Decoded: A to Z of stock-market jargon

It’s all fine when moneymen meet and talk to each other. Nonetheless, a big part of their job involves talking regularly to the people at large and explaining what is happening in the world of finance, economics and investing.

And that’s where the trouble starts, not for the moneymen, but for people listening to them. In fact, as the British novelist John Lanchester writes in How to Speak Money: “As your vocabulary becomes more specific… it also becomes more exclusive. You are talking to a smaller audience. The language of money works like that too. It is powerful and efficient, but it is also both exclusive and excluding.”

In this slightly irreverent take on the money people, we look at what they say, what it is supposed to mean and what they really mean when they say it.

A: Alpha and Beta

Dear reader, you must have heard fund managers talk about generating alpha. What does that mean? Any investment’s return can be categorized into two parts—its alpha and its beta.

So, let’s say a fund manager’s portfolio has a beta of 1.2. If the overall market goes up by 10%, then the chances are the portfolio will go up by 12%. If the market falls by 10%, then the chances are the portfolio will fall by 12%. So, what’s alpha then? The excess return a fund manager’s portfolio generates over the return generated because of the overall market.

Let’s say the fund manager’s portfolio generates 15% returns in a given period. The return because of the market going up is 12%. The excess return or alpha then is 3%. In that sense alpha is a measure of the skill of the fund manager. But in a random year, it can also be just plain-dumb luck. Who is to make that difference?

B: Buy the dip

The logic here is that it makes sense to buy stocks when prices are falling because you will end up buying more and once the price starts going up again, you will benefit. The trouble here is that the money people don’t offer an explanation of what happens when one runs out of money while buying the dip. And that’s because no one knows how low the stock prices will fall.

C: Churn

This is one of those terms where the money people are telling us—innocent bystanders—that whatever we do isn’t simple, and hence, we need to use complicated terms. Churn essentially refers to buying and selling of stocks in a portfolio. As Jason Zweig writes in The Devil’s Financial Dictionary: “Churning has become a common form of financial hara-kiri, in which speculators who mistakenly call themselves “investors” rapidly trade their portfolios over and over again.”

D: Don’t put all eggs in one basket

The mother of all investing cliches and perhaps the most useful advice offered by the money people. This means ensuring that as a retail investor you spread your investment around and don’t bet all your money on one stock, one mutual fund, one asset class and so on. Given how boring it sounds, most retail investors give this very useful cliché a total miss.

E: Earnings & Excel

Theoretically, a company’s stock price is the discounted value of its future earnings. The trouble is that nobody knows for sure what the future earnings are likely to be. And this is where Excel and the ingenuity of the money people comes in. As a recent WhatsApp forward goes, more fiction has been written on Excel than on Word. The point being that future earnings can always be manufactured on an Excel sheet, as they were by one analyst who projected earnings till 2041 to justify loss-making Zomato’s very high issue price in its initial public offering.

F: Foreign institutional investors

They are the foreigners who invest in the Indian stock market. They typically sell when the price-levels are high and they buy when the price-levels are low. That’s how stock market investing needs to be carried out—buy low, sell high. The Indian retail investors help them in doing this by buying high and selling low.

G: Growth stock

A term used where the current earnings of a company do not justify its high stock price. So, the reason offered is that the market is discounting the huge-prospects of future earnings. But then, how do we know that the future earnings are going to materialize some day? We don’t. Hence, whether a growth stock is actually a growth stock or just spin offered by the money people, only time can tell.

H: Hold

The money people do not like to use the word “sell” when it comes to a stock because the more money they manage, the more money they make. Given that, when they recommend holding on to a stock, it’s a euphemism which means sell.

I: India Growth Story

It’s the money people’s way of telling us that Indian stocks are going to do well and we don’t really want to get into details talking about it. So, just listen to us, buy, buy and buy… actually, accumulate.

J: JOMO not FOMO

In order to appeal to zoomers and millennials, the money people have started talking about how investors get into the stock market late in the day due to the fear of missing out (FOMO). But they rarely talk about the joy of missing out (JOMO) when investors miss investing in something that was being talked up but then crashes.

K: Kya lagta hai?

Something that can be a conversation starter anywhere in the island city of Mumbai or its western suburbs. Everyone wants to know where do you see the market, or more popularly, the Sensex heading in the days to come. If you are talking to the younger crowd, you can also apparently say KLH these days.

