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 [1]
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 [1]
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 [2]
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 [1]