Investing Glossary

Adverse Selection

The danger that the customers most eager to buy insurance are the riskiest ones. If an insurer prices poorly or loses its good customers, it can be left with a pool of bad risks — claims rise, losses mount, and the book spirals.

Agentic AI

AI systems built to complete multi-step tasks on their own, such as reviewing a contract, building a financial model, or handling a customer ticket end to end, rather than just answering a single question. This is the category of AI tool most directly aimed at the repetitive, structured work that IT services firms have traditionally staffed with people.

ANDA (Abbreviated New Drug Application)

The FDA filing used by generic drug companies to get approval without repeating full clinical trials — they only need to prove their drug behaves the same in the body.

Antibody

A Y-shaped protein the immune system makes to recognise and latch onto one specific target (an 'antigen'), such as a virus or a cancer-cell marker. Drug makers can mass-produce a single, identical version — a monoclonal antibody — engineered to hit a chosen target. These '-mab' drugs are the best-selling biologics in the world.

APE (Annual Premium Equivalent)

A standardised measure of new-business volume: 100% of regular annual premiums plus 10% of one-time single premiums. It lets you compare life insurers whose product mixes differ, and is the base on which VNB margin is calculated.

API (Active Pharmaceutical Ingredient)

The chemical in a drug that actually does the therapeutic work. Everything else in the pill (binders, coatings) is inactive filler called excipients.

ASIC (Application-Specific Integrated Circuit)

A chip designed to do one job extremely well, rather than a general-purpose processor like a GPU. Google's TPU, Amazon's Trainium, Microsoft's Maia and Meta's MTIA are all AI ASICs, built by a hyperscaler for its own workloads and, unlike Nvidia's GPUs, generally not sold to outside customers.

Attrition Rate

The percentage of employees who leave a company over a twelve-month period, voluntarily or otherwise. High attrition forces constant, expensive rehiring and retraining. In IT services, falling attrition can mean either genuine stability or fewer outside opportunities for employees to leave to, and the two look identical in the number itself.

Behind-the-Meter Generation

Building your own power plant on site, usually gas turbines, to skip the grid interconnection queue entirely. Fast and increasingly common, but it imports fuel-price and emissions risk onto the balance sheet.

Bench

IT services employees who are on the payroll but not currently billed to any client project, kept available for the next assignment. A large bench is a cost with no matching revenue, so a shrinking bench requirement (which AI tools enable) directly improves margins, even before any headline layoffs.

Billable Hours (Man-Day Billing)

The traditional IT services pricing model: a client pays for the number of people, and hours, a vendor deploys on a project, regardless of how efficiently the work gets done. AI-assisted tools that let one engineer do the work of three threaten this model directly, since the billable unit itself shrinks.

Biosimilar

A near-copy of a biologic drug (made from living cells, like insulin or Herceptin). Unlike chemical generics, biosimilars cannot be chemically identical — they must prove 'similar' efficacy, making them harder and more expensive to develop.

Book Value

A company's assets minus its liabilities, as recorded on the balance sheet — its net worth on paper. For most of Berkshire's history, growth in book value per share was Buffett's headline measure of value creation.

Branded Generics

A generic drug sold under a proprietary brand name. Doctors prescribe by brand, not molecule name — this doctor-brand loyalty is a durable competitive moat.

CAGR (Compound Annual Growth Rate)

The single smoothed annual rate that takes an investment from its start value to its end value over several years. It strips out the year-to-year noise so you can compare returns on a like-for-like basis.

Call Option

The right to BUY an asset at a fixed strike price before expiry. Buyers of calls profit when the price rises. Think of it as a coupon that locks in a purchase price.

CDMO (Contract Development and Manufacturing Organisation)

An outsourced pill factory that makes drugs for pharma companies. CDMOs earn stable, long-term contract revenue without the patent risk of a branded drug company.

Circle of Competence

The set of industries and businesses an investor understands well enough to judge. Buffett's rule is not to have a huge circle, but to know precisely where its edge is — and to stay inside it.

