Devil’s Dictionary for Financial Markets

There is nothing like a good dose of humor to cheer one up from the otherwise depressing economic situation. The honors go to Norgate Investor Services who compiled the amusing Devil’s Dictionary for Financial Markets. The title was borrowed from Ambrose Bierce’s The Devil’s Dictionary– a great work of diabolical appetites published in 1906.

Enjoy the A to Z of satirical investment definitions.

Analyst recommendations:
Strong Buy – Buy
Buy – Hold
Hold – Sell
Sell – It’s too late

Arbitrageurs: large traders who feed on plankton.

Averaging down: lowering the average price of entry by adding to a losing position. Averaging down should only be attempted when you are really angry at a market.

Back-testing: the art of adjusting trading system parameters so as to ensure maximum profit in the past and zero profit in the future.

Black-box system: a trading system that is available for sale, but is so good that its rules can’t be disclosed. Black-box systems are generally only available for sale because the vendors have a sense of philanthropy.

Cancel-if-close: a limit order that is cancelled if it appears likely to be hit. Some brokers do not accept cancel-if-close orders.

Charting: “join-the-dots” for adults.

Central banks: big market players, with no stop-losses. The Bank of Thailand once bet 40% of its foreign reserves in a day. It lost.

Computerised system testing: torturing the data until it confesses. See: back-testing.

Contrary opinion: the idea that when the market dumps a security, you should look to buy it. The trick appears to be to make sure that the market has finished doing the dumping, and is not just waiting for you to buy so that it can really start dumping. See: Institutional investor.

Cycle analysis: a method of analysis that allows losing trades to be organised into regular patterns.

Derivatives: securities that are identified by acronyms – CHIPS, COBRAS, LEAPS, PERQS, STEERS, TRIPS, ZEPOS – all of these things are derivatives. Unfortunately, little else is known about them.

Daytrading: an activity that takes place in between meaningful periods of employment.

Dot.com bubble: tulip-mania for the X-generation.

Dow Jones Industrial Average: a widely reported stock index that was designed in the late 11th century and has stood the test of time.

Drawdown: a figure that immediately grows when a trading system transitions from paper trading to real trading.

Eurodollars: US dollars, of course.

False break: an actual break of a trendline that triggers a losing trade. False breaks confirm the usefulness of trendline analysis. Only those breaks that are false cause problems, and those breaks don’t count, because they are false.

Fast market: an official market condition, during which floor brokers may scalp you with impunity. At other times, they have to be careful about it. See: slippage.

Figures: market-sensitive measures of economic activity, such as “Non-Farm Payrolls” and “Durable Goods Orders”, that are published every day in the US, much to the annoyance of players on the other side of the world, who can’t get to sleep.

Float (initial public offering): stock that is offered to you because other people have turned it down. The guiding principle in relation to floats is as follows: “never participate in a float that you are able to participate in.”

Forex market: a private casino, which is run by large international banks, mainly so that they can have some fun.

Fundmental analysis: a method of analysis that provides compelling reasons for why a stock shouldn’t fall in price when it does.

“Fundamentally sound”: the condition in which an economy finds itself immediately after a stock market collapse.

Gold carry trade: in the gold carry trade, institutions called gold banks borrow gold from the central bank at the gold lease rate, which may be 1%. They can then sell this gold and invest the proceeds in Treasury Bills, which may yield 4%. The central bank keeps the gold on its books, figuring that it can trust a gold bank. Of course, the gold bank is “short” the gold until it pays it back, and it must take care that the gold price doesn’t get away from it. This may, or may not, explain a lot about the gold market of the 1990s.

Greeks, the: Delta, Gamma, Rho, Theta and Vega. In option pricing models, the Greeks are partial derivatives that express local sensitivities. Just remember the names of about three of them, and then slip them into the conversation occasionally. No one will pick you up on it.