L: Long-term

In normal talk, this perhaps means a period of time at least a decade away from now. Nonetheless, as Zweig puts it: “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.”

M: Momentum

Many a time, the price of a stock keeps going up, simply because it has been going up. There is no explanation for it, but the money people can’t say that. They need to have a confident sounding explanation for everything. Or as Zweig puts it: “There is no theoretical or empirical explanation of what causes momentum, why it persists (typically for two to twelve months), or why it ultimately falters.”

N: New era

The Nobel Prize winning American economist Robert Shiller defines this term best in his book Irrational Exuberance where he says: “Speculative market expansions have often been associated with popular perceptions that the future is brighter or less uncertain than it was in the past. The term new era has periodically been used to describe these times.” Take the case of Calvin Coolidge, a president of the US. On 17 November 1927, he said that the US was ‘entering upon a new era of prosperity’. The term ‘new era’ was born–a period that would mark the end of the old cycle of boom and bust–and this, in turn, would lead to continuously rising stock prices. What followed was the Great Depression of 1929. 1920s weren’t the last time the term was used.

O: Other people’s money (OPM)

The term at the heart of what the money people do to make money—they manage OPM. And given that it’s not their own money, time and again, more often than not, OPM becomes opium. Or as the British economist John Kay puts it in Other People’s Money: “We all chase the dream, but when taken to excess by individuals or in crowds, the chasing of dreams becomes madness. And chasing the dream with other people’s money is at best irresponsible and often fraudulent.” Which is why it is important for retail investors not to fall in love with a fund manager and put all their eggs in one basket.

P: Predictions

A lot of the money management business runs around making confident predictions about what will happen—tomorrow morning, one month from now, a year from now, a decade from now, and so on. Typically, the future is always bright in this world simply because the brighter the predicted future, the more money investors are likely to invest and the more money the money people are likely to make.

Q: Quantitative Easing

A term which has pushed the money people from being full-time money managers to being part-time economists as well. Also, another of those fancy terms which is used to hide what it really means. When central banks print money and pump it into the financial system—in order to drive down interest rates so that people and firms can borrow and spend more—it’s called quantitative easing. Of course, central banks can only print money. They can rarely determine where it ends up. Since 2008, some of it has ended up in the stock markets all over the world. Given this, the money people always need to know what the central banks are up to.

R: Research

Something that involves the use of Excel in order to justify a conclusion that has already been made. It’s the art of dragging Excel cells to arrive at a number that the boss needs.

S: Sell

A term that the money people almost never use simply because the more money they manage, the more money they make.

T: This time it’s different

Higher returns always come with a higher risk. As has been the case with cryptos in the recent past and dotcom stocks before it. Nonetheless, people in the business of selling these investments, then and now, have liked us to believe that this time it’s different and taking risk is not risky. As Lanchester writes: “The British investor John Templeton once said, ‘The four most expensive words in the English language are “this time it’s different”.’ In everything to do with money, and in many other areas too, it’s important to keep an eye out for those moments which are not just (relatively) harmless bullshit, but the much more actively dangerous nonsense.”

U: Uncertainty

A term rarely used by the money people in the business of making confident definitive predictions right down to the last decimal point.

V: Value

One of those terms which is used often but is rarely understood. When money people use it in the context of a stock, they mean that the price of that stock has been unusually beaten down and we have bought it on the assumption that it is likely to go up in the days to come. Or as Warren Buffett wrote in his 2008 letter to investors: “Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

W: Wealth manager

Freshly minted MBAs who can phaff around at the speed of thought and are hired typically by banks to manage your money. The trouble is that the wealth managers are looking at making themselves wealthy quickly and they jump jobs before you can say Jack Robinson!

X

If the price of a stock goes from ₹100 to ₹500, you and I would perhaps say, the price is now five times of what it was. For the money people the price is now 5X of what it used to be.

Y: Yield

Again, a term the use of which makes the money people actually sound more sophisticated than they really are. In simple English, yield is just return and the money people are always in search of a higher yield. Zweig writes: “As a wise man, the late Wall Street analyst Raymond F. DeVoe, once said: ‘More money has been lost reaching for yield than at the point of a gun.’”

Z: Zomato

Need we say more?

Vivek Kaul is the author of Bad Money.

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