Guide to Analysing Companies

B
50
BILL OF LADING
01 Essential Finance 10/11/06 2:21 PM Page 50

---

chicago board of trade. Their formula has since gained
almost universal acceptance because it is nearly as successful as
rival formulae that are infinitely more complicated.
Black Wednesday
September 9th 1992, the day when speculators in the foreign-
exchange markets forced the pound to abandon the ex-
change rate mechanism. 
Blend fund
A unit trust or mutual fund that holds a combination of
shares, bonds and liquid money market instruments to
balance its risk and returns. It also refers to a fund invested
mainly in equities that favours neither growth stocks nor
value stocks in its portfolio. As a result, fund managers are
free to switch between the two if they see opportunities in any
sector of the market. A blend fund is therefore more diversified
than a specialised one whose performance may be more volatile.
Block trading
Trading in big blocks of shares. On the new york stock ex-
change any deal of more than 10,000 shares or any quantity
of shares or bonds worth $200,000 or more is called a block
trade. Certain stockbrokers specialise in such trades and, in
the United States, are known as block houses. The number
of blocks of shares traded daily is watched closely by ana-
lysts. It shows how active in the market financial institutions
are compared with private investors.
Blue chip
A company known nationally, or internationally, for the quality
B
BLUE CHIP
51
01 Essential Finance 10/11/06 2:21 PM Page 51

---

of its products and services and for its ability to generate
profit through bad times as well as good. This usually also
means that it has rarely, if ever, missed a dividend payment.
Such companies and thus their shares are often therefore also a
constituent of a main stockmarket index (such as the ftse
100, s&p 500 or France’s cac 40) and are seen by investors as
a bellwether of sentiment in the stockmarket.
Blue-sky laws
Legislation passed by individual states in the United States reg-
ulating the sale of corporate securities. The laws, so called
because a judge apparently once compared the value of one se-
curity to a patch of blue sky, are intended to protect investors
from fraud.
Bond
An interest-bearing instrument issued by governments, corpo-
rations and other established organisations. A bond is evidence
of a debt on which the issuer usually promises to pay interest
at regular intervals and to repay the amount of the original loan
at a specified date in the future. So, unlike an equity holder,
who is a part owner of the company, the holder of a corporate
bond is a creditor. Bonds are usually sold at a discount (or
premium) to their face value. The discount (or premium) reflects
the difference between the interest rate on the bond’s coupon
and the current market interest rate. Companies or organisations
seeking to issue bonds in the international debt markets often get
a better reception from investors if they have first sought a
credit rating from an agency specialising in such things. This
usually guarantees the issuer a more favourable interest rate.
(See also bearer security and junk bond.)
Gentlemen prefer bonds.
Andrew Mellon