Finance

Invisible hand

Adam Smith coined the term "invisible hand."

Division of labour

Adam Smith argued that specialization and division of labor increase productivity and economic growth

Adam Smith

Adam Smith coined the phrase "It is not from the benevolence of the butcher that we expect our dinner."

Laissez-faire

Laissez-faire economics advocates minimal government intervention in markets

David Ricardo

David Ricardo was a British economist and politician

Say's law

Say's law: production creates demand

Thomas Robert Malthus

Thomas Malthus predicted population growth would outpace food supply

Labor theory of value

Value = Labor required for production

Economics

Keynesian economics emphasizes aggregate demand as a driver of employment

Keynesian economics

1 of government spending generates more than 1 of GDP

Liquidity trap

Interest rates near zero lower bound

Paradox of thrift

Paradox of thrift: individual saving decreases aggregate demand and gross output

John Maynard Keynes

Keynes coined the phrase "In the long run, we are all dead."

Phillips curve

Phillips curve shows inverse relationship between unemployment and inflation

Money supply

Money supply influences inflation

Permanent income hypothesis

Permanent income hypothesis (PIH) focuses on permanent income for consumption decisions

Milton Friedman

Milton Friedman won the Nobel Prize in Economic Sciences in 1976

Quantity theory of money

MV = PY equation

Natural rate of unemployment

Milton Friedman coined the term "natural rate of unemployment."

Warren Buffett means by 'Be fearful when others are greedy, greedy when others are fearful'

Warren Buffett's paradoxical investment strategy: "Be fearful when others are greedy, greedy when others are fearful."

Buffett means by a company's moat

Why do some companies stand tall like castles?

Glossary of contract bridge terms

Margin of safety principle: Buy below intrinsic value

Warren Buffett

Warren Buffett's net worth as of January 2026: US$148.9 billion

Buffett means by 'Only when the tide goes out do you discover who's been swimming naked'

Why sometimes you buy something cheaper than it's worth?

Buffett indicator

Buffett indicator measures market cap to GDP ratio

List of Saturday Night Live commercial parodies

James Signorelli produced many SNL ad parodies

Benjamin Graham's Mr. Market allegory teaches about market irrationality

Why do we sometimes buy into a market frenzy without thinking?

Value theory

Graham emphasizes intrinsic value as a company's true worth based on fundamentals

Graham's net-net strategy is

Graham's net-net strategy: Buy stocks trading below net current asset value

The Intelligent Investor's key lesson is

Invest wisely, with discipline and a long-term perspective

Benjamin Graham

Graham coined the term "margin of safety."

Efficient-market hypothesis

Prices reflect all available information

Financial market efficiency

Market efficiency measures how quickly prices reflect available information

the Capital Asset Pricing Model (CAPM) says

Ever wondered why some investments seem riskier than others?

Beta (finance)

Beta measures a stock's volatility relative to the market

Cronbach's alpha

Cronbach's alpha (α) measures internal consistency

Modern portfolio theory

Modern Portfolio Theory (MPT) maximizes expected return for a given level of risk through diversification

Efficient frontier

Efficient frontier maximizes return for a given risk level

Sharpe ratio

Sharpe ratio measures excess return per unit of risk: (R - Rf) / σ

Bias ratio

Bias ratio detects valuation bias in asset pricing

Treynor ratio

Treynor ratio measures excess return per unit of systematic risk

Systematic

Systematic risk affects the entire market

the Black-Scholes formula prices

How do you price a gamble on a stock's future price?

Greeks (finance)

Greeks measure sensitivity of option prices to underlying parameters

implied volatility tells you

Ever wondered how traders predict stock swings?

Risk-free rate

Risk-free rate inferred from zero-coupon Treasury bonds (T-bills)

Aversion

Losing 100 hurts roughly 2x more than gaining 100 feels good

the disposition effect causes

Why do you sometimes regret selling stocks too soon or holding onto losing ones?

Anchoring effect

Ever bought a car thinking it's a great deal only to regret it later?

Herd behavior

Herd behavior leads to market bubbles and crashes

Overconfidence effect

Overconfidence leads to overtrading and underperformance

Prospect theory

Daniel Kahneman and Amos Tversky developed Prospect Theory in 1979

Mental accounting

Mental accounting influences spending and saving decisions

Endowment effect

People value owned items more than unowned ones

Recency bias

Recency bias overvalues recent events in decision-making

Black swan theory

Nassim Taleb coined the term "Black Swan" in 2001

Nassim Nicholas Taleb

Nassim Taleb coined the term "antifragility."