Collar

Combining a protective put (downside floor) with a covered call (upside cap) on a stock you own. The premium from the sold call helps pay for the bought put — often making the protection nearly free. Famously used by Mark Cuban on his Yahoo stock.

Colocation (Colo)

A specialist landlord model for computers. The operator builds the powered, cooled shell and leases it; the tenant brings their own servers. Revenue comes from long contracts, typically 5 to 15 years.

Combined Ratio

An insurer's claims plus expenses divided by the premiums it earned. Below 100% means the insurer made an underwriting profit (it kept money even before investing the float); above 100% means underwriting lost money.

Conglomerate

A single company that owns businesses across many unrelated industries. Conglomerates fell out of fashion after 1970s empire-building destroyed value, but a disciplined one with a strong capital allocator can outperform.

Constant Currency Growth

Revenue growth with the effect of exchange-rate movements stripped out, so a rupee strengthening or weakening against the dollar does not distort the picture. For Indian IT exporters, who bill mostly in dollars but report in rupees, constant-currency growth is the number that shows real business momentum, not currency drift.

Cost of Float

What an insurer effectively pays to hold policyholders' money. If underwriting runs at a loss, the float has a positive cost (like interest on a loan); if underwriting is profitable, the cost is negative — the insurer is paid to hold investable money.

Covered Call

Owning a stock and selling a call option against it. You collect premium income now, in exchange for capping your upside if the stock rises above the strike. A way to earn yield on shares you already hold.

CoWoS (Chip-on-Wafer-on-Substrate)

TSMC's advanced packaging technique for binding an AI processor and its memory onto a single package. The industry's tightest bottleneck through 2024 and 2025, with CEO C.C. Wei describing capacity as sold out through 2026.

CRO (Contract Research Organisation)

A specialist company that runs clinical trials, lab experiments, and R&D work on behalf of pharma clients. Asset-light, fee-based business model. Indian example: Syngene International.

Current Account Deficit (CAD)

When a country imports more goods, services and income than it exports. India runs a structural CAD because it imports large amounts of crude oil and gold, creating constant demand for dollars — a long-term source of downward pressure on the rupee.

Day-1 Price Erosion

When a generic drug launches in the US, multiple competitors often enter on the same day. Prices can drop 60–80% within months as companies undercut each other. A blockbuster generic that earns 40% margins in year 1 may earn only 15% by year 3 — so US generics revenue must be constantly refreshed with new launches.

Deal Deflation

When a contract that would once have been priced at a certain value shrinks because AI-assisted delivery lets the vendor do the same work with less effort, and the client demands a lower price to match. A concrete example an IT services CEO has cited publicly: a deal that would have been $100 million a few years ago might be priced at $80 million today.

Derivative

A contract whose value is derived from something else — a stock, an index, a commodity, a currency. You are not trading the underlying asset itself, but a contract linked to its price. Futures and options are the two most common types.

Die

A single rectangular piece of silicon cut from a wafer, etched with one complete chip's circuits. A wafer holds many identical dies printed side by side, sliced apart once fabrication finishes. The 'compute die' is the piece containing an AI processor's logic, as distinct from the separate memory dies packaged next to it.

DXY (US Dollar Index)

A measure of the US dollar's strength against a basket of major currencies (euro, yen, pound and others). When DXY rises, the dollar is strengthening globally — which usually pressures emerging-market currencies like the rupee and weighs on dollar-priced gold.

Earnings Yield

The inverse of the P/E ratio (earnings ÷ price), expressed as a percentage. It lets you compare a stock's earnings return directly against a bond's interest yield — a quick test of whether equities are cheap or dear versus debt.

EBIT (Earnings Before Interest and Taxes)

Operating profit before financing costs and tax are subtracted. Unlike EBITDA, EBIT does include depreciation and amortisation, which makes it a slightly more conservative measure of how profitable the core business actually is.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortisation. A measure of a company's core operating profitability, stripping out financing and accounting effects. Useful for comparing companies across industries.

