Benchmark: A standard against which risk and return investment performance can be evaluated. Widely used equity performance benchmarks are the total return of the S&P500, the Russell3000, and the MSCI EAFE Index. Different benchmarks are used for evaluating different asset classes or styles of investing.
Beta - A historical measure of an investment's sensitivity to market movements. By definition, the beta of the market (as measured by the benchmark) is 1.0. A beta of less than 1.0 indicates that the investment is less sensitive to the market, while a beta of more than 1.0 indicates that the investment is more sensitive to the market. Generally, the higher the correlation between the investment and the market (as measured by R-squared), the more meaningful is beta. Because beta is based on measurements of past performance, it is not an indication of what the investment's performance will be in the future.
Black-Scholes: Black-Scholes option valuation model, developed by Fisher Black and Myron Scholes in 1973, is the most widely used option-pricing model to date. To determine the fair market value of an option, it takes into consideration the securities price, the exercise price, the risk free rate, the time to maturity, and the standard deviation of the underlying asset price.
Blue Sky Laws: A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as a patch of blue sky.
Book Value: Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.
Bottom-Up Investing: An approach to investing that bases investment selection on fundamental analysis of specific companies, versus a top-down approach that centers on evaluation of economic trends. Bottom-up investing involves detailed company specific analysis in order to arrive at investment decisions. Emphasis is placed upon company fundamentals such as earnings, cash flows, financial ratios, P/E, etc. to determine the relative value of a stock.
Bridge Financing: A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.
Business Development Company (BDC): A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.
Business Judgment Rule: The legal principle that assumes the board of directors is acting in the best interests of the shareholders unless it can be clearly established that it is not. If the board was found to violate the business judgment rule, it would be in violation of its fiduciary duties to the shareholders.
Business Plan: A document that describes the entrepreneur's idea, the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competitive landscape, as well as financial data for coming years. The business plan opens with a brief executive summary, most probably the most important element of the document due to the time constraints of venture capital funds and angels.