Absorption Rates

Absorption Rates: used to calculate housing supply and demand. If a location has too many homes for sale, that will drive prices down. The inverse is also true: If there are not enough homes for sale, prices will increase. To calculate the absorption rate, take the number of existing homes for sale and divide it by the number of homes sold per month. A higher number indicates a buyer’s market (lower prices). A lower number indicates a seller’s market (higher prices). For example, if a location has 1,000 homes for sale and 100 homes were sold last month (1,000 divided by 100 = 10), it would take 10 months to clear that inventory. Six months is considered a balanced market.

Accelerated Accumulation Technique

Accelerated Accumulation Technique: a strategy we use in the Legacy Portfolio. The goal of our Accelerated Accumulation Technique is to accumulate as many shares of our Legacy stocks as possible. The way we do this is simple: Invest new capital where it’s going to grow the most. We’ll invest additional cash and dividends into the stock(s) that will compound our wealth at the highest rates possible.

Active Income

Active Income: the money you make through your labor or through a business you own, as opposed to passive income, which refers to the income you get from Social Security, a pension, or a retirement account. You can increase your active income by working more.

Annualized Return

Annualized Return: the return on investment you receive in a twelve-month period, stated as a percentage. When you place several short-term trades, an annualized return allows you to compare the results of each trade using the same time frame.

For example, Trade A returns 2% in one month. Trade B returns 6% in three months. When you assume each trade lasts one year, you can compare each trade the same way. If Trade A lasts one year, it would earn 24% (2% times twelve months in one year). If Trade B lasts one year, it would earn 24% (6% times four quarters in one year). This annualized return calculation shows you the return for each trade is identical.

Asset Allocation

Asset Allocation: the process of dividing one’s wealth into different asset types such as stocks, bonds, real estate, gold, and cash. The PBL asset classes are rental real estate, stocks (Performance Portfolio, Legacy Portfolio, and Safe Speculations Portfolio), bonds, gold, cash, and income (Palm Beach Current Income).


Autopilot: a term we use in our Income for Life strategy to mean the point when your whole life insurance policy has enough cash and generates enough dividends to cover every single remaining premium payment the rest of your life.

Baby Boomers

Baby Boomers: people born between 1946 and 1964. Baby boomers make up nearly 26% of the American population as of May 2014.

Bond Ladder

Bond Ladder: a portfolio of bonds with the maturity dates spaced evenly over a certain period. They call it a bond ladder because you space the maturities of your bonds evenly, like the rungs on a ladder.

For example, say you invest $1,000 into each of five bonds. The first bond matures in December 2014. The second bond matures in December 2015. The third bond matures in December 2016. The fourth bond matures in December 2017. And the fifth bond matures in December 2018. You now have a five-year bond ladder. Each December between 2014 and 2018, one bond will mature. You will receive a check for $1,000 each year, in addition to the interest payments you receive from these bonds.


Bonds: loans. There are three major classes: government bonds, municipal bonds, and corporate bonds. Government bonds are loans to national governments. Municipal bonds are loans to state and local governments. Corporate bonds are loans to companies.
When you buy a bond from a company, you’re lending that company your money. The bond is just your certificate for this loan. As with any loan, the company has a legal obligation to pay your money back on a certain date, while paying you interest over the duration of the loan.

If the company doesn’t pay you back, it must declare bankruptcy.

Bonds are tradable. Perhaps you agreed to lend a company $5,000 for 10 years, but after five years, you want your money back. You won’t get it from the company. It’s keeping your money for another five years.

In that case, you can sell your bond to another investor. Assuming nothing has impaired the company’s ability to pay back its debts since you made the loan, the bond will still be worth $5,000. Governments, companies, and investors like you and me trade trillions of these loan certificates every day. There’s no formal bond exchange like there is for stocks. Big banks and brokers manage the purchase and sale of most bonds.

Like all loans, bonds earn interest. Some bonds have fixed interest rates. Others have floating rates of interest that move up and down with economic conditions.

Finally, bonds have a maturity date. This is the date when the company must pay back its loan to whoever holds the loan receipt.

Book Value

Book Value: the value of an asset, according to its balance sheet. Think of book value as what a company would be left with if it closed down, sold off all of its assets, and paid off all of its debts.

Buy-Up-To Price

Buy-Up-To Price: the maximum amount you should pay for an investment. Basically, you’re telling your broker, “If you can’t buy this investment for $X or less, do not make the trade.”


