LYONs and TIGRs, Oh My!

January 5, 2010
Michael Sheehan

When faced with a complex investment, Wall Street's denizens like to make it sound simple by giving it a cute name. Before you invest your hard-earned cash, it's best to find out what you're investing in.

When faced with a complex investment, Wall Street’s denizens like to make it sound simple by giving it a cute name. A TIGR, for example, is a Treasury Investment Growth Receipt, and a LYON is a Liquid Yield Option Note. TIGRs haven’t been sold in several years, having been replaced by the more popular Treasury STRIPs, which stands for “separate trading of registered interest and principal securities.” STRIPs should not be confused with STRYPEs, which are Structured Yield Products Exchangeable for Stock.

Confused? That’s a problem for many investors who find that these simple-sounding acronyms often cover up extremely complex investment vehicles. Collateralized Debt Obligations, one of the major movers behind the credit crisis, became CDOs. Likewise, the CDO’s cousin, the Collateralized Mortgage Obligation, morphed into a CMO. Investors who put money into either of these securities had to go beyond the acronym and then do some more digging into what the investment was all about to find out where their money was going. As the market nightmare shows, too many investors, including some of Wall Street’s biggest brokerages, did not do their homework.

Before you invest your hard-earned cash, it’s best to find out what you’re investing in. A good source for basic information about various acronyms and Wall Street buzz words is Investopedia. There you’ll find the definition of hundreds of investment terms, along with the meaning of many obscure financial phrases like “dragon bond,” a bond issued in Asia but denominated in US dollars. Your increased knowledge can prevent you from becoming a “barefoot pilgrim,” an unsophisticated investor who loses a bundle trading stocks, or getting stuck with a “torpedo stock,” a stock that’s dropping fast and, like a ship that’s hit by a torpedo, will eventually hit bottom.