Investment Glossary

Investors employing an active approach look to generate returns above and beyond an index – their goal is to create a portfolio that beats the markets. A passive approach involves creating a portfolio that mirrors an index (in terms of both stock selection and weight within the portfolio) in order to earn an index-like return.

An investment approach that focuses on analyzing individual stocks and de-emphasizes the significance of macroeconomic and market cycles. Bottom-up investors like Burgundy focus on specific companies and their fundamentals.

A “bull” market signifies an upward-trending market and positive sentiment from market participants, whereas a “bear” market signifies a downward-trending market and negative sentiment or fear. They are named for each animal’s motion of attack (the upward motion of a bull’s horns vs. the downward motion of a bear’s claw).

How a company allocates its cash within the business. Examples would be to reinvest in the business, or to pay out cash to shareholders in the form of dividends.

Used in the context of bonds/fixed income and represents the percentage of interest income paid by a bond relative to its current price.

An amount distributed by a company from its earnings to its shareholders (usually paid quarterly).

The percentage of a company’s share price it pays in the form of a dividend, annually.

A list of companies that embody the business, financial and management characteristics that Burgundy deems high quality, but their current market price does not offer enough of a margin of safety to warrant investing at this time.

An estimate of a company’s actual worth, based on in-depth research and both quantitative and qualitative factors. A company’s intrinsic value may differ from its market price.

The difference between a company’s market price and its intrinsic value. The lower the price compared to intrinsic value, the higher the margin of safety; conversely, the higher the price compared to intrinsic value, the lower the margin of safety.

Determines the financial “size” of a company. It is calculated by multiplying a company’s stock price by the number of shares outstanding. Companies are often then categorized into small market capitalization (small cap), small/mid market capitalization (small/mid cap) and large market capitalization (large cap).

Likened to a physical moat around a castle, an economic moat is used to describe the advantages a company possesses over its competitors. The more competitive advantages, the wider the moat.

Value investing encompasses a spectrum of styles. At one end, “deep value” (associated with Ben Graham) focuses on companies that are significantly undervalued, with less focus on the quality of those companies. At the other end of the spectrum, “quality value” (associated with Warren Buffett) focuses on uncovering quality companies and investing when they are available at discount prices.

A list of companies that do not yet meet the criteria to be deemed high quality, but are worth monitoring for any changes that strengthen the business. If any companies are deemed at some point to be of high quality, we will invest (if the price is right) or move them to the Dream Team.

The difference between the quoted rates of return on two different investments, usually of different credit qualities but similar maturities. It is also known as the credit spread.

The total rate of return anticipated on a bond if the bond is held until its maturity date.