Guide to Analysing Companies

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Bearer security
A bond or share certificate that is not registered in the name
of its owner. Whoever holds (or bears) the certificate can collect
the interest or dividend due, usually by detaching a
coupon. A bearer security can be bought or sold without
being endorsed; it is as liquid as cash and equally vulnerable
to theft. A eurobond is a bearer bond. Bearer bonds have the
great advantage of being more easily kept out of the eye of the
tax authorities than bonds that must be registered.
Bear market
A market that is experiencing a sustained fall in the prices of se-
curities; the opposite of a bull market. Markets anticipate
events in the real economy, so a bear market usually occurs
when investors scent the onset of a prolonged downturn in eco-
nomic activity. Likewise, share prices may begin to rise again
even though the economy remains depressed because the
market detects signs of an eventual recovery.
Bellwether
A security that is seen as an indicator of the direction in
which a market is heading, partly because of its significant
weighting in the main stockmarket index. In the UK,
Vodafone, a constituent of the ftse 100 index, is seen as such a
share, as are General Electric and Microsoft in the United States,
Alcatel in France and DoCoMo in Japan. Long-term government
bonds of varying maturity are also seen as bellwethers for
national bond markets.
Benchmark
A standard by which other things can be judged. It is usually
used to describe a benchmark interest rate, the minimum
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coupon that investors will accept to entice them to buy a non-
government bond; or benchmark risk, the risk that a unit
trust or mutual fund will fail to return as much for in-
vestors as the benchmark by which it is measured. Such a
benchmark might be the msci World Index if it is a global fund
or, say, the Russell 2000 if it specialises in smaller companies in
the United States. The performance of mutual funds may be
measured against indices that are broad in scope, such as the
ftse All-Share index or the s&p 500, or narrower ones such as
the ftse Gold Mines index. Indeed, any index which measures
economic or financial performance can be a benchmark.
In financial services, as in other industries, companies some-
times also use independent agents to measure their perform-
ance against key yardsticks, such as the time taken to answer
customers’ complaints. The results are aggregated and submit-
ted anonymously to those in the industry. Firms are then able to
compare their own performance (which they know) with the
average for their peers (the benchmark).