In technical analysis, what happens when the short moving average price of a stock (say, its 20-day moving average) falls below a longer moving average (say, its 50-day average).

For chartists, this cross is a sign that sentiment in the market has turned decidedly against the stock, especially if up to that point two moving averages have been moving roughly in parallel.

For UK stock market investors, the costs break down into:

1. Broker commission
   Commission is chargeable whether you buy or sell, and either takes the form of a flat fee (e.g. £12 per trade) or a commission on the value of the trade (e.g. 1.25% x £3,000 = £37.50). The actual figures will vary from broker to broker. Execution-only brokers are invariably cheaper than full-service brokers because they are not advising on what to buy or sell. They are just executing the trade.
2. Stamp Duty
   0.5% tax, chargeable on purchases only (1% for Irish stocks)

An income tax allowance which can be claimed if certain payments are being made to friendly societies on combined sickness and life insurance policies.

The allowance is half of the death benefit part of the premium. Also, relief is obtainable on trade union contributions which relate to superannuation, life insurance or funeral benefits. The allowance is half of the premium. Allowances for superannuation contributions to retirement benefit schemes are usually deducted by the employer before assessing tax on the remaining pay.

Debt consolidation companies have cashed in on this principle, offering debt-ridden borrowers tempting deals backed by the value of their homes, but a key problem is that they can lose their home if they default on payments. Moreover, the interest rates charged are invariably higher than mortgage rates.

The raising of new money by a company in order to pay off existing debt.

This is something that borrowers do all the time, and it does not signify trouble.

Debt restructuring is a more fundamental process, often involving the conversion of debt into equity.

Net borrowings of a company divided by shareholders' funds. The ratio shows the amount of financing that is provided by sources other than the shareholders.

Net borrowings means the total borrowings of the company from banks, other financial institutions, debenture holders and preference shareholders, less any cash that is readily available and any short term cash holdings.

Both figures can be found in a company's balance sheet. The ratio is often multiplied by 100 and expressed as a percentage. The higher the percentage, the more risky for lenders to the company. Most lenders like the percentage to be below 50%. If it is above 100%, the company is said to be highly geared.

A ratio used to work out how many days on average it takes a company to get paid for what it sells. Calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.

E.g. A company with debtors of £700,000 and sales of £12m, takes an average 21.29 days to collect its debts.

Obviously, the lower the number of debtor days, the better. An abnormally high figure suggests inefficiency, potential bad debts, window-dressing of the sales figures, or deliberate bullying by large customers trying to improve their own cash management. None of that is good news.

Cash businesses, including most retailers, should have very low debt collection multiples, because they get their money at the same time as they sell the goods. The typical target for non-cash businesses will be 50-70 days.

A legal document which records the obligation of one individual to pay a specified sum to another for a specified number of years.

The individual making the payment deducts tax at the basic rate and thus pays a net amount on which tax relief is obtained. If the recipient is a registered charity the payer can obtain tax relief up to his/her higher rate whilst the charity can claim back the amount deducted.

In other words, it is a tax effective way for individuals to give to charity.

In the context of a rights issue, the issue of shares at a price much lower than the current trading price.

In most rights issues, the new shares are priced at 10-15 per cent below the current price which is thought to be enough to ensure that existing shareholders take up the rights and buy the new shares.

With a deep discount rights issue, the discount can be anything up to 50%. In August 2000 the media company Pearson announced a £1.7bn rights issue to pay for a US acquisition and priced it at a substantial discount. The reasoning was that for a rights issue of this size, and in volatile markets, the discount was necessary to ensure its success. Also, the company is estimated to have saved about £27m in underwriting fees.

A term used in permanent health insurance which refers to a period, prior to payment by the insurers to the policyholder after a claim, during which no payments are made.

For example, a typical deferment period could be six months so if a policyholder made a claim after contracting an illness which qualified, it would be six months later that payments would commence. Sometimes an employee's company will continue paying his/her salary during this period so it would be important to ensure that the permanent health insurance co-ordinates with the company's payment commitments. Also, as the deferment period increases so the premiums decrease.

1. The transfer of title of a security such as stock from buyer to seller.
2. Settlement of a futures contract by receipt or tender of a financial instrument (for example stock) or a commodity or by cash settlement.

