terminology Archives - Financial Independence Hub

Like most closed shops, the financial industry features its own specialized vocabulary. As an investor, the key to understanding the financial industry is to understand the buzzwords and special terminology that are as often used to obfuscate concepts as to illuminate investors.

All of which makes Jason Zweig’s The Devil’s Financial Dictionary an invaluable tool for serious investors. Zweig is of course the Wall Street Journal’s eminent personal finance columnist. The book, published late in 2015, was inspired by Ambrose Bierce’s classic book, The Devil’s Dictionary.

As Zweig writes in his book’s introduction, “If investors are to be partners instead of pigeons, they must master the many ways in which Wall Street uses language to conceal rather than reveal information. Every profession is a conspiracy against the laity, and every profession’s jargon is meant to confuse and exclude those who aren’t part of the guild.”

If you learn nothing else, consider the following pithy observation by Zweig:

The denser the jargon, and the more polysyllabic the terminology, the more likely someone is hiding something from you.

Arranged alphabetically, as one would expect of a dictionary, this is a book you can peruse randomly; in fact, I’d suggest that approach. Without further ado, here are some sample definitions that got my attention and/or made me chuckle: as you’ll see, many of the definitions are simultaneously amusing and yet useful in penetrating the true meaning of many financial terms. They’re also quite cynical, which is half the fun: I’m sure Zweig had a blast writing them up in the first place.

ANALYST, n. A purported expert on a company who in theory estimates its value by breaking it down into its constituent parts but in practice functions as a salesperson and cheerleader.

CREDIT CARD, n. A thin slab of plastic that enables a person to feel pleasure today by incurring pain tomorrow. Continue Reading…

By Patrick McKeough, TSInetwork.ca

Special to the Financial Independence Hub

Today’s tip: “Investor shorthand can provide a useful guide to investment information, but it can also oversimplify analysis and events and steer investors into bad decisions.”

Investor shorthand can help you think about and talk about large blocks of investment information. But it may also lead you to make associations and come to conclusions that can cost you money.

For example, think about the common investor shorthand term, low-p/e stocks. It encompasses four statistics: price per share; per-share earnings; the p/e (the ratio of a stock’s price to its per-share earnings); and low p/e (which suggests a normal range exists for p/e’s generally, or for p/e’s of stocks of a particular type or description, and that these stocks are near the lower half of the range).

Some investors, beginners especially, see special appeal in stocks with low p/e’s. They jump to the conclusion that the p/e is low because the “p” or stock is low, and that this is a sure sign of a bargain. When you use that term to generalize, however, you can lose sight of the fact that p/e’s can be (or can seem) low for all sorts of reasons.

For example, maybe the “e” or earnings is temporarily high, due to unusual factors that will soon revert to normal or worse. Or, the stock price may be low, and headed lower, due to negative conditions or trends in the company or its industry.

Of course, many experienced investors understand how the use of shorthand investment terms can warp investor perceptions, and lead them to take on unwanted risk. But they fail to see the upside-down version of that risk in newer, poorly-defined terms. One good example is “bubble”.