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Say What? - Your Guide to Understanding Financial Jargon.

We, as a society, have never had more access to information – thanks to a technology fueled, 24/7 news cycle.   Respective of this information overload is a slang ridden vocabulary that can not only confuse the audience but often mislead it.  Narratives can easily be framed with just a few, well-chosen words.   Given my provincial & debatable areas of expertise, we’ll focus on the financial realm.  We’ll try to cut through the jargon and un-mask the real meaning.  Below is a smattering of commonly abused terms for review. {Say What? - Your Guide to Understanding Financial Jargon. Full disclosure: I am also guilty but seeking treatment}

· Buy Recommendation – As common as dandelions in May.   Usually means the analyst has a lucrative investment banking relationship with the company.

· Sell Recommendation – A Dodo bird. These are issued after a stock falls from $100 to $4. Suggests the analyst has NO investment banking relationship with company.

· Overweight – Someone really likes the investment or sector.  Or they have run out of other ideas.

· Constructive Similar to overweight but fancier. This could be a drinking game term while watching CNBC.  You’d be drunk by 9 am.

· Compelling – First cousin of constructive. 

· EBITDA Earnings Before Interest Taxes Depreciation/Amortization.  A jargon hall of famer. Unless you’re a CFO or CPA this should never been used on live TV.  Does roll off the tongue nicely though.

· Basis Point 1/100th of a percent.

· Data Dependent – Financial data used by economists to justify forecasts.  They were wrong last month and will be wrong again this month.

· Risk Adverse – All of us during bear markets.  We’ll buy CD’s when we should be buying stocks.

· Fixed Income Bonds, CD’s or any investment that pays a predetermined rate of return.

· Capital Gain Selling an investment for more than you bought it.  Example: bought XYZ for $10/share and sold it for $20 = $10 capital gain.

· Private Equity An investment pool of companies/investments that are not traded on a public exchange.   Valuation & liquidity can sometimes make it difficult to sell.

· Cramered Animated CNBC character who gives dubious stock recommendations to complete strangers.  They usually get “Cramered”[i]

· Stick Save – A down market day gets magically reversed in the final 15 minutes.    Sometimes referred to the Invisible Hand or Plunge Protection Team.  More prevalent in bear markets.

· Asset Allocation – Common financial planning term referring to how much money is invested as a percentage in stocks/bonds/cash etc. Guilty.

· Smart Beta – I have no idea. Conjured up by constructive, compelling and data dependent analysts.

· Weather Related Another Hall of Famer.  Used by analysts to justify a horrific quarter blaming poor sales on the weather.  Do they realize it snows in the winter?

· Comps – Short for ‘Comparison’.  Sometimes utilized with Weather Related.  Example: “Southwestern US ice cream sales comps were down due to weather related heat in July.”

· Green Shoots – CNBC’s Larry Kudlow expression.  Looking for any positive data morsel in a bear market or economic recession.

· Best of Breed – Blue chip companies in a respective sector.  Apple or Google may currently be considered ‘best of breed’ in technology. 

· Fed – The United States’ Federal Reserve Central Bank.  Consists of 12 regional Board of Governors who collectively are data dependent.

I could burn hours on this banal exercise but you probably get the point.  Be cautious about news you read or hear – usually pays to be a bit cynical.  Why?  News is often distorted and has an agenda.  Scrutinize both story sides and avoid falling prey to confirmation bias.   News is about what already happened – if everyone already knows something, is it really an actionable idea?  From an investment perspective, news can make you reactive, emotional and over trade. This heightened emotional state can trigger negative, physical side effects: activating the limbic system.  This in turn releases harmful cortisol which inhibits your immune system & heightens stress.[ii]  How compelling.                         

[i] See: “Kingpin”- obscure bowling movie with lead character, Roy Munson - “Munsoned”.

[ii] Rolf Dobelii, “Avoid News”, 2010.