This glossary of financial terms is inspired by Ambrose Bierce’s masterpiece The Devil’s Dictionary, which the great American satirist published sporadically between 1881 and 1906. (View free versions of Bierce’s text here or here.) Like Bierce’s brilliantly cynical definitions, the explanations presented here should not — quite — be taken as literally true. Some of these entries are adapted from articles published previously in Financial History, Money, and The Wall Street Journal.
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ECONOMIES OF SCALE, n. The decline in the cost of goods or services as a company grows in size; a benefit that most money managers seek in the stocks they buy for their funds but deny to the investors who purchase those funds.
ECONOMIST, n. A professor who studies the interaction of people, goods and money in a chaotic world. To do so, the economist applies mathematical tools that are the equivalent of using a ruler and a stopwatch to measure the movement of matter in a particle accelerator, where the velocity of subatomic particles can approach the speed of light. The painstaking measurements taken by the economist enable him to make powerful predictions about the future behavior of the ruler and the stopwatch.
ENHANCED INDEXING, n. A technique that augments the returns of index funds — for the fund manager. The fund’s investors don’t always share that experience.
EQUITY, n. The ownership interest in a firm, often used as a synonym for “stock.”
Commonly believed to derive from the Latin aequus, for “equal” or “even,” equity might be better thought of as deriving from the Latin equus, or “horse,” the rear end of which bears a close similarity to any investor who believes seriously that owning equity will assure him of equal treatment.
EXECUTION, n. The fulfillment by a broker/dealer of a customer’s order to buy or sell a security. Also, the act of inflicting capital punishment by putting a prisoner to death. The two uses of the word, according to broker/dealers, have absolutely nothing in common.
An Execution.
One of the leaders of the Jacquerie revolt being decapitated on orders of the King of Navarre, from the Chroniques de France ou de St. Denis, ca. 1380-1400.
Collection of the British Library, Royal 20 C VII, f. 134v, http://www.bl.uk/catalogues/illuminatedmanuscripts/record.asp?MSID=8466.
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