EBITDA Margin

EBITDA expressed as a percentage of revenue. A 25% EBITDA margin means Rs 25 of operating profit for every Rs 100 of sales. Higher margins mean more pricing power or lower costs than competitors.

Economic Moat

A sustainable competitive advantage that protects a company's profits from rivals — like a castle's moat. Types include brand loyalty, network effects, switching costs, scale advantages, and regulatory barriers. Warren Buffett's core investing concept.

Embedded Value (EV)

A life insurer's true economic net worth: its net assets plus the present value of future profits locked into policies already sold. Because life-insurance profits emerge over decades, book value understates the business — EV is the better anchor for valuation.

Equity Risk Premium (ERP)

The extra annual return investors demand for holding risky stocks instead of safe government bonds. Expected stock return ≈ risk-free rate + ERP. When the premium is thin, stocks are expensive relative to bonds.

Expense Ratio

The share of premium an insurer spends running the business — commissions, salaries, marketing, technology. Loss ratio plus expense ratio equals the combined ratio. A low expense ratio (GEICO's is under 10%) is a durable cost moat.

Expiry

The date an options or futures contract ceases to exist. After expiry the contract is settled and the right or obligation ends. Indian index options commonly expire weekly and monthly.

Fabless

A chip company that designs processors but owns no factories, paying a foundry like TSMC to fabricate them instead. Nvidia, AMD and Google's chip division are all fabless; it lets a company focus capital on design talent rather than tens of billions of dollars of factory construction.

Fabrication

The physical manufacturing of a chip design onto silicon, done in specialised factories called foundries. Companies that design chips but own no factories, like Nvidia and AMD, are called 'fabless'; TSMC alone fabricates close to 70% of the world's advanced logic chips.

FDA Warning Letter

A formal FDA notice that a company is seriously non-compliant with manufacturing standards. It blocks new drug approvals from that plant until resolved — and typically wipes 15–20% off the stock price.

FII / FPI (Foreign Institutional Investor)

Overseas funds that buy and sell Indian stocks and bonds. Their flows are large and fast: when they buy, they bring dollars in and push markets up; when they sell, they take dollars out, weakening the rupee and the market at the same time.

Form 483

A list of 'observations' issued by FDA inspectors after visiting a manufacturing plant. Not a ban, but a formal warning that must be addressed. Unresolved 483s escalate to Warning Letters.

Forward Contract

A private, customised agreement between two parties to trade an asset at a set price on a future date. Like a futures contract but not standardised or exchange-traded, so it carries counterparty risk.

Frequency and Severity

The two building blocks of an expected claim cost. Frequency is how often a claim occurs; severity is how much it costs when it does. Expected claim cost = frequency × severity, and it is the core of every premium an insurer charges.

Frontier (AI)

The single most advanced capability level available at any given moment, the current cutting edge of what AI models can do. It is a moving target: a capability at the frontier today typically becomes cheap, widely available commodity capability within about eighteen months, as newer models push the boundary further out.

Futures Contract

A binding agreement to buy or sell an asset at a fixed price on a set future date. Both sides are obligated to complete the trade. Used to lock in a price today for a transaction that happens later.

GCC (Global Capability Center)

An in-house technology and operations unit that a multinational company sets up directly in India, staffed with its own employees, instead of outsourcing that work to a vendor like TCS or Infosys. A GCC competes with IT services firms for the same talent and increasingly for the same higher-value work.

Generic Drug

A copy of a brand-name drug with the same active ingredient, dosage form, and effectiveness, sold at a much lower price after the original patent expires.

GLP-1 (Glucagon-Like Peptide-1)

A natural gut hormone released after you eat that tells the pancreas to release insulin and signals the brain that you're full. 'GLP-1 receptor agonist' drugs like semaglutide (Ozempic/Wegovy) mimic this hormone to control blood sugar and suppress appetite, which is why they treat both diabetes and obesity.

GPU-Hour

The billing unit for rented AI computing: one GPU used for one hour. A fully burdened H100 costs roughly $1.45 per GPU-hour at 70% utilisation, and far more if the chip sits idle, because the hardware cost is fixed.

