Value investing is something of a misnomer in many ways as no-one would knowingly buy shares in a company unless they thought that the shares were good value. However, in investment circles it has come to mean the purchase of shares that look cheap according to particular criteria.

Historically, this has meant the purchase of shares in companies which have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a mixture of all three. As such it is contrasted with growth investing, where the investor focuses only on the potential for future earnings growth and is prepared to pay much high P/E multiple.

So the heart of value investing lies in comparing two figures:

1. Current Market Value
   Multiply the number of ordinary shares in issue by the current price of each share to produce the market capitalisation. You can look up the market capitalisation of a quoted company in the financial pages of most newspapers, and on many financial websites.
2. Intrinsic Value of the Company
   There is no single way of establishing what the value of a company should be. Instead, value investors use a number of different valuation techniques, based on asset values, dividends, earnings, cash flows and other financial criteria.

When a value investor identifies a discrepancy between the Current Market Value and the Intrinsic Value (according to the criteria he chooses), and the first is lower than the second, he invests. When the gap between them closes, or reverses, he sells, and takes his profit.

An arrangement in which the vendor (seller) of a business who receives shares in the acquiring company as part of the deal immediately sells them on to an institutional investor.

The point of this is that if the vendor sold the shares on the open market it would depress the share price, which would be bad both for the vendor and for the company. By selling a large block to an institution the price remains stable.

The vendor gets what he really wants (cash), the acquiring company is able to pay for its acquisition the way it wants (shares) and the institutional investor gets shares in a company that it likes at a price that will invariably be below the market price.

A type of investment trust which invests in small unquoted companies with assets of under £15 million, including AIM and OFEX companies, and which is designed to attract risk capital from higher rate taxpayers by giving them tax concessions.

• Like investment trusts, VCTs are quoted on the London Stock Exchange.
• As with investment trusts, their share price may trade at a discount to net asset value.
• They provide 3 types of tax benefit:
  

  -40% capital gains tax deferral, provided the shares are held for a period of no less than 3 years.

  - 20% income tax relief on the amount of the original investment

  - All dividends are tax free and all gains on disposal after 3 years tax exempt. But when the shares are sold, the original capital gains tax liability will be re-triggered.

VCTs are only allowed to invest in companies under a certain size, and there is a limit on how much they can invest in any one company. The idea is that they must apply their funds to genuinely risky entrepreneurial ventures.

A measure of a security's propensity to go up and down in price.

A volatile share is one which has a tendency to move violently through a deep share price range. Mathematically, this is expressed as the standard deviation from the average performance.

In general, high volatility means high unpredictability, and therefore greater risk. Numerous attempts have been made to incorporate volatility into pricing models, but the problem has always been that past volatility is not necessarily a good guide to future volatility.

Generally speaking, the higher the volatility of a share, the higher the price of option/warrants on the share will be.

The number of shares traded on a stock exchange for a given period, also known as market turnover. Low volume is sometimes referred to as 'thin' trading.

The significance of volume, particularly for technical traders, is that the higher it is, the more reliable the closing price is as a barometer of market sentiment.

For most technical analysts, volume is used as corroborative evidence of a trend, rather than primary evidence. There are five basic rules:

1. When prices are going up and the volume is increasing then the trend will stay in force and prices will continue to rise.
2. When prices are going up and the volume is decreasing the trend is unlikely to continue and prices will either increase at a slower rate or start to fall.
3. When prices are decreasing and volume is increasing then the trend will continue and prices will fall further.
4. When prices are decreasing and the volume is also decreasing then the trend is unlikely to continue and the decline in prices will slow down or they will start to increase.
5. When volume is consistent, not rising or falling, then the effect on prices is neutral and you need to find some other way of backing up your trend analysis.

A calculation performed by the London Stock Exchange to set closing prices for shares traded on the SETS order book system.

In simple terms, the value of trades is divided by the volume over a given period. The LSE uses a closing 10 minute VWAP to set closing prices on SETS.