According to author Jason Zweig, “No matter how cynical you are about Wall Street, you aren’t cynical enough.”

So he writes in the introduction to The Devil’s Financial Dictionary, his wonderful new A-Z of investing jargon rewritten with an eye for laughs and for education as a side effect.

I wish I’d written it, frankly. Almost as much as I wish I’d written The Great Gatsby, and I don’t even have the excuse of not being born 100 years ago with The Devil’s Financial Dictionary.

Here’s a taster of ten definitions by Zweig from chapters A to C – abridged and abbreviated by me – that seem especially relevant to passive investors.

ALPHA

Luck.
Technically, alpha is the excess return over a market index, adjusted for the risk that the portfolio manager incurred to achieve it. Used as a synonym for skill, alpha is in fact nearly always the result of random chance: “We bought Mongolian mortgage-backed securities when other investors had decided that the market for yurts would collapse,” said Ivana Butler, an analyst at the investment firm Bosch, Tosh & Mullarkey in Boston. “But an outbreak of botulism among camels and yaks sent the yurt market higher, driving up the price of our bonds. This is only the latest example of our alpha-generating research process that enables us to outperform.”

APOLOGY

In the real world, an admission of culpability and remorse for an action that harmed someone else, typically followed by an attempt to right the wrong and a commitment not to repeat it; on Wall Street, a declaration that other people did something wrong and that any resulting harm was beyond the bank’s control.

ASSET GATHERING

How brokers, financial advisers, and portfolio managers describe what they do when no one else is listening. In plain English it means: “Grabbing all the money we can with both hands from as many customers as possible so we can earn more fees for less work.”

BASIS POINT

One-hundredth of one percent, or one ten-thousandth of the total, a proportion so puny-sounding that no one ever begrudges paying a few basis points of his or her wealth to a hardworking Wall Streeter. “Our management fee is only 50 basis points,” said Phil D. Hopper, a portfolio manager at the investment firm of Tucker, Cash & Left in Grosse Point, Michigan. “That’s a bargain for the services we provide”. Asked why the licence plate on his Maserati in the firm’s parking lot read “50 BPS”, Mr. Hopper cleared his throat and replied, “That stands for 50 bauds per second, the speed of my first modem.”

BEAR MARKET

A phase of falling prices when you can no longer bear to think about what a fool you were for not selling your investments – which is generally a sign that you should think instead of buying more.

BEAT THE MARKET

To own or trade securities that perform better than a market average or benchmark – which, sooner or later, most securities will. However, they will tend either to stop beating the market as soon as you buy them or to begin doing so as soon as you sell them. Thus, the investors who obsess the most over beating the market are the most likely to end up being beaten by it.

BROKER

The comparative form of broke.
Also, used as a noun, a person who buys and sells stocks, bonds, funds, and other assets for people who are under the delusion that the broker is doing something other than guesswork. One early definition of a broker, attributed to the British lexicographer Samuel Johnson, is “a negotiator between two parties who contrives to cheat both.”

BUY AND HOLD

To hang on for the long term in an asset like stocks – thus infuriating most market ‘experts’ who advise frequent trading in and out in response to actual or imaginary risks and opportunities. At its best, buy and hold investing is stupefyingly boring. At its worst, during Bear Markets, it feels like a failure. Therefore critics are constantly declaring that “buy and hold is dead”. They never offer persuasive evidence, however, that any alternative has worked better over the long term. If buy and hold is dead, what is alive?

CAPITAL

The wealth of an individual, company, or nation, a word deriving from the Latin caput, or head – paradoxically the organ that many investors use the least in their effort to amass capital.

CLIENTS

Also known, on Wall Street, as muppets, flunkies, chumps, suckers, marks, targets, victims or ‘vics‘, dupes, baby seals, sheep, lambs, guppies, geese, pigeons, and ducks (as in “When the ducks quack, feed ’em.”)

