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

Buffett's moat refers to a durable competitive advantage that protects a company from competitors

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'

Benjamin Graham's "margin of safety" concept

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

Mr. Market allegory illustrates market irrationality

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

CAPM formula: expected return = Rf + β(Rm - Rf)

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

Black–Scholes equation governs derivative prices

Greeks (finance)

Greeks measure sensitivity of option prices to underlying parameters

implied volatility tells you

Implied volatility (IV) = option price / Black–Scholes model

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

Investors sell winners too early and hold losers too long

Anchoring effect

Anchoring bias skews sell decisions based on initial purchase price

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

P/E ratio = Share Price / Earnings per Share

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

Free cash flow (FCF) = Operating cash flow - Capital expenditures

EBITDA measures

EBIT = Revenue - Operating Expenses

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

Prices doubling every few days

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

Dollar-cost averaging smooths out volatility

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

Federal budget presented by Treasurer Jim Chalmers on 12 May 2026

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

DeFi eliminates intermediaries like banks and exchanges

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

NFT market value dropped by over 95% in 2023

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

Coase theorem: zero transaction costs lead to Pareto efficiency

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

Black-Scholes formula

Volatility smile

Implied volatility varies with strike price, contradicting Black-Scholes

VIX

VIX measures 30-day S&P 500 volatility

delta hedging does

Delta neutral = zero delta

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)

C - P = S - K·e^(-rT)

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

Conditional VaR (CVaR) measures expected loss beyond VaR threshold

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

Modigliani-Miller theorem: Capital structure irrelevant in perfect markets

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

Buffett's annual letters consistently emphasize the importance of ROE over earnings per share (EPS)

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

Munger's mental models integrate physics' laws, psychology's cognitive processes, and math's logical structures to analyze and improve business strategies

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?