"The Devil's Financial Dictionary" -- A Gem

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Taylor Larimore
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"The Devil's Financial Dictionary" -- A Gem

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The Financial Dictionary by Jason Zweig is unlike any other dictionary. Jack Bogle wrote: “Someone had to write a short, punchy book on the fibs and fables of Wall Street during this second Gilded Age for the extravagantly-paid manipulators of our financial system.”

The quotes below are only a sample of Jason's "definitions" (most shortened for brevity). I recommend reading the entire book for an evening of laughter and learning:
From the Introduction: “The definitions presented here should not--quite--be taken as literally true. But most of them are very close: no matter how cynical you are about Wall Street, you aren’t cynical enough. I use ‘Wall Street” as a synonym for the financial industry wherever it is situated.”

Account statement: “A document from a bank, brokerage, or investment firm that is designed to be incomprehensible to clients.”

Acquisition: “A transaction in which one company pays too much to buy another.”

Active Manager: “Several studies have shown that if active managers did nothing all year, they would increase their performance by approximately 1 percentage point.”

Alpha: “Used as a synonym for skill, alpha is in fact nearly always the result of random chance.”

Analyst: 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.”

Annuity: “An investment that often provides a regular annual income for its buyers but always does for its sellers.”

Anomaly: “An investing strategy or valuation techniques that generates a higher return than the market without obviously higher risk.”

Apology: “A Wall Street apology always purports to take responsibility, but usually omits contrition, share a desire to make good on what went bad, or the willingness to make sure the same behavior never happens again.”

Asset Class: “If a ‘new’ or ‘alternative’ asset class costs a lot more to own than traditional categories like stocks and bonds, it probably won’t turn out to have durable value.”

Asset Gathering: “How brokers, financial advisors, and portfolio managers describe what they do. 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’.”

Backfill: “To inflate the average return of hedge funds by as much as 4 percentage points annually. Fund managers are not required to report their returns and may launch as many funds as they wish; thus, they can wait to see which fund turns out to do well before deciding whether to report its existence to the data services that calculate returns.”

Beat the Market: “Investors who obsess the most over beating the market are the most likely to end up being beaten by it.”

Big Four: “A shrinking number of accounting firms whose profits keep growing, something that cannot always be said of their clients.”

Big Producer: “A stockbroker or insurance agent who produces big commissions. The term is erroneous, however: The broker or agent doesn’t produce the commissions. It is his clients who produce them. He just collects them.”

Bogey: “A source of fear or terror, related to bogey-man, an ancient reference to the Devil; now used to refer to an index or benchmark. That is appropriate, as many investment managers measuring their performance against a bogey are bedeviled by a chronic inability to beat the market.”

Boiler Room: “An operation staffed by brokers who use high-pressure sales pitches to steam money out of strangers over the telephone.”

Broker: “A person who buys and sells stocks, bonds, mutual funds, and other assets for people who are under the delusion that the broker is doing something other than guesswork.”

Bubble: “A mania; a rise in asset prices that seems irresistible at the time and irrational in retrospect.”

Bull Market: “A period of rising prices that leads many investors to believe that their IQ has risen at least as much as the market value of their portfolios. After the inevitable fall in prices, they will learn that both increases were temporary.”

Button Up: “To hid investment losses from other people and from oneself. – Most investors pretend that their losses never happened.”

Career Risk: “Whenever you hear fund managers talk about how important risk management is to them, make sure you understand whose risk they are primarily seeking to manage: their own.”
Carried Interest: A tax dodge that allows the billionaires and centimillionaires who run private equity funds to pay taxes on much of their earnings at lower rates than many members of the middle class.”

Central Bank: “A group of economists who believe that their current forecasts will turn out to be accurate even though their past forecasts have been unreliable, that their present policies will succeed even though their past policies have failed, and that they can prevent inflation from occurring next time even though they didn’t prevent it last time.”

Certainty: “The only certainty is that uncertainty will never go away. Get used to it, or get out of the markets entirely and stay out.”

Churn: “To trade a portfolio so rapidly that the only positive returns are earned by the brokerage firm that fills the orders.”

Church: “Disgraceful numbers of people are willing to prey upon those who pray. Believers should always bear in mind that faith in God does not justify credulity in financial schemes.”

Closet Indexing: “A portfolio manager chooses to own almost exactly the same securities and an index fund, thus minimizing the odds of badly underperforming it while maximizing his or her fees.”

Commission: “Commissions can be as high as 10-15 percent of the amount invested and as low as 0.1 percent or less; the more often you pay them, the richer your broker gets.”

Commodities: “Unlike bonds, stocks and real estate, commodities generate no predictable cash flows. Commodities are called ‘alternative investments’ by those who sell them to those who don’t understand them.”