HBM (High-Bandwidth Memory)

Specialised memory stacked next to an AI accelerator to feed it data fast enough to keep it busy. Genuinely scarce and highly profitable: SK hynix holds a majority global share and reported operating margins above 70% through 2026 as HBM demand surged.

Hedge

A position taken to reduce the risk of an existing exposure — the financial equivalent of buying insurance. A hedge is designed to lose a little when your main position wins, and protect you when it loses.

Holding Company

A parent company that does not make products itself but owns controlling stakes in other companies. Its job is capital allocation: deciding where the cash thrown off by its subsidiaries should go next.

Hyperscaler

One of the handful of giant technology companies running global cloud platforms (Microsoft, Amazon, Google, Meta). They build data centers primarily for their own use and rent out the surplus.

Import Alert

The most severe FDA action: blocks all shipments from a specific plant into the US market. Companies can take 12–36 months to get an Import Alert lifted.

Inference

What happens every time someone actually uses an AI model: you ask a question, it answers. Cheap per query but done billions of times. Think of it as running the factory.

Insurance Float

The pool of premium money an insurer collects upfront but has not yet paid out in claims. It legally belongs to policyholders, but until claims come due the insurer can invest it. If underwriting breaks even or better, this is investable capital the insurer effectively holds for free — or gets paid to hold.

Interconnection Queue

The waiting list to connect a new facility to the electricity grid. Waits of four to seven years are routine in major data center hubs, and up to ten in constrained regions. This, not chips or money, is the sector's binding constraint.

Intrinsic Value

The discounted value of all the cash a business will generate over its remaining life. It cannot be calculated precisely, only estimated within a range. Buffett argues it, not book value or market price, is what an investor should ultimately care about.

Law of Large Numbers

The statistical principle that lets insurance work: any single claim is unpredictable, but across a large, diverse pool of policies the average claim cost becomes highly predictable. The bigger and more varied the pool, the more reliable the pricing.

Leverage

Controlling a large position with a small amount of money. Derivatives are leveraged because a small premium or margin controls a much larger exposure — which magnifies both gains and losses.

Liquid Cooling

Circulating coolant directly across chips through pipes instead of blowing cold air at them. Necessary above about 30 kW per rack, and reported to cut energy overhead by up to 30%. It is why older data centers cannot simply be filled with AI hardware.

Loss Ratio

The share of earned premium an insurer pays out as claims (and claim-handling costs). A 70% loss ratio means 70 paise of every premium rupee went to policyholders' claims. It is the single biggest driver of whether underwriting is profitable.

Margin

The good-faith deposit an exchange requires to hold a futures position, covering potential losses. Because you post only a fraction of the contract's value, futures are inherently leveraged — and losses can exceed your deposit.

Market Capitalisation

The total market value of a company: share price multiplied by total shares outstanding. A Rs 1,00,000 Cr market cap means the market values the entire business at that amount today.

Megawatt of IT Load

The industry's unit of data center size: the electrical power actually delivered to computing equipment. Used instead of square feet because power, not floor space, is the binding constraint. One MW runs roughly 800 to 1,000 Indian homes.

MR Network (Medical Representatives)

A pharma company's field salesforce that visits doctors to promote branded drugs. MR count is a proxy for prescription market reach — 10,000+ MRs is a moat that takes decades to build.

NDA (New Drug Application)

The full FDA application for a new, original drug. Requires complete clinical trial data proving safety and efficacy. Costs $1–2 billion and takes 10–15 years.

Neocloud

A newer breed of company that buys GPUs outright and rents computing capacity by the hour, competing with hyperscalers on price and availability. Examples include CoreWeave, Nebius and E2E Networks.

NLEM (National List of Essential Medicines)

India's list of ~360 medicines deemed essential to public health, all subject to NPPA price controls. Pharma companies with heavy NLEM exposure face more pricing risk than those focused on chronic or specialty drugs.

