Swedroe: Required Reading for Investors

November 09, 2015

Jane Bryant Quinn, a highly regarded and nationally syndicated columnist, once called much of the output of Wall Street and the trade publications that cover financial markets “investment porn.” She summed it up this way: “Americans are indulging themselves in investment porn. Shameless stories about performance tickle our prurient financial interest.”

The roller-coaster swing of opinion that comes from Wall Street, the media and trade publications covering the industry reflects the attempt to do just that. Pornography is also exploitative; the investment community exploits the individual investor’s lack of knowledge. That’s why I find “investment porn” an accurate, as well as a descriptive, term for much of what passes as expert advice.

Getting Past The Porn

Fortunately, the financial media does have a few exceptions. One of them is Jason Zweig, who writes the Intelligent Investor column for The Wall Street Journal. He is also the author of “Your Money and Your Brain,” a book that I believe is required reading for all serious investors (and there should be no other kind) and “The Little Book of Safe Money.”

In fact, if Zweig has written it, I think it should be mandatory reading. So it should be no surprise he has produced another winner with “The Devil’s Financial Dictionary.”

I could not sum up the book any better than Nobel Prize-winner Robert Shiller, who said: “This is the most amusing presentation of the principles of finance that I have ever seen.”

Not only is the book wickedly humorous, irreverent and wise, it contains a wealth of knowledge regarding the historical derivation of many terms in common use today.

Highlights

While narrowing down the list was a difficult task, I’ve selected a few of Zweig’s best gems for you:

  • Data: The raw material from which Wall Street fabricates distortions for marketing purposes.
  • 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. A dead-cat bounce could be the beginning of a roaring recovery, an inert nap or a mangy decline.
  • Disclosure: A statement that, by law, absolves a company of all responsibility, including any responsibility to present the statement in language that isn’t so stupefyingly obscure that nobody can understand it.
  • Discount brokerage: A firm that enables many investors to wreck their own portfolios instead of paying someone else to do it for them.
  • 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.
  • Financial journalist: Someone who is an expert at moving words about markets around on a page or screen until they sound impressive, regardless of whether they mean anything. Nowadays, most financial journalists are honest, which is progress, and ignorant, which isn’t.
  • Forecasting: The attempt to predict the unknowable by measuring the irrelevant; a task that, in one way or another, employs many people on Wall Street.
  • Go-anywhere fund: A mutual fund, specializing in stocks or a wider range of assets that can lose money in every imaginable way.
  • High net worth investor: The term that brokers, financial advisors, fund companies and wealth managers use to describe someone whose assets can yield a gusher of fees. You could just call these folks “rich people,” of course, but that would be crass—and poor marketing. It’s always easier to pick someone’s pocket when you use jargon to make that person feel like part of a private club whose members have especially fine pockets.
  • Idiot: See "Day Trader."
  • Market maven: Someone who does not know what will happen, but who does know how to sound like someone who does.
  • Patience: A quality apparent among such lower life forms as snails and tortoises but rarely among humans who invest in financial assets.
  • Professional: On Wall Street, someone who acts like an amateur with other people’s money.
  • Risk: The chance that you don’t know what you are doing when you think you do, the prerequisite for losing more money in a shorter period of time than you could ever have imagined possible.
  • Self-control: The secret to success as an investor. Within you lurk an angel, a devil, a scholar and an idiot. If the angel and the scholar ever let down their guard, the devil and the idiot will wreak havoc that will take years of work to undo.
  • Self-serving bias: The human tendency to attribute success to one’s own actions but to blame failure on other people or uncontrollable external factors.
  • Stock-picker’s market: An imaginary set of circumstances in which shrewd and skillful investors stop competing against each other and are able to trade exclusively with an unlimited supply of morons.
  • Tactical asset allocation: A way of describing “market timing” with nine syllables instead of four, making it sound nearly 2 1/2 times more impressive. That does not, however, make it any more likely to be successful.

Before closing, I’ll add one of my personal favorite definitions, provided by Woody Allen. “A stockbroker is someone who invests other people’s money until it is all gone.” Here’s another definition of a stockbroker; unfortunately, the author is anonymous: Someone whose objective it is to transfer assets from your account to their account.

And author William Bernstein added this insight: “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.” Finally, my own contribution: If you begin your investment journey dealing with a stockbroker, there’s a good chance you’ll end it dealing with another kind of broker, the pawn kind.

Zweig’s new book is just a sheer delight—and it’s now in place right next to my thesaurus. And you can be certain I’ll be referring to it often.


Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.

 

Find your next ETF

CLEAR FILTER