Skin in the Game (book)

Nassim Nicholas Taleb's book "Skin in the Game" emphasizes shared risk for fairness and efficiency

Reflexivity (social theory)

George Soros's reflexivity theory suggests market perceptions can change fundamentals

Stock

A single share represents fractional ownership of a company

Bond

Bonds pay interest to investors

Yield curve

Yield curves show interest rates across different maturities

Inverted yield curve

Short-term rates exceed long-term, often predicts recession

price-to-earnings (P/E) ratio tells you

Ever wondered how much you're paying for a company's earnings?

Cyclically adjusted price-to-earnings ratio

Price-to-Earnings Ratio (P/E) measures market value relative to earnings

Earnings per share

Earnings per share (EPS) = Net income / Shares outstanding

free cash flow tells you

Ever wonder how much cash a company really has left after all its big purchases?

EBITDA measures

Ever wonder how a company's profit looks without debt and taxes?

Market capitalization

Market capitalization = share price × shares outstanding

Stock split

Stock split doubles shares, halves price

Dividend yield

Dividend yield = Annual dividend / Share price

Short (finance)

Short selling involves borrowing shares to sell, hoping to buy back cheaper

Margin Call

Margin call requires additional collateral due to increased credit risk

Order (exchange)

Limit orders set a price; market orders execute immediately

Bid–ask spread

Bid-ask spread measures transaction costs and liquidity

Color depth

Market depth measures buy/sell volume at each price level

High-frequency trading

HFT firms move in and out of positions in seconds or fractions of a second

Dark pool

Dark pools are private forums for trading securities

IPO (disambiguation)

A private company goes public through an IPO

Dual mandate (disambiguation)

Federal Reserve's dual mandate focuses on maximum employment and price stability

Interest rate

Raising interest rates makes borrowing more expensive

Quantitative easing

Central banks buy assets to increase money supply

Quantitative tightening

Central banks use QT to reduce money supply and increase interest rates

Federal funds rate

Federal funds rate: interest rate for overnight loans between banks

Discount rate

Discount rate is the interest rate the Fed charges banks for emergency borrowing

Reserve requirement

Reserve requirements mandate minimum cash holdings for banks

Fractional-reserve banking

Banks lend out most of their deposits

Money multiplier

A 100 deposit can create 1,000 in loans through the system

Open market operation

The Fed buys/sells Treasury securities to control money supply

Inflation targeting

Central banks aim for a specific inflation rate, usually 2%

Deflation

Deflation increases the real value of money

hyperinflation looks like

How can money lose its value so fast?

Interest

Compound interest formula: A = P(1 + r/n)^(nt)

Rule of 72

Rule of 72 estimates doubling time by dividing 72 by interest rate

dollar-cost averaging achieves

Why not buy more shares when they're cheap and fewer when they're pricey?

4% rule

Withdraw 4% annually to last 30 years

Debt-to-income ratio

Debt-to-income ratio (DTI) measures the percentage of monthly income used for debt payments

the 50/30/20 budget rule suggests

Ever wondered how to balance your finances effectively?

Net worth

Net worth = Total assets - Total liabilities

Opportunity cost

Opportunity cost is the value of the best alternative forgone

History of money

100 today is worth more than 100 in the future

Net present value

NPV = Present Value of Future Cash Flows

Internal rate of return

IRR is the discount rate making NPV zero

Proof of work

Miners solve puzzles to validate Bitcoin transactions

Proof of stake

Validators lock ETH as collateral to verify blocks

Smart contract

Smart contracts execute automatically on the blockchain

DeFi (decentralized finance) does

Can you imagine a world without banks?

Stablecoin

Stablecoins aim to maintain a stable value relative to a specified asset

the blockchain trilemma says

The blockchain trilemma posits you can optimize only 2 of decentralization, security, and scalability

a 51% attack is

A 51% attack involves controlling over half of the mining power to manipulate the blockchain

NFTs represent

Can you own a digital painting without losing its original quality?

