Despite all the new technology and information at our finger tips, many people remain confused and paralyzed when it comes to managing their money. One reason is that the financial world is still dominated by jargon. It takes a serious commitment of time and energy to learn the difference between an ETF and an MBS or CDO . Most people never do.
A recent piece in the New Yorker, which is a much-needed reminder for me and my colleagues in the investment world, demonstrates the dangers of a financial world with a language that is made inaccessible to the lay person. The language of finance, says the author, has a way of twisting the meaning of words to mean the opposite of what you would normally think:
What often vexes the language of money is something I’ve come to call “reversification”—a process by which words take on a meaning that is the opposite of, or at least very different from, their initial sense. … The images and metaphors keep doing headstands. To “bail out” is to slop water over the side of a boat. That verb has been reversified so that it means an injection of public money into a failing institution; taking something dangerous out has turned into putting something vital in. “Credit” has been reversified: it means debt. “Inflation” means money being worth less. “Synergy” means sacking people. “Risk” means precise mathematical assessment of probability. “Noncore assets” means garbage. These are all examples of how the process of innovation, experimentation, and progress in the techniques of finance has been brought to bear on language, so that words no longer mean what they once did. It is not a process intended to deceive, but … it confines knowledge to a priesthood—the priesthood of people who can speak money.
The test of someone who really knows his stuff is whether he can explain complex financial ideas in a way everyday people can readily understand. A while back I came across a financial advice generator (seen above) that randomly pieces together financial jargon. The advice sounds frighteningly similar to a lot commentators on CNBC. At worst, financial professionals who use too much jargon could be hiding something or trying to confuse or intimidate. At best, they’re not being dishonest, but they fail to get their point across.
Warren Buffet, on the other hand, despite engaging in some pretty complex investment deals, writes wonderfully clear and engaging letters, often using fresh, homespun sayings that elucidate his ideas. He speaks of getting out his “elephant gun” to make a big acquisition or says things like, “when the tide goes out, you find out who’s been swimming naked”.
In the complex, jargon-filled financial world it’s always a good idea to find people who can speak in simple terms rather than those who sound suspiciously like the randomized financial jargon generator. I will do my best to stick to this policy.