Buyback (also known as a share repurchase): when a company repurchases outstanding shares. A buyback reduces the number of outstanding shares of a company that are available for purchase. Buybacks are good for shares you own in a company because they reduce the number of shares available, making the shares you own more valuable.

Capital Expenditures

Capital Expenditures: a fancy term for any repairs or maintenance you need done to upgrade physical assets, for example property, industrial buildings, or equipment.

Combined Ratio

Combined Ratio: a measure showing whether an insurance company is selling profitable insurance policies. If a company has a combined ratio of more than 100%, that means it paid out more in damage claims than it took in premiums. If a company has a combined ratio of less than 100%, it received more money in premiums than it paid out.


Compounding: a term used to describe what happens to your money if you reinvest the interest you earn from your investments. If you start with $100 and it compounds at 15% annually, you’ll earn $15 in interest after one year. In year two, you now earn 15% on a starting balance of $115. So at the end of the second year, you’ll earn $17.25 in interest. This cycle continues—as you earn more and more with each passing year— because you’re reinvesting the proceeds from the previous year.

Consumer Price Index

Consumer Price Index (CPI): the Bureau of Labor Statistics defines this as “the measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” The CPI is the most widely followed metric of inflation.


Copy: what marketers refer to as the actual text, language, and promise of an advertisement.

Cost of Possession

Cost of Possession: the full cost of using any non-consumable good, from a house to a car to a fountain pen, over a given period of time. In the context of a house, don’t consider just the mortgage payment. You need to factor in taxes, insurance, HOA fees, pool maintenance, and lawn care costs each year to come up with your total cost of possession.

Cyclical Company

Cyclical Company: investment jargon for companies whose businesses go up and down with the economy.


Dividend: money that a company pays its shareholders. A company will typically pay dividends only if it earns enough profit to do so.

Dividend Yield

Dividend Yield: a percentage figure to show how big or small a dividend is. For example, if you purchase 100 shares of Company A at its latest price of $47.86, it will cost you $4,786. Each quarter, Company A will pay you a dividend. When you add up the four quarterly dividend payments, you will receive $0.60 per share owned. In this case $0.60 x 100 shares = $60. When you divide your $60 dividend by your purchase price of $4,786, you come up with a yield of 1.3%.

Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Average (DJIA): a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. Charles Dow invented the DJIA back in 1896. Often referred to as “the Dow,” the DJIA is one of the oldest and most-watched indexes in the world.

Earnings Per Share (EPS)

Earnings Per Share (EPS): how much money a company earned or lost on a per-share basis. You calculate it by subtracting the dividends on preferred stock from a company’s profits, and then dividing by the number of outstanding shares. You can also use EPS to calculate other ratios like price-to-earnings (P/E).


Easement: a legal right of use someone has over your property. For instance, a walkway through a part of your backyard. An “encroachment” refers to a case in which a property owner violates the property rights of a neighbor. You do this by building something on the neighbor’s land. Or by allowing something to hang over the neighbor’s property.

Enterprise Value

Enterprise Value: the stock market value of the company plus the amount of its long-term debt minus its cash.

Enterprise Value to EBITDA (EV/EBITDA)

The EV/EBITDA is a useful valuation metric. It tells us the ratio of earnings to the total buyout value of a company. The ratio is found by dividing a company’s enterprise value by its earnings before interest, taxes, depreciation, and amortization. The lower the number, the better.

Enterprise Value to Free Cash Flow or Buyout ratio (EV/FCF)

EV/FCF is the total valuation of a company compared to the company’s ability to generate cash flow. It takes into account a company’s cash and debt position… and then measures how many years of free cash flow (FCF) it would take to buy the company outright. The lower the ratio, the faster the company can generate cash and reinvest in the business.

Exchange-traded Fund (ETF)

Exchange-traded Fund (ETF): a security that tracks an index, a commodity, or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as investors buy and sell them.


Expatriate: someone who has left his native country to live elsewhere in the world.


Flamenco: a style of dancing, characteristic of the Andalusian gypsies (in southern Spain). It is strongly rhythmic and involves vigorous actions, such as clapping the hands and stamping the feet.

Foreign Currency Fluctuations

Foreign Currency Fluctuations: the gains or losses a company experiences because of conducting business in other currencies. For example, if the U.S. dollar rises compared with the euro, they will be worth fewer dollars when earnings from European operations are converted back to U.S. dollars.