Compliance: “The set of procedures by which a financial firm obligates its employees to observe the letter of the law while freeing them to violate its spirit. – As Warren Buffett has noted, ‘Lately, whose who have traveled the high road in Wall Street have not encountered heavy traffic.’”

Confidence: “Tends to be high when it should be low and low when it should be high.”

Confirmation Bias: “The tendency of the human mind to seek and favor evidence supporting a pre-existing belief and to discount, ignore, or reject information undermining that belief.”

Conflict of Interest: “Conflicts of interest are pervasive, if not universal, on Wall Street.”

Consultant: “An expert who charges high fees for advising clients to put their money into hot investment strategies that are about to go cold.”

Contrarian: All professional investors say they are contrarians. Almost none are.

Core and Explore: “A strategy that is faulty in theory but lucrative in practice for financial advisors.”

Core Holding: “Any security that a professional fund manager has held for more than a year, give or take a few months.”

Credit Card: “A thin slab of plastic that enable a person to feel pleasure today by incurring pain tomorrow.”

Customers’ Yachts: “The nonexistent luxury craft purchased by investors with the imaginary profits they would have earned if any of the financial advice they got was any good.”

Data: “The raw material from which Wall Street fabricates distortions for marketing purposes.”

Day Trader: “See IDIOT.”

Dead-Cat Bounce: “A colorful piece of slang that makes market pundits sound as if they know what they are talking about when they don’t.”

Default: “What borrowers and lender alike will try to assign to each other as soon as the borrower goes bust.”

Derivative: “Just as knives can be used either to heal or to kill, derivatives can either control risk or create it.”

Dip: “A decline in an asset’s market price that has been brief and shallow. Although not all dips turn into disasters, nearly all disasters begin with a dip. Investors who believe that ‘buying the dips’ is a recipe for success should be careful what they wish for.”

Disclosure: “Telling investors everything they need to know, and having them understand any of it, are two different things."

Discount brokerage: “A firm that enables many investors to wreck their own portfolios instead of paying someone else to do it for them.”

Disposition Effect: “The tendency of investors to raise their tax bills and lower their investing returns by selling winning positions too soon while holding their losers too long.”

Dodd-Frank Act: “A financial-regulation law enacted in 2010, that sought to prevent financial institutions from becoming ‘too big to fail’ but succeeded mainly at being too long to read, too complex to understand, and too convoluted to implement.”

Downside Protection: “A tactic put in place by a financial advisor to protect against whatever hurt the value of a portfolio last time. The portfolio will be hurt by something entirely different next time, however.”

Earnings Surprise: “Decades of data on hundreds of thousands of earnings forecasts show that analysts can’t predict earning within a mile.”

Enhanced Indexing: “A technique that augments the returns of index funds—for the fund manager.“

ETF: “You could buy a handful of broadly diversified ETFs, hold them undisturbed for decades, and end up wealthy. That that would be boring, so instead many investors and financial advisors trade ETFs like mad. Thus, the investors enrich their brokers, and the financial advisors enrich themselves.”

Expected Return: “The anticipated growth rate of the value of an asset, typically set by the fevered imagination of investors at approximately twice what the actual return will turn out to be.”

Fee: “A tiny word with a teeny sound, which nevertheless is the single-biggest determinant of success or failure for most investors.”

Fiduciary Duty: “The requirement that financial advice should be at least as good for the person receiving it as for the person providing it—an idea so radical that Wall Street is attacking it with every weapon in its arsenal.”

Financial Journalist: “Nowadays, most financial journalists are honest, which is progress---and ignorant, which isn’t.”

Fine: “Fines are a minor irritant on Wall Street, regarded as part of the normal cost of doing business.”

Forecasting: “The attempt to predict the unknowable by measuring the irrelevant; a task that, in one way or another, employs most people on Wall Street.”

Gain: “Those who pursue gains with the greatest intensity are the least likely to achieve them.”
Halo Effect: “The tendency of one judgment to cast a warm glow (or dark cloud) over other related factors. In early 2000, with Cisco Systems stock up more than 100,000 percent over the previous decade, Fortune magazine called its chief executive, John Chambers, ‘the world’s greatest CEO.’ A year later with the stock down almost 80%, Fortune described Chambers as having been dangerously blind to signs of the coming collapse.”

Hedge Fund: “Expensive and exclusive fund numbering in the thousands, of which only about a hundred might be run by managers talented enough to beat the market with consistency and low risk.”

High-Frequency Trading: “A technique often used to cheat other traders by a few fractions of a penny in a few millionths of a second, much faster than deceptive trading used to be.”

