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. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  2. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  3. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  4. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  5. Term

    What is Pegging?

    Pegging refers to the practice of fixing one country's currency to that of another country. It also describes a practice in which investors avoid purchasing security shares underlying a put option.
  6. Home & Auto

    Understanding Pre-Qualification Vs. Pre-Approval

    Contrary to popular belief, being pre-qualified for a mortgage doesn’t mean you’re pre-approved for a home loan.
  7. Investing Basics

    An Introduction To Structured Products

    Structured products take a traditional security and replace its usual payment features with a non-traditional payoff.
  8. Options & Futures

    Contango Versus Normal Backwardation

    It’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
  9. Stock Analysis

    Dow Chemical: An Activist Investment Analysis (DOW)

    Read about how an activist hedge fund demanded changes at Dow Chemical. Learn about deal structure of the proposed merger between Dow and DuPont.
  10. Term

    What's a Vertical Merger?

    A vertical merger occurs when two companies that produce goods or services for the same finished product merge operations.
  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. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  4. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  5. 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 >>
  6. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center