Free Cash Flow

Free Cash Flow: the cash left over after a company has paid its business expenses and set aside cash for future growth. To calculate free cash flow, take cash flow from operations and subtract capital expenditures.

Fundamental Analysis

Fundamental Analysis: a method of evaluating a stock. With fundamental analysis, you examine and analyze a stock’s economic and financial condition. You’re trying to determine the real worth of the company given all its assets, liabilities, and projections of future earnings.

Gross Rent Multiplier (GRM)

Gross Rent Multiplier (GRM): the ratio of how much you pay for a property to the amount you make each year in rent. So a GRM of 8 means that you have purchased the property and made all necessary renovations for less than eight-times the yearly rent.


Guidance: information that a company provides as a projection of its future earnings. Analysts review this guidance as they make their own estimates.


Hedge: making an investment or establishing a position that will reduce the risk of negative price movements in an asset. An example of one such offsetting position is a futures contract. Wise investors use this strategy when they are uncertain of what the market will do. This action reduces their risk or exposure.

Homeowner’s Association (HOA)

Homeowner’s Association (HOA): an organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties in its jurisdiction. HOAs also collect monthly or annual dues to pay for upkeep of common areas such as parks, tennis courts, elevators, and swimming pools.

Income for Life

Income for Life: the same strategy as the Infinite Banking Concept, created by Ron Nelson Nash. It’s a powerful, tax-free savings strategy we’ve written about based on using a dividend-paying whole life insurance policy. In an Income for Life plan, your savings compound at up to 5% per year over the long term. Creditors can’t touch it (in most states). You don’t have to report it to the IRS. You can access the money anytime you want. And it has one of the lowest fee structures in the investment industry.


Indemnify: to make a person whole by restoring that person to the same financial position that existed before the loss.


Inflation: the rate at which the general level of prices for goods and services rise each year. For example, if inflation were 3%, the loaf of bread that cost you $1 last year would cost $1.03 this year. Its price went up, which means to buy the same amount of bread you will have to pay more.


Infuse: to steep, or brew, tea in hot water.


Insurance: a contract that protects against loss, damage, or liability arising from an unknown event. Insurance is a social device for spreading the chance of financial loss among a large number of people. Transfer of risk is the basic principle of all insurance. By purchasing insurance, a person shares risk with a group, thereby reducing the individual potential for disastrous financial consequences.

Interest Rate on 10-year Treasury

Interest Rate on 10-year Treasury: the benchmark for almost every other interest rate around the world, including mortgage rates and corporate interest rates.

Investor Sentiment

Investor Sentiment: describes and measures the overall feelings that the investing “herd” have about the market. If investors as a whole feel that good times are ahead, analysts will talk about how investment sentiment is bullish. If investors as a whole feel that turbulent or negative times are ahead, analysts will talk about how investment sentiment is bearish.


Leverage: a company’s use of investments or borrowed capital. Almost all companies use debt to finance their operations. When a company does this, it increases its leverage because it invests in its operations without increasing its equity.

Lifestyle Burn Rate (LBR)

Lifestyle Burn Rate (LBR): how much you need to spend each year to enjoy the lifestyle you want. It’s easy to determine this number. Simply calculate how much you are currently spending each year, and then increase that by the yearly cost of all the extra things you’d like to have.

Limit Order

Limit Order: an order to buy or sell a stock at a specific price or better. You tell your broker the minimum price you are willing to accept, even if it means you miss the executing the trade or have to wait longer to get it filled. This gives investors control over their entry price in an investment.

Low-Ball Bid

Low-Ball Bid: an attempt to buy stock at a price that’s below its current price and below its actual value.


Margin: money borrowed from a broker in order to place additional trades. Buying with this sort of money is dangerous because it creates more risk and amplifies both losses and gains.

Market Capitalization

Market Capitalization: the market value of a company’s outstanding shares. To calculate it, multiply the current stock price by the total number of shares outstanding. For example, if Company A is trading at $15 per share and has one million outstanding shares, then the market cap is $15 million ($15 times one million shares).

Market Order

Market Order: when you buy stock at the current market price, and you tell your broker that they are to buy this stock at only that market price.

Mortgage Payment

Mortgage Payment: a monthly home payment, which includes a charge for the interest rate (the cost of money), plus some amount of principal (paying down the money borrowed).


