term capital tied up in running the business (inventory, receivables, payables). A growing business needs more working capital, which consumes cash even when the business is profitable. Watching working capital trends reveals operational efficiency that the income statement hides.