Buy The Devil’s Dictionary

These ten edited entries are just a taster of the fun and wisdom on offer in The Devil’s Financial Dictionary.

I could go on, but unfortunately that would be plagiarism rather than a sincere attempt to highlight that this book is one for you.

In fact, buy two copies so you have a spare one for that special investor in your life’s Christmas stocking!

The Devil’s Financial Dictionary is available on Kindle as well as in a sexy red hardback from Amazon.

Good reads from around the Web.

A quiet week on the blogs. Maybe too quiet, as they say on the front line.

Where has everyone gone?

Is it Black Friday fatigue, Christmas party exhaustion, or the miserable British weather (yesterday felt like the first time we’d seen the sun in a fortnight) that has kept bloggers away from their laptops?

One UK personal finance blog – UnderTheMoneyTree – seems to have expired entirely! At the time of writing there’s nothing but the web host’s holding page in situ asking if you’re the site owner and some Google adverts to peruse.

STOP PRESS! Under The Money Tree is online again, posting about traders who are knackered with losing money.

I’m relieved, and will have to put away my “I blame the kids” gag for next time.

But his revival doesn’t excuse the rest of them for resting. (And, um, it’s too late for me to rethink my editorial spin for this weekend. Sorry.)

Short cut

At least Hollywood still has its work ethic. The second trailer for The Big Short movie is out, and I can’t wait for the full kahuna:

That said, I preferred the first trailer. It made me feel smarter.

According to Rotten Tomatoes the film looks to be a winner either way, with an 87% aggregated review score so far.

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Good reads from around the Web.

Bank of England governor Mark Carney was once described as behaving like an unreliable boyfriend with his mixed signals over interest rates.

By that measure, chancellor George Osborne is the housing market’s noncommittal adulterer.

Not long ago George was puffing it up with gestures like First Buy and Help to Buy.

Then came his emotional decision to sugarcoat the case for hoarding the biggest home you possibly can with his changes to inheritance tax.

Nor should we forget the right-to-buy extension for Housing Association tenants – announced amid the steepest housing crisis for generations – which seems designed solely to shore up this administration’s Thatcherite credentials.

Or what about the Help to Buy ISA, which launches this week? A sweet nothing if you’re looking to buy in London, but useful elsewhere and a political carrot at last for those who dare to be aged under 60.

Toying with our affections

Like any good Tory, Osborne seemed in love with a strong housing market.

But more recently he looks to be getting cold feet – and at least sounding like he understands that ever-higher house prices aren’t necessarily a commitment he wants to sign up to.

Osborne revamped stamp duty in December 2014, and in doing so he took some of the steam out of prime London property.

And in July the second of this year’s procession of Budgets surprised us all with overdue changes to tax relief for buy-to-let landlords.

But if the housing market were a person, it was on hearing this week’s Autumn Statement that it might just have snapped it – a hastily packed suitcase bursting open at the door, and the embattled lover collapsing amid their underwear and travel-sized Apple hardware sobbing: “Just tell me what you want.”

Because the Statement saw the Chancellor mix his messages in the very same message!

The following graph illustrates the confusion. It shows the share price of housing giant Berkeley Group from Tuesday afternoon until Thursday morning – with Wednesday clearly being the fireworks:

• At first the share price soared on Wednesday after early briefings that Osborne was going to ramp up home building with billions of pounds worth of taxpayers’ money, which he duly went on to announce.

• Osborne even revealed that home buyers in the capital would be granted access to a new jumbo-sized London Help to Buy scheme, worth up to 40% of a new build property’s value. Happy days for housebuilders!

• But then, just after 1.30pm, the share price plunged, when the Chancellor added that – oh, by the way – he was also going to increase stamp duty on buy-to-let purchases by a flat 3%.

Now don’t get me wrong, I think it all adds up to Osborne’s most coherent attempt yet at getting at the core problems of the UK housing market – the under-supply of new houses, and over-investment by landlords at the expense of what’s supposed to be a home-owning democracy.

