Investing for Beginners Glossary

Accumulate Financial Definition
When used in the investment community, the term accumulate can mean different things depending upon who is using it and the context in which they are employing the word. Jordan Siemens / Aurora / Getty Images

The definition of the term "accumulate" on Wall Street differs depending upon who is using it and in what context it is employed.  Most often, an investor is likely to hear or read it when looking over equity recommendations from major brokerage houses, research firms, and investment banks.  When heard in this context, accumulate is meant to convey the analyst's belief that the investor should not sell or liquidate his or her shares of common stock but, rather, acquire additional shares whenever cash flow permits, adding to a position so that it grows over time.

 It is seen as a less tepid recommendation than an outright "buy", "strong buy", or "overweight" recommendation, which indicates the analyst believes the shares attractive and should be acquired, in the latter case, at a portfolio weighting much higher than the benchmark.

Of course, investors must take accumulate recommendations with a grain of salt because analysts are not perfect.  Prior to the real estate bubble and credit crisis collapse of 2008-2009, several of the banks and financial institutions that went bankrupt or experienced near total, catastrophic wipe-out had accumulate, buy, or strong buy recommendations on them despite the fact these firms were taking on extraordinarily imprudent levels of risk.  One such example I keep in my library is the tear sheet from S&P for Wachovia, the bank that ended up being absorbed by Wells Fargo when it failed.  It had become so lax with its lending policies that it created a "name your own payment" mortgage that allowed borrowers to send in whatever they could afford in any given month, which even made negative amortization possible wherein the mortgage loan balance increased with time!

 As a student of history could spot, it was largely the same mistakes of the past coming around again in a slightly different disguise (there really isn't much originality in banking crises - it's almost always some variation on a theme of holding too little equity or becoming too accommodating in lending requirements).

 An investor who followed an accumulate or better recommendation on Wachovia would have lost nearly all of his or her investment.  To put it more bluntly, you cannot substitute the analyst's accumulate recommendation for your own judgment.  You still must analyze the balance sheet, income statement, 10-K, and other relevant documents yourself.  

Other Definitions and Uses of Accumulate

Accumulate can also be used to describe activist or wealthy investors buying up shares of a company.  For example, you might pick up the financial section of the newspaper and see that Warren Buffett's holding company, Berkshire Hathaway, has been accumulating shares of Coca-Cola or Wells Fargo & Company.

Additionally, accumulate is sometimes used as a general word to describe investors who opt for systematic (a.k.a. formulaic) purchases rather than valuation-based or market timing approaches.  This can include investors who spend their lifetime buying shares of an index fund, those secret millionaire-next-door types who buy blue chip stocks through direct stock purchase plans and dividend reinvestment plans, and even real estate investors who quietly, regularly buy up the properties within a certain geographic area.

 Many family fortunes have been acquired by such techniques.  In the case of real estate, there are specialty strategies that can make accumulation cheaper.  When the richest man in the world, Bill Gates, acquires certain properties through his holding company, Cascade Investment, LLC, the firm is rumored to utilize a series of front companies, proxy buyers, and other legal entities to conceal its identity because people tend to demand more when they realize it is Mr. Gates making the purchase; a problem not unique to this century (John D. Rockefeller once quipped that he could feel retail prices rise when he walked into a store).