Index: “A measure of the stock market, bond market, or other basket of financial assets that enables clients to point a finger at professional investors who can’t match its performance.”

Index Fund: “A type of mutual fund or ETF fund run by a machine that makes the humans who run active funds look like monkeys."

Inflation: “The process by which money loses its purchasing power, becoming worth less over time and worthless, sometimes.”

Irrational: “A word you use to describe any investor other than yourself.”

Junk Bonds: “Bought by many investors solely on the basis of the junky argument that higher income doesn’t entail higher risk.”

Leverage: “Borrowed money that can amplify an investment’s return or, when combined with over-confidence, destroy it.”

Long: Owning an asset in the expectation, hope or fantasy that it will rise in price; sooner or later, most who are long find themselves longing to sell.”

Long-Term: “On Wall Street, a phrase used to describe a period that begins approximately thirty seconds from now and ends, at most, a few weeks from now.”

Margin: “Margin trading is for experts only—and, sooner or later, will destroy many of them, too.”

Market Maven: “Someone who does not know what will happen, but who does know how to sound like someone who knows.”

Market Timing: “The attempt to avoid losing money in bear markets; the most common result, however, is to avoid making money in bull markets.”

Maturity: “What all bonds have and what most bond traders lack.”

Model: “To write complex mathematical formulas that captures every conceivable variable in every possible situation—except, that is, the one that is about to happen next, destroying the value of the portfolio that has been built around the model.”

Mutual Fund: “A fund that is not mutual: its investors share all risks equally, whereas its managers share all fees exclusively.”

New Economy: “An economy identical to the old one, with only one difference: more hype.”
New Era: “A period of collective investing insanity during which, according to its proponents, stocks should be valued by new rules. John Templeton said: “The four most expensive words in the English language are ‘This time it’s different.’”

News: “The psychologist Paul Andreassen found that investors who received frequent news updates on the companies in their portfolios traded roughly 20% more often and earned less than half as much, on average, as investors who didn’t follow the news.”

Newsletter: “Those who paid $199 for a subscription will end up at least $199 poorer.”

Next: “Whenever you see or hear of a stock, a money manager, or any financial asset that purports to be ‘the next’ anything, the next thing you should do is forget about it.”

Nifty Fifty: “A set of stocks (identified by Morgan Guaranty Trust in the early 1970s) believed to have almost infinite potential for growth. A study in 2014 by Research Affiliates, an investment firm, found that if you had bought the Nifty Fifty in 1973, you would have underperformed the overall stock market for the next thirty-six years.”

Non-Traded Reit: "A real-estate security that promises high income for the investor but usually delivers it only for the financial advisor."

Option: “Perhaps the earliest recorded options trade, according to Aristotle, was made by Thales of Miletus (ca. 624-547 BC). Thales paid almost nothing and profited hugely—making him one of the first individual investors to make more money trading options than his brokers did. He was also one of the last.”

Overconfidence: “A belief, unjustified by the evidence, that one know more or is better than others; the predominant personality trait of most investors and nearly every amateur trader.”
Past, The: “In the real world, a period of time extending back years, centuries, or millennia; on Wall Street, a period of time extending back no more than five minutes ago.”

Patience: “A quality apparent among such lower life forms as snails and tortoises but rarely among humans who invest in financial assets.”

Plate-Lickers: “The financial industry’s contemptuous term for retirees who attend brokers’ “education” seminars and ravenously eat the free food while sagely refusing to swallow any of the lousy investment advice that is also on the menu.”

Plus: “An ‘index plus’ fund generally produces results of an index portfolio minus the toll taken by greater risk.”

Portfolio Manager: “With tens of thousands of portfolio managers all picking over the identical stocks and bonds with the same timid approach, outperformance is all but impossible, especially after the managers collect their fees.”

Prime Bank: “Prime Banks are typically ‘based’ outside the United States and offer current yields of 20 percent or more per month. But returns vastly in excess of market rates can never be achieved without high risk—or, in the case of prime banks, outright fraud.”

Principal: “Protecting your principal is the foremost principle of fixed-income investing.”
Private-Equity Fund: “A fund that is private but not equitable, extracting massive fees from companies and often delivering mediocre results to investors.”

Professional: “On Wall Street, someone who acts like an amateur with other people’s money.”

Promissory Note: “The promise is almost always realized in full for the seller of the notes, not for the person who invests in them.”

Proprietary Algorithms: “Mathematical formulas ostensibly used to manage money that instead etherizes the minds of prospective and current clients.”

Prospectus: “Chloroform for the investing mind; a legal document, dozens of pages long and numbingly boring.”

