A
Absolute Return Fund
A fund whose manager employs a range of dubious and unreliable methods, such as short-selling, arbitrage and leverage, in an unlikely attempt to provide positive returns in both ‘bull’ and ‘bear’ markets. Almost uniquely across the industry, however, absolute return funds virtually guarantee disappointment in all market conditions.
American Depository Receipt (ADR)
A contrivance that enables a non-US company to make its stock available for purchase in US Dollars on an American exchange. Each ADR is backed by a fixed number of shares held in the vault of the issuing bank. This practise is fully regulated. The hope of the company’s board is that, by making its stock available to the maximum number of potential investors, demand for it will increase. On the other hand, at times of panic, having shares listed on multiple exchanges enables stock to be sold at any time and without delay.
Analyst
A specialist in security valuation whose “Buy”, “Sell”, or “Hold” reports are commissioned by brokers, investment advisors, and asset managers. Although reading analyst reports can, on occasion, be both entertaining and enlightening, it is best to take Ulysses’ approach to the Sirens and strap yourself to the mast while you indulge because they usually inspire activity, thereby generating business for brokers and fees for you.
Attack-of-the-zeros
A condition that occurs during a sharp market fall and causes nervous investors to fear that, as it is all about confidence and everyone has lost theirs, all share prices may fall to zero. Symptoms include selling high quality companies at very low prices.
B
Broker (stockbroker)
An agent who charges either principal or commission in exchange for executing an order submitted by an investor. Being as unavoidable as the Grim Reaper, albeit much busier, the broker is unique in being an equal beneficiary of both fear and greed.
C
Cash shell
A company with no assets, revenues or operations. This is an entity that is often brought to market on a vague promise to invest the proceeds of the flotation in one particular sector, such as mining or oil exploration. Initially, the only items to be found on the balance sheet are likely to be an office somewhere in the City and the salaries of the well-intentioned men who are to occupy it; shortly after flotation a complicated bonus structure will usually be devised to incentivise these men. Investing in a cash shell is analogous to presenting somebody with a cheque and asking them to go and do something with it on your behalf.
Contrarian
A stubborn and irritating person often to be found disputing conventional wisdoms in either the local bar or a very small investment management office. The contrarian is often proved correct, eventually, but by that time either has no friends left to talk to or, if he/she had been working as an investment advisor, been fired.
Coca-Cola
A sweet, syrupy concoction of uncertain flavour, which has proved one of the most profitable investments of the last century.
D
Dash for trash
An irritating phenomenon where investors in high-quality assets see their selections ignored while the market instead chases up the prices of low-quality assets. See Why the dash to trash?
Dead cat bounce
Refers to a small, fleeting recovery in a steadily falling share price. While the dark humour in the phrase must be acknowledged, it should be noted that it could only have been coined by a comfortably remunerated trader of callous disposition with no personal stake in the security being described.
Dog
Pejorative term for a share that underperforms for an extended period. In trader parlance, dog is usually prefixed by the traditional London obscenity–for example, “that’s a fuc**ing dog mate.” It is unclear why this particular animal is used to convey the sense of irritation and distaste being expressed by the speaker.
E
Eeyore
A donkey and known associate of Winnie-the-Pooh. Noted for his gloomy disposition.
F
Field of green
The natural inverse of the sea of red cliché. Despite sea of red being commonly used by reporters on days of attention-grabbing market falls, the description field of green is never heard as broad market rises do not get reported.
Flotation
Sale of a company’s stock on the market. The pleasant suggestion of buoyancy created by this term is often dispelled at the time of the company’s first earnings report, especially if the seller had been Private Equity.
Front-running
The practise of a broker using inside knowledge of pending client orders to trade on his own account. Once considered merely unsporting, front-running is now illegal.
G
Generally Accepted Accounting Principles (GAAP)
A set of accountancy rules to which US-listed companies must adhere when reporting results; often to their accountants’ frustration and investors’ irritation. Dissent is acknowledged early in the acronym and is unlikely to dissipate anytime soon.
H
Hard Stop
A useful phrase for underlings to declare subtly to their middle-managers that they will be departing the office at a non-negotiable time–for example, “Unfortunately, I have a hard stop at 6:30 so that I can visit my child at her hospice…”
K
Klarman, Seth
A legendary and rarely-glimpsed investor noted for holding unfathomably large allocations to cash before emerging–mole-like–during bear markets to gather up large quantities of judiciously selected investments. Also, by rumour, writer of an investment guide (Margin of Safety) of startling utility, clarity and wisdom but, alas, this is more difficult to verify and obtain than the Shroud of Turin.
M
Master of Business Administration (MBA)
Graduates of inordinately expensive business administration courses–MBAs–are notable for their relentlessly upbeat demeanour, boundless energy, and extreme levels of self-confidence. Due to the combination of high levels of personal debt and naked ambition, MBA graduates are particularly vulnerable to manipulation and exploitation in the workplace. A familiar sight in investment banks, MBAs are often deployed, for the amusement of senior management, to harass battle-weary, middle-aged salarymen.
Miser
A person who prioritises parsimony above all else. Misers tend to be bachelors or spinsters and live Spartan lives in gloomy, unheated hovels. Other key characteristics include avoidance of any form of social intercourse, dietary reliance on thin gruel and stale bread washed-down by tap water, and endless repetition of phrases such as : “I know the value of a pound”, “Do you think I’m made of money?”, and “Don’t forget to turn the lights off.” Favoured leisure pursuits include counting money, haggling, and moving bank accounts. Since the Financial Crisis central bankers have openly targeted misers to purloin their hoards and put their money to work for the good of society.