Nominal Return

The headline return you see on a statement, before adjusting for inflation. If your fund grew 12% but prices rose 6%, the 12% is nominal — it overstates how much richer you actually became.

Notional Value

The total market value of the asset a derivative controls, as opposed to the small premium or margin you actually put up. One index options lot can carry a notional value many times its premium.

NPPA (National Pharmaceutical Pricing Authority)

India's government regulator that sets maximum price caps on essential medicines. Sudden NPPA price cuts can reduce a pharma company's domestic revenue by 3–8% overnight.

Option

A contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a fixed price before a deadline. The buyer pays a premium for this right; the seller collects it and takes on the obligation.

Owner Earnings

Buffett's preferred profit measure: reported earnings plus depreciation and non-cash charges, minus the capital spending the business truly needs to maintain its competitive position. It approximates the cash an owner could pull out without weakening the business.

P/E Ratio (Price to Earnings)

Tells you how many years of current earnings you're paying for when you buy a stock. A P/E of 25 means you pay 25 years of today's profits upfront. High P/E = market expects strong growth; low P/E = slow growth or high risk.

Para IV Filing

A type of ANDA that challenges an existing patent, claiming it is invalid or won't be infringed. The first company to successfully file gets 180 days of exclusive generic sales — a temporary monopoly.

PAT (Profit After Tax)

The 'bottom line' — what's left for shareholders after paying all expenses, interest, and taxes. Also called net profit. This is the number used in P/E ratio calculations.

Patent Cliff

The sharp revenue drop an innovator drug company faces when a blockbuster drug's patent expires and generic competitors flood in. Example: Pfizer lost $10B+ in annual Lipitor sales within two years of patent expiry.

Peptide

A short chain of amino acids — smaller than a full protein but larger and more complex than a typical chemical pill. Peptide drugs like semaglutide sit between small molecules and biologics: harder to manufacture and copy than ordinary generics, but not as complex as antibody biologics.

Permanent Capital

Money a firm can invest with no fixed deadline to return it. Unlike a fund that must repay investors after ~10 years, permanent capital lets the holder buy and hold indefinitely and never become a forced seller in a downturn.

Persistency

The percentage of policyholders who keep paying their premiums instead of lapsing. The 13th-month and 61st-month ratios are watched closely: high persistency means the future profits baked into embedded value will actually be collected.

Premium (Options)

The price the option buyer pays the seller for the right the option confers. It is the most a buyer can lose, and the most a seller can earn. Functions exactly like an insurance premium.

Protective Put

Owning a stock and buying a put option on it. The put sets a floor price below which you cannot lose, no matter how far the stock falls. Downside insurance on a holding you want to keep.

Protein

A large molecule built from chains of amino acids that fold into a precise 3D shape. The shape determines what the protein does, and it is dictated by the living cell that made it. Because that exact shape can't be reproduced by chemistry, protein-based drugs (biologics) can't be copied atom-for-atom — only approximated by a biosimilar.

PUE (Power Usage Effectiveness)

Total facility electricity divided by the electricity reaching the computing equipment. 1.0 would be perfect; 2.0 means one watt wasted on cooling and overhead for every useful watt. Best global operators run 1.1 to 1.2; conventional Indian facilities run 1.5 to 1.9.

Purchasing Power Parity (PPP)

The idea that, over the long run, exchange rates drift to equalise the price of the same basket of goods across countries. A currency in a higher-inflation country (like India) tends to depreciate against a lower-inflation one (like the US) by roughly the inflation gap.

Put Option

The right to SELL an asset at a fixed strike price before expiry. Buyers of puts profit when the price falls — which is why a put acts like an insurance policy on a stock you own.

Rack Density

The power drawn by a single rack of equipment. Ordinary servers draw 5 to 10 kilowatts per rack; AI racks draw 100 kilowatts or more. Above roughly 30 kW, air cooling stops working and liquid cooling becomes mandatory.

Real Return

The return left after subtracting inflation — what your money actually buys you in extra goods. Real return ≈ nominal return − inflation. This, not the nominal number, is the true measure of wealth created.

