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.
Here’s what I came up with (and yes, I’m sure I have used many of these in the past):
We use a proprietary investment model. Unless you’re 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 doesn’t work in real life.
Equities & Fixed Income. What’s wrong with just using stocks and bonds?
Granular. I don’t 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 master’s 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 they’re in the know.
Bubble. Everything that goes up in price without immediately crashing is now considered a bubble. Bubbles are rare, so let’s save the term for an actual mania.
The market is down from profit-taking. Does that mean when the markets rise it’s up from profit-seeking?
Risk-adjusted returns. Translation: We underperformed the market, but here’s an equation to prove that we didn’t spectacularly fail. Plus, risk is subjective, so really this is a way of saying our returns didn’t fluctuate around the average as much as our benchmark’s returns fluctuated around the average.
I’m a contrarian. I’m all for contrarian investing, but there are so many opinions out there today that it’s 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: “I don’t know” may be the last true contrarian investment strategy.
We’re top down investors. So is everyone else in one form or another.
We’re bottom-up stock-pickers. So are 80% of portfolio managers
Unless this time is different… This one doesn’t need to be banished, but John Templeton’s 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) it’s never different this time — with regards to human nature and (b) it’s always different this time — 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 it’s 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, there’s an index for everything these days. It’s 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 don’t understand that a black swan is a something that come as a surprise to everyone. You can’t place a probability on a black swan.
Non-finance words lightning round:
Ironically. Everyone gets this one wrong.
Literally. Same with this one and it’s overused. Literally THE BEST…
Thought leader. Seems cult-ish.
Foodie. Who doesn’t like to eat?
Having said that… I’ll 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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