A corporate restructuring in which one part of a company is spun off as a new company, often with quoted status of its own. Examples in the UK include Zeneca which was spun out of ICI, and Argos which was spun out of British American Tobacco.

Like their opposite - mergers - demergers tend to go in and out of fashion. When share prices are rising, companies like to use their 'paper' (i.e. shares) to acquire other companies, so their advisers encourage merger activity. In a market of falling prices, mergers and IPOs are less popular, and the merchant banks who earn their fees from corporate activity will start to look at demerger possibilities for their clients.

From a tax point of view, when Company A splits into two or more parts, and distributes shares in each part to its original shareholders, there is no disposal for CGT purposes.

In a study of 38 demergers, the London School of Economics found that demergers are beneficial to shareholders both at the time of the announcement and in the two years following.

The charge in a company's accounts which reflects the reduction in value of an asset over time as its useable life is exhausted.

Depreciation is charged before calculation of profit, on the grounds that the use of capital assets is one of the costs of being in business and one of the contributors to profit.

There are two main methods of depreciation:

1. Straight line: the residual (scrap) value of the asset is deducted from its original cost, and the resultant figure is divided by the estimated life of the asset. The result of that is deducted annually over the life of the asset. So an asset that costs £10,000 and that has a residual value of £200 with a useable life of 4 years is depreciated by £2450 per year.
2. Reducing balance: the amount of annual depreciation is a constant proportion of the cost of the asset.

Depreciation has no effect on cash flow. It is just an accounting procedure.

A collective term for securities whose prices are based on the prices of another (underlying) investment.

The main derivatives are:

• futures
• options
• swaps
• warrants
• convertibles

The attractions of derivatives from an investor's point of view are:

1. Large profits (but also losses) can be made on a small stake, because they offer 'leverage'.
2. Because derivatives are essentially a bet on which way the price of the underlying instrument is going, you can make money whether the market goes up or down, which is not true if you invest in shares where you only make a profit if the share price rises.
3. Derivatives can be used to reduce the risk (or hedge) of an investment in the underlying instrument.

In general, derivatives are high-risk investments and not suitable for the ordinary investor.

The index for the largest 30 German companies quoted on the Frankfurt Stock Exchange.

The index was launched in 1987 with a base value of 1,000 and replaced the Borsen Zeitung Index.

A method of calculating the net asset value of a company, for example an investment trust, after taking into consideration any outstanding convertible loan stock, warrants or options which are assumed to be exercised by the holders, so increasing the number of shares among which the assets are divided.

Example: an investment trust which has assets of £100 million and 10 million shares in issue has a net asset value of £10 per share. If there are also warrants which, if exercised, would increase the number of shares in issue to 11 million, the net asset value is £9.09.

A payment system in which the payer authorises the payee to take funds from his bank account.

Typical examples are monthly premiums for an insurance policy, or electricity bill payments.

The purchases and sales made by directors of shares in the publicly quoted companies for which they work. It is perfectly legal for directors to buy or sell shares in their own company provided certain rules are observed. The most important rules are:

• directors are not allowed to use unpublished price sensitive information which they have got from their job to reach a decision about buying and selling shares (insider dealing)
• directors are not allowed to buy or sell shares in their company for two months before the announcement of results (the 'closed period')

The process of tracking directors dealings has been standard practice for some time. It is becoming more and more accepted as a means for identifying stocks with substantial potential. Put crudely, if the directors are buying, they think the shares are undervalued; if they are selling, they think the shares are overvalued.

Insurance which provides an income to policyholders when they are unable to work due to an illness or injury.

Disability payments to insured people, which normally commence after a set period (the elimination period), are usually tax free provided the premium payments are up to date.

The difference between the net asset value (NAV) per share of an investment trust and the share price, expressed as a percentage of the net asset value per share.

e.g. if the NAV is £3.00, and the share price of the trust is £2.70, the trust is trading at a 10% discount to its NAV.

When the share price is above the net asset value, it is said to be trading at a premium.

A formula closely related to Net Present Value which springs from the idea that £1 received in ten years' time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value.

Discounted cashflow applies a discount rate to future cashflows to establish their present worth. Added to the company's terminal value (i.e. what you'd get if you sold its assets), this gives you a total value for the whole business.

