Glossary
Investing & research terms, plainly defined
Every term this project uses — index funds, drawdown, out-of-sample testing, factors — explained in one or two sentences. Educational only, not investment advice.
- NISA
- Japan's tax-free investment account. Gains and dividends inside the annual and lifetime quota are exempt from the usual ~20% tax, which is why low-turnover index holding inside NISA is hard to beat after tax. More →
- Index fund
- A fund that simply holds every stock in a market index (e.g. S&P 500) in proportion, instead of trying to pick winners. Low cost and broad — the benchmark our study repeatedly failed to beat. More →
- Cap-weighted
- An index weighting where each company's share is proportional to its market value, so big companies dominate. Most mainstream index funds are cap-weighted. More →
- Out-of-sample
- Testing a strategy on data it was never tuned on. A rule that looks great on the data used to build it (in-sample) often collapses out-of-sample — the honest test of whether an edge is real. More →
- Backtest
- Simulating how a strategy would have performed on historical data. Useful but easy to fool yourself with — look-ahead bias, overfitting and survivorship bias all inflate results. More →
- Survivorship bias
- Studying only the companies that survived to today and ignoring the ones that delisted or went bankrupt. It makes past strategies look far better than they really were; our panel data is survivorship-free. More →
- Drawdown (max drawdown)
- The peak-to-trough drop in a portfolio's value. Max drawdown is the worst such fall in a period — the number that decides whether you can actually hold a strategy through a crash. More →
- Alpha
- Return above what the market (beta) alone would explain — the part attributable to skill or a genuine edge. Our verdict: after cost and tax, the strategies produced no durable alpha. More →
- Beta
- How much a position moves with the overall market. A beta of 1 moves with the market; leverage raises beta. Gains from simply taking more beta are not an edge. More →
- Momentum
- The tendency of recent winners to keep winning over the medium term. A real gross effect in our tests, but turnover and tax erased it after cost. More →
- Mean reversion
- The tendency of extreme prices to drift back toward an average. Over some horizons recent losers beat recent winners — the reason shorting weak stocks backfired in our study. More →
- Value (factor)
- Favouring cheap stocks (low price relative to book value, earnings, etc.). A classic factor; in our after-cost, after-tax tests it did not beat a broad index. More →
- Quality (factor)
- Favouring profitable, stable, low-debt companies. Another standard factor we tested; it too lost to a cap-weighted index out-of-sample after cost. More →
- Factor
- A measurable characteristic (value, quality, momentum, size…) used to sort stocks in the hope of systematic out-performance. We tested 15+ factor and AI strategies; none beat the index after cost. More →
- PEAD (post-earnings-announcement drift)
- The tendency for a stock to keep drifting in the direction of an earnings surprise for weeks after the report. We found no after-cost edge from it out-of-sample. More →
- Liquidity
- How easily a stock can be traded without moving its price. Thinly-traded names look cheap to model but are costly to actually trade — a gap that quietly kills strategies. More →
- Share buyback
- A company repurchasing its own shares, which shrinks share count and can lift per-share value. We tested buyback signals as a strategy; no after-cost edge survived. More →
- Dollar-cost averaging (DCA)
- Investing a fixed amount on a fixed schedule regardless of price, which smooths your average entry. A simple, robust default for regular contributions. More →
- Front-loading
- Filling a tax-free quota as early as possible so more money compounds tax-free for longer. In our century of data, front-loading beat steady DCA in about 67% of years. More →
- Trend following / trend overlay
- Reducing exposure when a market's long-term trend turns down and restoring it when it turns up. It can cut drawdowns but doesn't raise returns, and inside NISA the buy-back throttle makes it counterproductive. More →
- Leverage
- Using borrowed money or leveraged products to amplify exposure. It magnifies both gains and losses; in multi-regime tests it did not robustly beat unleveraged tax-free index holding. More →
- Paper trading
- Running a strategy with simulated money and no real orders, to observe behaviour safely. This project's live agent is paper-only — research, never a real-money recommendation. More →
- Market regime
- A persistent market environment — e.g. a bull market, a high-volatility crisis, a low-rate era. A strategy that wins in one regime can lose badly in another, so single-regime results are weak evidence. More →
- Kelly criterion
- A formula for bet/position size that maximises long-run growth given your edge and odds. Useful for sizing, but it presumes you actually have a measurable edge. More →
- Tax drag / turnover
- The cumulative cost of taxes and fees from frequent trading (high turnover). Each realised gain is taxed, so an active strategy must out-earn a buy-and-hold by enough to cover the drag. More →
- Multibagger
- A stock that returns several times the invested capital (a '10-bagger' is 10×). Tail outcomes are rare and hard to screen for in advance; chasing them is a concentrated, high-variance bet, not an edge. More →
Educational definitions only. Not investment advice.