The cry of "Ho varlet, thou hast offended mine honor" has become increasingly rare. Sword fights in the streets, jousting for a lady's hand, and not bathing for weeks have also gone out of style (at least officially), but we can still revel in the romance of the medieval world. Today we'll be looking at some of investing terms that hearken back to a time of kings, knights and princesses. Let's get medieval!

Crown Jewels
The crown jewels of the British monarchy have been around for over 800 years. In that time, they have been through fires, attempted thefts, pawn shops and general carelessness. However, to the British, the crown jewels carry serious sentimental and monetary value.

This is why the most valuable unit (section, subsidiary, etc.) of a corporation is referred to as the crown jewels. A firm's crown jewels are attractive for many reasons, including their profitability, asset value, future prospects, and so forth. Like the crown jewels of the British monarchy, a corporation's crown jewels are often the target of thieves - well, at least the target for a hostile takeover.

The Knights of the Hostile Takeover
Whether or not a knight's personality could really be summed up by the color of armor he wore (as fairytales would have us believe), I cannot say. The general rule for fairytales, however, is the darker the armor's hue the darker the knight's disposition. The investing world's knights aren't serving royalty or rescuing maidens but are mostly occupied with taking over other companies. Wall Street, like fairytales and Disney, assigns an acquiring company a color that is indicative of the nature of the takeover. So here goes:

Black Knight -The black knight, of course, isn\'t the type to court a maiden with flowers but instead prefers a fast horse and a sack. The black knight of a takeover is hostile and is likely to run up against any number of defenses funded by the target company\'s war chest.
White Knight - Always representing the "good guy", a white knight gallops in when a black knight is making a hostile takeover attempt. The white knight offers the target firm (the maiden) a way out with a friendly takeover.
Gray Knight - Since steel is almost naturally gray, you\'d guess that most knights were in this club. But, in the 21st century, the gray knight is an unsavory character that comes in unsolicited by the target firm and tries to worm into the deal through any cracks in the relationship between the first bidder and the target. The gray knights are essentially the scavengers of takeover attempts.
Yellow Knight - I doubt there were ever any knights in bright yellow, but yellow is a color often associated with cowardice, and that is how Wall Street uses it. A yellow knight is a firm that goes from attempting a hostile takeover to discussing a merger ("Can we talk about this guys?"). Reasons for chickening out vary, but it usually has to do with the target company\'s formidable defenses.

White Squire
Squires were the sidekicks of knights, for whom the squires would polish the armor, feed the horse and cook meals. Being a squire was a pre-requisite to eventually becoming a knight. In the world of takeovers a white squire therefore walks in the shadow of the white knight. Buying a minority interest in a firm targeted by a black knight, a white squire, not big enough to buy a majority interest, helps out the targeted firm quite a bit with the influx of capital but does not guarantee a successful defense.

Moats and Pits
Defending one's castle was a full-time occupation in medieval times. The two most popular defenses were the pit and the moat (basically a pit with water surrounding your castle). If you dot your land with covered and open pits as well as encircle your castle with a moat, you've made sure that any aggressor will pay a price before getting near your walls. The pits will force an advancing army on horseback to dismount and feel their way around covered pits (often spike-lined) thus losing mobility and speed. However, pits cannot stop them entirely because men can climb down one side and up the other safely (unlike horses). That's where the moat comes in. Have you ever tried swimming in full armor? Think stone, think sinking.

The pit in the world of trading isn't half as exciting (to me). Pits, like those at the CBOE, are places where individual options and futures contracts are traded. It's a chaotic ballet of thrashing limbs and raised voices, cacophony at its finest. On the flip side, the economic moat is right on par with its medieval counterpart. This term was coined by the oracle of Omaha, Warren G. Buffett. It refers to the competitive advantage that a company has over other firms in its industry; the wider the moat, the more attractive the company. The moat isn't actually water and mud. It can be anything, but good examples include brand name recognition, pricing power, barrier for entry into the industry, etc. Presumably, other companies cannot easily strip naked and swim in these moats.

In the Middle Ages, whenever you were feeling a little under the weather you would go to the local bone-saw (the physician ... you can guess where they got the name). It was common for these physicians to prescribe a regime of bloodletting, which involved either putting fat slimy leeches on your skin so they can suck your blood or actually cutting you to release some blood.

In the financial world, bloodletting is not meant to be a "therapy", but a period of time during which your portfolio takes massive losses. This frequently occurs during a bear market as the value of the stocks in your portfolio slowly bleeds away (probably from wounds inflicted while being mauled by the surly bears). As you've probably guessed, bloodletting helps your portfolio about as much as leeches help a broken leg - both forms of bloodletting are weakening processes. However, just because your portfolio is bleeding, doesn't mean its dead. With some TLC and patience, you can have it running around the market once it recovers. Just keep the leeches away from it.

That does it for our journey to ye olden times. Hopefully, thou hast enjoyed seeing how the past still plays a small role in the present.

Related Articles
  1. Economics

    What are Acquisition Costs?

    A company can recognize acquisition costs as those costs used to buy property and equipment.
  2. Fundamental Analysis

    Regional, Community Bank Stocks the Next Big Thing

    The very best opportunities are often in the less exciting stocks and sectors. Community banks may not be sexy, but they can be very profitable investments.
  3. Professionals

    Hard and Soft Due Diligence: What's the Difference?

    Learn about the differences between "hard" and "soft" due diligence in a mergers and acquisitions deal (M&A) and why soft diligence is increasingly important.
  4. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  5. Stock Analysis

    How UPS Plans to Benefit from Its Coyote Acquisition

    Understand the business models of UPS and Coyote Logistics. Learn about the top four ways in which UPS will benefit from the acquisition of Coyote Logistics.
  6. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  7. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Economics

    Is the U.S. Economy Ready for Liftoff?

    The Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
  10. Stock Analysis

    This Is What Carl Icahn's Portfolio Looks Like

    Read about some of the holdings in Carl Icahn's portfolio. Learn about his activist campaigns against companies that he believes are performing poorly.
  1. How did corporations act under mercantilism?

    The term "mercantilism" applied to both a type of economic system and a period in the history of the political economy. Between ... Read Full Answer >>
  2. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!