This table from The Guardian shows how the 3% stamp duty add-on will increase landlord’s costs significantly:

Source: The Guardian

The cunning of the flat 3% hike is clear; it increases buy-to-let buying costs disproportionately at the lower end, where the first time voters buyers are found.

Together with those changes to Landlord’s tax relief announced in the summer, it could be a game changer for the dominance of buy-to-letters in the market.

The end of the affair

As I wrote in my article on fixing the property market, it’s not that buy-to-let is inherently wrong.

Rather we have a housing shortage in the UK and landlord growth has come at the expense of first-time buying.

Given that most of us want to own our own homes, even if we’re personally sitting pretty it makes sense to re-tilt the playing field back in favour of those who could buy in previous decades – and who theoretically can now – but who find themselves squeezed out by deep-pocketed, cashflow-insensitive landlords.

Some say these changes are unfair because they will penalize independent landlords, but not larger incorporated operations who can sidestep the extra charges.

However I’m not convinced that matters from the perspective of curbing house price growth and enabling more people to buy their own homes.

I suspect professional operations are also less insensitive to falling yields and less inclined just to bank on future price appreciation – two issues with the buy-to-let sector (in the South East, anyway) that is arguably even making it a threat to economic stability.

Others complain that making buy-to-let less attractive is just the latest example of the older generation pulling up the drawbridge after making off with the profits.

The Telegraph – already angry about the tax relief tweaks – noted:

One in three Tory MPs own buy-to-lets – but they’ve wrecked it for everyone else.

With the stamp duty increase and withdrawal of tax relief, the Tories have ‘killed buy-to-let for the middle-classes’.

Rarely has the esprit de Telegraph been so transparent as it now is over property.

The paper seemingly wants a readership of buy-to-let landlords who can pass on their property wealth via big inheritance tax breaks to enable their own kids to buy their own homes, while everyone outside of the land-owning circle rents and lives on the whims of their landlords.

Because the Medieval Times were such a blast, right?

Home is where the heart is

The extra housing Osborne claims he’s going to get built could help arrest the endless march higher in prices, too, provided they’re built in London and the South East.

There are certainly reasons to be skeptical of any immediate acceleration – planning restrictions and rising labour costs for starters – but this is the biggest declaration of intent yet by the Government to get things moving.

Of course, it wouldn’t be a political love affair without some short-term silliness – those mixed messages don’t just mix themselves.

In particular the London Help to Buy scheme looks like oil loaded into a crop duster ready to be sprayed liberally over Zone 3, helping prices grow still higher.

In addition, the four-month delay before the 3% additional duty kicks in could lead to a “ballistic” rally before April, according to one mortgage broker.

Perhaps the idea is all this will offset the landlord money that eventually leaves the sector, keeping prices stable?

Perhaps. Anything is possible in the world of barmy London property these days.

Indeed, this fantasy world aspect to housing in the South East is I think Osborne’s biggest problem.

It’s why he continually finds himself going around in circles to keep the show on the road, while more recently making some effort not to disenfranchise the entire younger generation in doing so.

Make up or break up

If you went back in a time machine even 20 years and tried to explain today’s economic situation – homes costing up to 12 times average salaries (compared to 3-4 times in the old days), interest rates near 0%, and amateur landlords buying London apartments on 2% yields – your listener would assume the UK had turned into a futuristic dystopia.

Someone will probably tell us in the comments below that it has.

But what’s more surprising is that it hasn’t.

Employment is at an all-time high, the economy is growing, the national finances are at last on a path to sustainability (albeit a slow one), and those short-term damaging tax credit changes were diverted.

All this is threatened, however, by the timebomb that is the housing market.

If Osborne looks like a figure in a love triangle desperately trying to engineer a bit more time, that’s because it’s exactly what he is.

If he can achieve a decade of stagnant prices, he might just see off a slump.

A boom without a bust?

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