Quiet Period: “An interval of thirty days before a company’s public offering of its securities, during which the company provides no useful information to investors, as opposed to all other times, when it provides almost no useful information.”
Rating Agency: “A company, such as Standard & Poor’s, Moody’s, or Fitch, that purports to be able to tell which bonds are safer than others on a a scale from AAA at best to D at the worst. History suggests that if the rating firms themselves were graded, they might well earn an E.”

Real: “The word ‘real’ is a useful reminder that much of the increase in the value of assets over the years is an illusion caused by inflation alone.”

Red Herring: “More than four hundred years ago, fugitive criminals dragged smelly red herring across their escape route to throw pursuing bloodhounds off the track. Keep that image in mind whenever you read the prospectus of a contemporary stock or bond offering, and you will be on the right track.”

Regulator: “A bureaucrat who attempts to stop rampaging elephants by brandishing feather-dusters at them. Regulation fails to stop giant financial firms from periodically destroying billions of dollars of their clients’ wealth.”

Relative Strength: “Numerous mutual funds have been launched ever since the 1960s to profit from relative strength ‘strategies,’ but their own relative strength has been poor; almost none have survived.”

Research: “The art of making financial guesswork seem like a science. ‘Technical research’ consists of looking at squiggly lines all day long.”

Restructuring: “The process by which a company that, only a few years before, had eagerly diversified into other businesses un-diversifies even more eagerly right back out of them.”

Rich: “Having as much as you want of all the things that money can’t buy.”

Risk: “The chance that you don’t know what you are doing when you think you do.”

Rotation: “The mass migration of millions of speculators out of one asset whose price has just fallen and into another whose price has just risen. Because of regression to the mean, the asset that the crowd is rotating out of is soon likely to perform better than the asset that the crowd is rotating into.”

Safe: “A term used to promote any investment that is about to explode.”

Secular: “Typically used to describe a trend that is just about to end.”

Self-Control: “Those investors who control their own behavior and abandon the futile effort to control the markets around them are the only ones who will ultimately prevail.”

Short-Term: “On Wall Street, thirty seconds or less—as opposed to long-term, which is thirty seconds or more.”

Smart Money: “Is nothing but an illusion fabricated by people who enjoy picking others’ pockets.”

Sophisticated investor: “People are not more sophisticated merely because they have more money. Often, quite the opposite is true.”

Stockbroker: “Reputed to have disappeared, they have been renamed Financial Advisors by the brokerage firms employing then and now typically charge a mere 1 percent every year for the rest of their client’s lives."

Stock Exchange: “A place where people trade greed and fear back and forth.”

Stock Market: “It transfers wealth from the arrogant to the humble, from those who trade the most to those who trade the least, from those who think they know the most to those who admit they know the least, and from those who pay commissions to those who collect them.”

Stock-Pickers Market: “When someone tells you ’It’s a stock-pickers market now,’ try asking ‘Why wasn’t it before?’ Were the stock-pickers all picking flowers?”

Stop-Loss Order: “A trading instruction to sell a security when it falls below a certain price, which in practice may stop gains almost as reliably as it stops losses.”

Structured Products: “Investment products structured to be profitable to the firms that sell them and incomprehensible to the clients who buy them.”
Thank you, Jason Zweig!


Best wishes.
"Simplicity is the master key to financial success." -- Jack Bogle
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David Jay
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Re: "The Devil's Financial Dictionary" -- A Gem

Post by David Jay »

Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: "The Devil's Financial Dictionary" -- A Gem

Post by snowshoes »

:thumbsup 2] A quick read had me chuckling! Another 'gem' for your list no doubt TL!
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Barry Barnitz
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Re: "The Devil's Financial Dictionary" -- A Gem

Post by Barry Barnitz »


The forefather of Zwieg's opus: The Devil's Dictionary, by Ambrose Bierce.

Wiki updated---> Taylor Larimore's Investment Gems - Bogleheads

Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
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Re: "The Devil's Financial Dictionary" -- A Gem

Post by Fallible »

Have pre-ordered on my Kindle; the book's due out Oct. 20.

Thanks for more gems Taylor, and thanks Barry for the link to Bierce. I'd read Bierce's "Devil" some years ago and here's his entry on debt:
DEBT, n. An ingenious substitute for the chain and whip of the slave-driver.

As, pent in an aquarium, the troutlet
Swims round and round his tank to find an outlet,
Pressing his nose against the glass that holds him,
Nor ever sees the prison that enfolds him;
So the poor debtor, seeing naught around him,
Yet feels the narrow limits that impound him,
Grieves at his debt and studies to evade it,
And finds at last he might as well have paid it.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: "The Devil's Financial Dictionary" -- A Gem

Post by oldzey »

This is a great list from Jason Zweig's book - thanks for compiling it, Taylor!

My favorites: Irrational, Patience, and Rich.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
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