Organic farming

Yield farming in DeFi provides liquidity to earn interest and token rewards

Market maker

AMMs use a formula instead of an order book for trading

Wall Street crash of 1929

Wall Street crash of 1929 triggered the Great Depression

Aftermath of the repeal of the Glass–Steagall Act

Glass-Steagall Act separated commercial and investment banking

Bretton Woods Conference

Bretton Woods Conference established fixed exchange rates pegged to the US dollar and gold

Nixon shock

Nixon ended the gold standard in 1971

1973 oil crisis

OPEC embargo quadrupled oil prices

2008 financial crisis

Financial crisis triggered by subprime mortgages and derivatives

Bankruptcy of Lehman Brothers

The largest bankruptcy filing in U.S. history involved over US$600 billion in assets

Dot-com bubble

Nasdaq Composite index rose by 600% between 1995 and March 2000

Tulip mania

Tulip bulbs sold for over 10 times the annual income of a skilled artisan

South Sea Company

South Sea Bubble peaked in 1720, then collapsed

Capital gains tax

Long-Term Capital Management (LTCM) collapsed in 1998

2010 flash crash

Flash crash lasted 36 minutes

List of countries by GDP (nominal) per capita

Nominal GDP per capita = GDP / Population

List of countries by GDP (PPP) per capita

GDP per capita (PPP) = $25,591 in 2026

Purchasing power parity

PPP adjusts for different price levels across countries

Gini coefficient

Gini coefficient ranges from 0 (perfect equality) to 1 (maximal inequality)

Laffer curve

Laffer curve shows tax revenue peaks at an intermediate tax rate

Creative destruction

Creative destruction replaces old industries with new innovations

Tragedy of the commons

Garrett Hardin coined the term "tragedy of the commons."

Moral hazard

Moral hazard occurs when an economic actor takes on more risk because it won't bear the full costs

Adverse selection

Adverse selection occurs when one party has more information than the other

Externalities of cars

1 in 34 deaths annually due to cars

Coase theorem

Can strangers fix a broken window without calling the cops?

Supply and demand

Market-clearing price where quantity supplied equals quantity demanded

Elasticity (economics)

Price elasticity of demand = -2

Giffen good

Giffen goods defy the law of demand by increasing demand as prices rise

Veblen good

Veblen goods defy the law of demand

Dutch disease

Dutch disease refers to the decline of other economic sectors due to a booming natural resource sector

Middle income trap

Middle income trap defined by World Bank

Write the Black-Scholes formula for a European call option: C = S·N(d₁) - K·e^(-rT)·N(d₂)

C = S·N(d₁) - K·e^(-rT)·N(d₂)

d₁ and d₂ are in Black-Scholes: d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T), d₂ = d₁ - σ√T

d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T), d₂ = d₁ - σ√T

the Black-Scholes assumptions are

Why can’t we always predict stock prices perfectly?

Volatility smile

Implied volatility varies with strike price, contradicting Black-Scholes

VIX

VIX measures 30-day S&P 500 volatility

delta hedging does

How can you keep your money stable even when stock prices jump around?

Gamma ray

Gamma radiation originates from high-energy interactions like radioactive decay or solar flares

Theta

Theta decay erodes time value as expiration nears

Vega

Vega is the fifth-brightest star in the night sky

put-call parity states: C - P = S - K·e^(-rT)

Ever wondered how options and futures can be linked?

Straddle

Straddle strategy profits from large price movements in either direction

Iron condor

Iron condor profits when stock stays within a specific range

Kelly criterion

Kelly criterion formula: bet f* = (bp - q)/b

Markowitz model

Harry Markowitz introduced the mean-variance optimization model in 1952

Fama–French three-factor model

Fama-French model adds size and value factors to CAPM

Carhart four-factor model

Carhart's four-factor model adds momentum as the fourth factor

Risk parity

Risk parity allocates based on risk contribution, not capital allocation

Value at risk

Value at Risk (VaR) estimates potential loss under normal market conditions

Conditional VaR (CVaR) improves

Ever worried about losing more than you planned in a risky investment?

the Hurst exponent reveals about time series

Hurst exponent H > 0.5 indicates trending behavior, H < 0.5 indicates mean-reverting tendencies

Deflated Sharpe ratio

DSR penalizes upside volatility as much as downside

Information ratio

Information ratio = Active return / Tracking error

Capital asset pricing model

Treynor-Black model combines active stock picking with a passive market portfolio

Arbitrage pricing theory

APT uses multiple systematic risk factors; CAPM uses a single market index

the Modigliani-Miller theorem says

Does how you pay for a car matter if you can always borrow money?

