The difference between a manager’s performance and the average performance of other managers, adjusted for the riskiness of the holding.

balance sheet

A listing of all assets, liabilities (debts), and net worth. For the balance sheet to balance, assets must equal liabilities plus net worth.

fee leakage

Shrinkage of the gross return on an investment because of management fees and other expenses.

free cash flow to equity

A metric of how much cash can be paid to the equity shareholders after all cash expenses, taxes, reinvestments, and net borrowings.

gross return

The total return on an investment before deducting any fees or expenses.


A security or other asset, such as real estate, that may not easily be sold for cash without a substantial loss of value.


Permanent loss of all or part of original capital.

income statement

Revenues (or salary/earnings) minus expenses equals profit or savings. In business, also known as a profit and loss statement, or P&L.

internal rate of return (IRR)

The effective yield or compounded annual rate of return on an investment.

labor asset

The present value of expected future after-tax income from working.

Monte Carlo simulation

A simulation technique used to demonstrate the range of possible outcomes given an expected outcome (mean) and the volatility of that outcome (standard deviation) by generating multiple trial runs.


Very liquid assets including pocket cash, checking and money-market ...

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