Multifamily: apartment buildings or housing in which there are multiple rental units under one roof.

Municipal Bonds

Municipal Bonds: a bond issued by a municipality, state, or country to finance expenditures. These bonds are exempt from federal taxes, and in many cases, state and local taxes as well.

Naked ( “uncovered”)

Naked ( “uncovered”): indicates you are selling options on stock you do not own.

Oil Reserves

Oil Reserves: a metric used to calculate how much oil an energy company has in the ground. This oil must have the potential to be recovered with current technology. Oil reserves are referenced in number of barrels.

Operating Cash Flow

Operating Cash Flow: the amount of cash generated by a company during a set period. To calculate the operating cash flow for the period, the cash flow statement starts with a company’s net income. It is then adjusted for items such as depreciation and accounts receivable.

Option Chain

Option Chain: a list of all call and put options available for a stock at different strike prices and maturity dates. They are listed by expiration month.

P/E Ratio, Forward

P/E Ratio, Forward: (see also, price-to-earnings ratio) uses analysts’ estimates of future earnings, rather than using past earnings.

Paper Trading

Paper Trading: a tool that teaches you how to trade without risking any real money. To paper trade, look up the information of the current recommendation and record it on paper. Then, keep track of the trade to monitor how it would have performed if you had actually placed the trade in your brokerage account. This will also allow you to make mistakes that don’t cost real money.


Participating: When a mutual insurance company issues a whole life policy, it calls it “participating” or “dividend-paying” whole life insurance. This is because policyholders own the mutual company and “participate” in the profits by earning interest and dividends.

Passive Income Strategy

Passive Income Strategy: a strategy that requires almost no work, no attention, and no maintenance. It’s the opposite of an active income strategy like starting a business or running a freelance business.

Payout Ratio

Payout Ratio: measures what percentage of earnings a company pays out in dividends. To calculate a payout ratio, divide a company’s dividends per share by its earnings per share. A high payout ratio indicates that a company is returning a high portion of its earnings directly to its shareholders. If the number is low, there is typically plenty of room for the company to increase its dividend.

Position Sizing

Position Sizing: how much money an investor puts into one trade or idea compared to their entire account size. For example, you make a low-ball offer by selling a put option. The trade ties up $2,000 of your capital. If your total account size was $20,000, you would have 10% of your entire account in this trade ($2,000 divided by $20,000). So your position size would be 10%. If your total account size was only $4,000, your position size would be 50% ($2,000 divided by $4,000).

Price-to-Book Ratio (P/B)

Price-to-Book Ratio (P/B): tells investors how much they’re paying for the net value of all the assets of a company. Put simply, it’s the value of its assets minus its debts. The lower the price-to-book ratio, the cheaper it is.

Price-to-Cash-Flow Ratio (P/CF)

Price-to-Cash-Flow Ratio (P/CF): measures how much cash a company generates relative to its current share price. Because this measure deals with cash flow, you remove the effects of depreciation and other non-cash factors. Calculate this figure by dividing a stock’s current share price by its cash flow per share.

Price-to-Earnings Ratio (P/E)

Price-to-Earnings Ratio (P/E): calculated by taking the share price and dividing by earnings per share (EPS). It is also referred to as the stock’s “earnings multiple.” The P/E ratio represents what an investor is willing to pay for $1 of current earnings. For example, at a P/E ratio of 20, an investor is saying they are willing to pay $20 for $1 of current earnings.

Price-to-Sales Ratio (P/S)

Price-to-Sales Ratio (P/S): tells you how much you are paying for every dollar of revenue. Some analysts say P/S is one of the most reliable measures. Because it’s much harder for company accountants to manipulate revenue data than profit data.

Qualitative Analysis

Qualitative Analysis: uses subjective judgment based on non-quantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations.

Quantitative Analysis

Quantitative Analysis: a way of measuring things. Examples of quantitative analysis include everything from simple financial ratios such as earnings per share to something as complicated as discounted cash flow models or options pricing.

Quitclaim Deed

Quitclaim Deed: a legal instrument by which the owner of a property transfers his interest in it to another party. The owner “quits” his or her claim to the property, thereby allowing the receiving party to claim the property.


Reserves: a scientific measure of what a gold company knows it has in the ground. Reserves have not been mined yet, but are easily accessible. The more reserves a gold company has, the more valuable it is.