Particularly notable historical misers include Hetty Green and Scrooge. Both were subjected to considerable psychological pressure and emotional manipulation by their contemporaries but, while Scrooge eventually buckled, Hetty Green remained true to her principles and died with her hoard fully intact and beyond reach of the taxman.
Muppet
A naïve investor prone to running with the herd, unless the herd is running in the direction of a no-brainer, in which case the muppet will become a contrarian.
N
No-brainer
A compelling investment opportunity that everyone from the Sage to your mother recognises possesses an attractive risk-return trade-off.
O
Oracle, the
See Sage, the.
P
Pangolin
A small scaly anteater that goes about its business in China. Best left alone.
Patsy
A subcategory of muppet. In common with the other muppets, a patsy has severely limited intellectual resources but, in addition, is also much weaker of character and less independent-minded than the common or garden muppet–for example, Pepe the King Prawn or Rizzo the Rat rather than Miss Piggy or Animal. This essential characteristic renders the patsy extremely vulnerable to exploitation in the financial world.
Penny-pincher
An amateur miser who is still relatively ad hoc in his or her saving—notable traits include a marked reluctance to buy drinks in public houses or eat in restaurants, beards, and an exceptionally low wardrobe turnover. It often takes a traumatic experience, such as an unfortunate automobile write-off or an extortionate overseas mobile phone bill to trigger the final mutation from penny-pincher to miser.
Po’ Boy
A colossal sandwich from Louisiana, not a reference to a youngster’s financial position. The sandwich is a crisp on the outside, fluffy on the inside, and shaped like a torpedo. It can include anything from deep-friend shrimp to roast beef in gravy. Lettuce, tomato, pickle, and mustard are also common. These are excellent investments that should feed two for the price of one and no hidden commissions are paid to the sandwich technician.
Psychologically important barriers
As in:
Today the S&P dropped below the psychologically important 2,000 barrier.
This meaningless but irritating phrase is commonly used by financial journalists striving overly hard to inject drama and significance into what is nothing more than an incremental zig or zag. The small constituency for whom a particular price is psychologically important should probably not have financial autonomy.
Pundit
A vested interest with a microphone. See Pundit Predictions and FI Punditwatch.
Q
Quantitative analyst (quant)
A dusty, often anti-social breed of mathematician whose reputed brilliance is seldom questioned but whose actual value is difficult to quantify. As rival banks and asset managers tend to deploy equal numbers of these, their efforts usually cancel each other out resulting in little more than increased fees to the small and less numerate investor.
R
Reticule
A small black bag made of netting. Reticules were made fashionable in the investment community by Hetty Green who used hers to transport bonds and other securities to her bank on Wall Street.
Risk
In my opinion (and this is my Dictionary), risk is the chance of permanent loss of purchasing power. In other opinions, risk is variously defined as the chance that an investment’s actual return will be different to its expected return and, infuriatingly (to me), used synonymously with volatility.
S
Sage, the
Warren Buffett, Chairman of the Board, Berkshire Hathaway. The foremost investor, businessman, philanthropist and, not least, Omahan of his generation.
Shroud
Garments without pockets.
Smith, Terence (‘Terry’)
This former bank analyst, banker and broker is now Chief Executive and CIO of Fundsmith, the best-performing British fund of its era. Fundsmith operates by buying durable companies with high returns on capital and low leverage before holding them, err, forever. Smith himself, however, is probably a character best not challenged due to his somewhat fierce disposition. Having soundly trounced your performance record, he would proceed by dismantling your investment rationale and correcting your sentences before finishing you off in the boxing ring or on the cycle track.
Sound bite
A strikingly memorable phrase communicated as part of an interview or speech that is, rather deviously, intended by the speaker to be extracted and used as an excerpt by the broadcast media. Politicians are expert at the use of this cynical rhetorical device. Good examples of sound bite were provided during Pfizer’s takeover bid for AstraZeneca. Pfizer was compared to a “praying mantis” that “sucks the lifeblood out of its prey” and a “shark that needs feeding”; both harsh categorisations.
Spiv
A term formerly reserved for petty thieves, touts, pimps, gombeen-men, racketeers, and other practitioners of sharp financial practice, but now commonly applied, by populist media commentators and politicians, to persons engaged in the buying and/or selling of shares in the hope of making a profit. Preliminary discussion of a potential purchase with a fellow capitalist (especially in a wine bar or on a mobile phone) and the duration for which a share is held, are the prinicpal determining factors in the degree of spiviness. Dying in possession of a share may exonerate you from the charge. See also: Shroud.
Spread
The difference between the bid price and the asking price. An excellent opportunity (usually taken) for the inexperienced investor to make a small, voluntary donation to the City.
T
Trifle
An inconsequential, piffling sum of money: a mere trifle. Also, a cold dessert, made of sponge, jelly, fruit, custard and whipped cream–sherry and chopped almonds may also be added, for a more sophisticated version.
V
Volatility
What goes up must come down; often at indecently high speed and with unpleasant consequences for the mentally unprepared, financially leveraged and previously optimistic investor. Volatility is however a friend to the canny and the patient.
W
Widows and orphans
A demographic to whom negative investment returns are considered unthinkable. Hard-working, financially-pressurised, middle-aged men are expected to be better sports on this front.
Widow portfolio
A simple, cheap and easily implemented asset allocation strategy, statistically certain to outperform the vast majority of investors, that was recommended by The Sage in his 2013 letter to Berkshire shareholders. Seems to contain a mysterious and intangible property that renders it repellent to investors in general.