Dividend discount model

D₁/(r - g) = stock price

Binomial options pricing model

Binomial options pricing model (BOPM) is a numerical method for option valuation

Buffett's annual letters consistently emphasize

Why does Warren Buffett care more about how much profit he makes from his investment than just how much money he earns?

Munger's concept of 'mental models' from multiple disciplines means

How can a simple idea change the way we think?

List of Call the Midwife episodes

Older financial institutions likely to survive longer

Outline of finance

Ever wondered why money today is worth more than tomorrow's money?

General relativity

How can a simple apple fall straight down instead of moving sideways?

Decision-making

Does how you frame choices change your decisions?

Graham number

Why pay too much for a stock?

Price of oil

Ever worried about rising gas prices?

Sarbanes–Oxley Act

Why did companies face massive fines and jail time?

Economic growth

How does more money, people, and machines affect a country's wealth?

Black–Scholes model

How can you predict the price of an option?

Bretton Woods system

Did you know the US dollar's gold backing collapsed Bretton Woods?

Blockchain

Ever wondered how bank transactions are kept safe?

Homomorphic encryption

Can you search for your favorite photo's details without ever seeing it?

Real options valuation

Why can't we always predict the future in business?

Glossary of economics

Ever wondered why your savings don't keep up with rising prices?

Option (finance)

Ever wondered how investors protect against stock market dips?

Financial risk management

Ever worried about losing more than just your shirt in a bad investment?

Peer-to-peer lending

Ever wondered how you can lend money without a bank?

Islamic banking and finance

Ever worried about losing money on investments?

List of cognitive biases

Why do you choose a smaller reward now over a bigger one later?

Central bank

How do central banks' interest rate decisions affect our wallets and jobs?

Stock market

Why do stock prices sometimes soar beyond what numbers suggest?

Alpha (finance)

Ever wondered how you know if an investment is truly beating the market?

Inflation

How does pumping more money into the economy affect prices and savings?

Consumer price index

Ever wondered how you know if your groceries are getting more expensive?

New Keynesian economics

Ever wondered why a small spending boost can lead to a big economic boom?

Risk premium

Why do some investments pay more than others?

Turing machine

Can a machine think like us?

Monetary policy

Why does the European Central Bank (ECB) care about interest rates?

Glossary of logic

Ever wonder how scientists decide if their findings are just by chance or real?

Outline of economics

Why do we sometimes struggle to share resources fairly?

Status quo bias

Why do we stick to the default option even when it's not the best choice?

Altman Z-score

Can a company's financial health be predicted before it goes bankrupt?

Einstein–Oppenheimer relationship

Did you know mass can turn into energy?

Strangle (options)

Can you profit from big price swings without betting on which way they'll go?

Production function

Can we predict how much we'll produce with more workers and machines?

Pareto efficiency

Can you always make everyone happier without hurting anyone?

Herfindahl–Hirschman index

Ever wondered how to measure market competition?

Prediction market

Why does betting on the future cost more to place than to take?

Joseph Schumpeter

Ever wondered why new tech giants topple old ones?

Law of demand

Why does higher price sometimes mean more of something?

The General Theory of Employment, Interest and Money

Ever wonder why holding cash feels safer than investing?

Marginal utility

Why do you stop eating pizza after a few slices?

Zero-point energy

Ever wondered how energy and mass are connected?

Income distribution

How does income disparity affect our daily lives?

Triangular arbitrage

Ever noticed prices for the same item differ across stores? Why?

Lattice model (finance)

How can you price an option that doesn't expire?

Causes of the Great Depression

Did you know classical economics struggled during the Great Depression?

Bull spread

Can you profit from a stock's price jumping up or down?

Sortino ratio

Ever wondered how to compare investments fairly, considering their risks?

Metropolitan area

Ever wondered how cities measure their population?

CRISPR gene editing

Ever wondered how scientists can rewrite life's code?

Carl Friedrich Gauss

Did Gauss really mean math was the queen of sciences?

CAP theorem

Can you always access your favorite online photo album from anywhere?

Automated trading system

Can trading strategies really change how risky and profitable my investments are?

John Forbes Nash Jr.

Ever wonder how to predict someone's best move in a game?

Relativity priority dispute

Did Einstein just invent time and space?

Economic system

Ever wondered why not everyone gets what they want in a world with limited resources?

United States and the Russo-Ukrainian war

Why do some traders set a stop order instead of a stop-limit order?

Information asymmetry

Why do you bet less on a coin flip after winning big?

Bayesian statistics

Can you predict the future?