Reinsurance

Insurance for insurers. A primary insurer transfers part of its risk to a reinsurer in exchange for a share of the premium, capping its exposure to catastrophes. Reinsurers (like Berkshire's Gen Re) are among the largest holders of float.

Risk-Free Rate

The return you can earn with virtually no risk — in India, the yield on a government bond. It is the baseline every other investment is judged against: a stock must be expected to beat this to be worth the extra risk.

ROCE (Return on Capital Employed)

Measures how efficiently a company generates profit from all the capital it uses — both equity and debt. ROCE above 20% is generally excellent. The best businesses compound ROCE above 25% for decades.

ROE (Return on Equity)

Profit generated for every rupee or dollar of shareholders' money invested. ROE above 15% is generally good. Watch out: high ROE driven by heavy debt is misleading — check ROCE alongside it.

ROIC (Return on Invested Capital)

The most rigorous measure of capital efficiency — profit generated on every rupee of capital deployed, after tax. ROIC consistently above the cost of capital (typically 10–12%) means the business is creating shareholder value.

SMR (Small Modular Reactor)

A compact, factory-built nuclear reactor. Several data center operators have signed agreements for future SMR capacity, though the economics are unproven at scale and meaningful deployment remains years away.

Strike Price

The fixed price at which an option can be exercised. A call lets you buy at the strike; a put lets you sell at the strike, no matter where the market price has moved.

Take-or-Pay Contract

An agreement where the tenant pays for contracted capacity whether or not they use it. It is what makes data center revenue reliable, which means the credit quality of the counterparty matters more than almost anything else.

TCV (Total Contract Value)

The total value of a services contract over its entire life, not just one year. A five-year, 500 crore rupee deal has a TCV of 500 crore, even though the revenue books in slowly, quarter by quarter, as the work is delivered. Rising TCV signals future revenue, not current revenue.

Time Decay (Theta)

The steady erosion of an option's value as expiry approaches. Because an option is a wasting asset, its time value bleeds away every day — which is why most bought options expire worthless.

Token

The unit AI models are billed by, roughly a word fragment. Prices for a given level of capability have fallen about 95% in two years, while frontier model pricing has risen, so the market has split in two.

Training

The one-off process of building an AI model by feeding it enormous quantities of data until it learns patterns. Takes weeks or months and consumes vast computing power. Think of it as building the factory.

Underlying Asset

The actual thing a derivative is based on — the Nifty 50 index, a share of Reliance, a barrel of crude oil, gold. The derivative's price moves in response to the underlying's price.

Underwriting Cycle

The multi-year swing in insurance pricing. When capital is plentiful, insurers compete and cut rates ('soft market'); after big losses drain capital, rates spike ('hard market'). Disciplined insurers write less business in soft markets and more in hard ones.

Underwriting Profit

The money an insurer keeps from premiums after paying all claims and expenses, before any investment income. It exists only when the combined ratio is below 100%. An insurer with underwriting profit is being paid to hold its float.

Useful Life

The number of years a company assumes an asset will remain productive, which sets its annual depreciation charge. For AI hardware this estimate is contested: Microsoft and Alphabet extended server lives to six years while Amazon shortened a subset to five.

Utilisation Rate

The share of time computing hardware is actually being used and paid for. Because the cost of a GPU is fixed once bought, utilisation determines whether a GPU rental business earns a high margin or loses money.

Value of New Business (VNB)

The present value of all future profit an insurer expects from the policies it sold this year. VNB margin (VNB ÷ new premium) shows how profitable that new business is. Rising VNB is the clearest sign a life insurer is compounding value.

Vendor Financing

When a supplier funds its own customer's purchases. Common in the AI buildout, where chip makers invest in AI companies that then buy their chips. It inflates reported revenue quality concerns, and was a hallmark of the 1999 telecom bust.

Working Capital

The money tied up in day-to-day operations: raw materials, work-in-progress inventory, finished goods, and receivables (money customers owe you). High working capital businesses need more cash to grow.