Return on Equity (ROE)

Return on Equity (ROE): measures how much money a company makes from each dollar shareholders invest. The higher the ROE percentage, the better. Think about it: If Company A can return $0.50 on every dollar you invest, while Company B returns only $0.10 for every dollar, you’d clearly want to go with Company A.

Return on Investment (ROI)

Return on Investment (ROI): speaks to the efficiency of an investment. It measures the gain or loss generated on an investment relative to the money invested.


Rosé: a light pink wine made from purple grapes. The winemaker removes the skins from the juice during fermentation as soon as the wine reaches the desired rosé color.


Royalty: a type of commission. The royalty owner gets a percentage of all sales generated. Examples of royalties include the money that a musician is paid for each album sold, or the money an author is paid for each book sold.

S&P 500 Index

S&P 500 Index: a basket of stocks from some of the largest companies in the world. The S&P is one of the most common benchmarks investors use.

Search Engine Optimization (SEO)

Search Engine Optimization (SEO): the process of making a website higher-ranked on an Internet search engine such as Google. This makes the website more visible to searchers, and therefore more visited.

Shale Play

Shale Play: refers to shale oil, which is a way to produce oil. This method is currently becoming popular because it makes getting oil out of the ground easier. Companies are using a new drilling technology called hydraulic-fracturing or “fracking.”

Share Repurchase (also known as “stock buyback”)

Share Repurchase (also known as “stock buyback”): reduces the number of shares of a company. We’ve described buybacks as a “hidden dividend.” Buybacks are good for shares you own in a company because they reduce the number of shares available, making the shares you own more valuable.

Single-Lens Reflex (SLR)

Single-Lens Reflex (SLR): a term associated with film and digital cameras. SLR cameras use a mirror between the lens and the film, or image sensor, to provide a focus screen. This means the image you see in the viewfinder (or screen) will be the same as what appears on the image produced.

Stock Split

Stock Split: when a company divides its shares into multiple shares. Although the number of shares increases by a specific multiple, the total dollar value of the shares remains the same.


Stop-Loss: a predetermined price at which we plan to sell a stock if it drops to that price.

Strike Price

Strike Price: the price we decided we would buy the stock at. For our Suncor trade, we made a low-ball offer to purchase the stock at $32 per share when the stock was trading at $34.78 per share. $32 is the strike price.


Tannins: a wine’s pucker power. Tannins are generally more dominant in younger red wines before they have had the time to soften up with age. Tannins come from the skins, stems, and seeds of the grapes used to produce the wine, and are often described as the component that “dries out the mouth” in red wines.


Timbers: wood used for building material, especially for framed houses. A raft foundation is one (usually on soft ground) consisting of an extended layer of reinforced concrete. Joists are a series of parallel horizontal framing members that are used to support floor or ceiling loads.


Underwater: when a mortgage holder owes more than their house is worth. If you have a $150,000 mortgage but your house is worth only $100,000, the bank considers your house “underwater.”

Upside Potential

Upside Potential: the potential dollar or percentage amount by which the market or a stock could rise.

Vacancy Rate

Vacancy Rate: the amount of time your property sits unoccupied. Collection losses refer to the money you will lose when bad tenants fail to pay their legally required rents to you. Even if you don’t expect your property to sit vacant or a tenant to not pay rent, you should always budget for this case.

Variable Interest Rate

Variable Interest Rate: adjusts higher or lower as market interest rates rise or fall. Traders call debt instruments with variable interest rates “floaters” because their rates float. If you buy a bond with a floating interest rate, it would probably pay only about 3% right now. But if the Fed were to raise interest rates to 20%, your floating-rate bond would pay 23% interest. Fixed interest rates don’t move. If your fixed-rate bond paid 5% today and the Fed raised rates to 20%, your bond would still pay 5% in interest.


VIX: Chicago Board Options Exchange Volatility Index. The VIX shows the market’s expectation of volatility over the next 30 days. It uses a formula comparing options on the S&P 500 index to measure how volatile the market is. When the VIX is trading below 20, there is low volatility, and we get much less income for making low-ball offers. When the VIX is trading above 20, the market is getting nervous. We earn more income making low-ball offers when the VIX is high.

Year-Over-Year (YOY)

Year-Over-Year (YOY): measures the growth (or decline) of a financial metric. It compares this year’s result with last year’s result.


Zoning: a way local governments regulate land use and the type of activities allowed on a piece of property. A zoning letter details the zoning laws that affect a piece of property.