by Ben Carlson, A Wealth of Common Sense
Financial planner extraordinaire Michael Kitces had a great post last week on some words and phrases that need to be banished from retirement planning.
A few examples Kitces used:
- Banish retirement income in favor of retirement cash flows.
- Banish retirement in favor financial independence.
This got me thinking about some of the other words and phrases that need to be thrown out or at least used in the correct context from the world of finance.
Hereâs what I came up with (and yes, Iâm sure I have used many of these in the past):
We use a proprietary investment model. Unless youâre Jim Simons of Renaissance Technologies, your model can probably be copied or created by hundreds of other investors or an algorithm. Implementation is more important than the actual model in most cases.
Our model is robust. This means we used a bunch of fancy formulas to prove this model out and it worked great in the past, but probably doesnât work in real life.
Equities & Fixed Income. Whatâs wrong with just using stocks and bonds?
Granular. I donât know why this word annoys me, but it does. Just say the amount of detail and be done with it. This word screams I have a masterâs degree or PhD.
Idiosyncratic risk. Risk unrelated to the markets or even company-specific risk both work for this one. This one gets used in plenty of marketing pitch books.
Portfolio optimization. Portfolios can only be optimized to the past, not the future. They can really only be allocated, not optimized.
Spoos: Slang for an S&P 500 futures contract. Seems like something all the cool kids say to show theyâre in the know.
Bubble. Everything that goes up in price without immediately crashing is now considered a bubble. Bubbles are rare, so letâs save the term for an actual mania.
The market is down from profit-taking. Does that mean when the markets rise itâs up from profit-seeking?
Risk-adjusted returns. Translation: We underperformed the market, but hereâs an equation to prove that we didnât spectacularly fail. Plus, risk is subjective, so really this is a way of saying our returns didnât fluctuate around the average as much as our benchmarkâs returns fluctuated around the average.
Iâm a contrarian. Iâm all for contrarian investing, but there are so many opinions out there today that itâs nearly impossible to be a true contrarian anymore. You will always be able to find someone that disagrees with you these days. As James Osbourne (@BasonAsset) put it on Twitter last week: âI donât knowâ may be the last true contrarian investment strategy.
Weâre top down investors. So is everyone else in one form or another.
Weâre bottom-up stock-pickers. So are 80% of portfolio managers
Unless this time is different⌠This one doesnât need to be banished, but John Templetonâs famous saying does need to be put into context. For many this is a blanket statement to use whenever the market disagrees with their current posture. What most fail to realize is that (a) itâs never different this time â with regards to human nature and (b) itâs always different this time â with regards to the market and economic landscape.
Passive investing. Too many people equate passive investing with index funds. The S&P 500 ETF (SPY) is the most heavily traded ETF on the market, meaning itâs not being used passively. Passive investing has more to do with investor activity than fund activity. Quantitative funds can be active in the sense that they deviate from the market index, but they are passive because they use a systematic process. Investors can also passively invest in these passively-run quant funds or actively trade in and out of them. Plus, thereâs an index for everything these days. Itâs more about activity vs. inactivity and high cost vs. low cost, not active funds vs. index funds.
Black swan. People are always trying to predict the next black swan event, but they donât understand that a black swan is a something that come as a surprise to everyone. You canât place a probability on a black swan.
Non-finance words lightning round:
Ironically. Everyone gets this one wrong.
Literally. Same with this one and itâs overused. Literally THE BESTâŚ
Thought leader. Seems cult-ish.
Foodie. Who doesnât like to eat?
Having said thatâŚÂ Iâll let Larry David and Jerry Seinfeld explain.
National Football League. Broadcasters and color commentators can never just call it the NFL. They have to call it the NATIONAL. FOOTBALL. LEAGUE.
Any other ones I missed?
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