Friction
Risk & psychologyThe effort required to take an action, used deliberately to encourage or discourage it.
In plain terms
Remove it from investing regularly; add it to unplanned trades.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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Cost drag
Trading & ordersThe cumulative effect of brokerage, taxes, spreads and slippage on returns, rising with how often the account is turned over.
In plain terms
An account turned over twice a month pays roughly 6% of capital a year in friction before any question of skill. Choosing a rhythm is choosing a headwind.
Investing
Trading & ordersThe longest of the four trading styles — positions held for years and reviewed around quarterly results.
In plain terms
Cost drag separates the styles more reliably than strategy does. Holding for years means paying friction once, and at the lower long-term rate rather than the short-term one.
Joint holding
Market basicsAn account held by two or more people, commonly on an “either or survivor” basis.
In plain terms
The lowest-friction arrangement for a couple — the survivor needs little more than a death certificate.
Reverse factoring
AccountingAlso called: Supply chain finance
An arrangement in which a bank pays a company’s approved supplier invoices early at a discount and the company repays the bank on the original or an extended due date.
In plain terms
The obligation has become bank funding while continuing to read as trade payables. The tell is days payable rising with no supplier friction at all — because the supplier has already been paid. The question worth asking is what happens if the bank withdraws the facility.