A broker who not only deals in stocks and shares on behalf of his client, but who also makes the decisions about what should be bought and sold for the portfolio and has authority to execute those decisions without getting prior approval from the client. Also known as a full-service account.

Contrast with advisory brokers and execution-only brokers.

The website of The Association of Private Client Investment Managers and Stockbrokers- http://www.apcims.co.uk - provides a list of brokers and the services which they offer.

Investment jargon for not keeping all your eggs in one basket. Diversification implies that you distribute your capital among various assets to reduce loss if, through bad luck or judgement, one of them fails you.

There are four main areas of risk to think about.

• Asset allocation: spreading your investments among different classes of asset (bonds, equities, property etc)
• Shares: spreading your stock investments over a sufficient number of shares (or invest in a diversified collective fund)
• Sectors: making sure the shares you invest in are in companies operating in a variety of sectors
• Countries: getting some exposure to economies outside the UK as well as in the UK

Most people agree that diversification is essential to reduce risk. There is an argument that to make exceptional returns, you have to concentrate your investments - the big winners theory. 'Put all your eggs in one basket and watch that basket very closely'.

The distribution of part of a company's earnings to shareholders, usually twice a year in the form of a main dividend and an interim dividend.

Normally, the dividend is expressed on a 'per share' basis, for instance - 3p per share. This makes it easy to see how much of the company's profits are being paid out, and how much are being retained by the company to plough back into the business. So a company that has earnings per share in the year of 6p, and pays out 3p per share as a dividend, is passing half of its profits on to shareholders and retaining the other half.

Directors of a company have discretion as to how much of a dividend to declare, and they don't have to pay a dividend at all. Indeed , for young growth companies making no profits dividends are not generally expected.

When they are expected, however, the City hates to be disappointed! Fund managers rely on big companies producing consistent dividends year after year, and wobetide the company that surprises the City by announcing a reduced or nil dividend.

As a private investor, it is worth checking the dividend history of the company you invest in to see if it has produced a reliable stream over the years. If income is important to you (as opposed to capital growth), the dividend yield is vital information to you.

Note that dividends are nearly always paid in cash, but they can also be in the form of stock (scrip dividend).

The ratio between a company's earnings (net profit after tax) and the net dividend paid to shareholders, calculated as earnings per share divided by the dividend per share.

So if a company has earnings per share of 8p and it pays out a dividend of 2.1p, the dividend cover is 8 / 2.1 = 3.80

Generally speaking, a ratio of 2 or higher is considered safe (in the sense that the company can well afford the dividend), but anything below 1.5 is risky. If the ratio is under 1, the company is using its retained earnings from a previous year to pay this year's dividend.

A plan which allows private investors to reinvest cash dividends from their investments cheaply and easily back into the market, and so obtain the benefits of compounding.

The Plan is managed by an administrator appointed by the company. On the dividend date, shareholders who join the plan are still paid the cash dividend, but the administrator then uses the cash to buy shares in the company on behalf of the shareholder. Any cash left over is sent to the shareholder in the normal way. Dealing commission on such purchases is usually 1%. Note that the Plan Administrator does not have to make the plan available for any and every dividend that the company pays. If it is not made available, shareholders will receive the cash dividend.

The annual dividend income per share received from a company divided by its current share price. Put simply - how much income are you getting out of the company for the capital you've got locked up in it?

Dividend yields are calculated on the net dividend.

Example: a company declares a net dividend of 2.1p per share. Its share price is 150p.

To get the dividend yield, divide the net dividend by the current share price:

2.10 /150 = 1.4%

The dividend yield is 1.4%. Note that the higher the share price, the lower the dividend yield. Using the above example, if the shares rose to 200p, the yield would fall to 1.05%

2.10/200 = 1.05%

The problem for investors is that if a company has a low dividend yield compared to other companies in its sector, it can mean two things. Either it means the company's share price is high because the market reckons it's got great growth prospects and doesn't care too much about income, or it means that the company's a busted flush and can't afford to pay decent dividends.

One of the main USA share indices which monitors the movement of 30 industrial companies traded on the New York Stock Exchange.

The Dow Jones Industrial Average has just been joined by a new index, the Dow Jones Total Market Index, which covers a much broader range of companies.