Saturday, December 02, 2006

Demystifying investment jargon

Do your clients range from the very sophisticated to the financially naive?

Are you struggling to write commentary that they'll all understand? Or perhaps you're dealing with portfolio managers who bristle at your elimination of their jargon.

There's a way to keep everybody happy. Parenthetical phrases are your friends, when you feel you must use jargon. They allow you to insert a simple explanation alongside the jargon. Another possibility is to paraphrase the difficult term, eliminating the jargon.

Here are some examples of how you can explain investment jargon for the less sophisticated:
  1. "The FOMC raised the fed funds rate by 25 b.p." --> "The Federal Reserve raised its target for short-term interest rates by 25 basis points (0.25%) from 4.0% to 4.25%." The first sentence is a good way for professionals to communicate in short-hand among themselves. The second sentence substitutes more familiar words for FOMC and fed funds rate. It uses parentheses to clarify the meaning of basis points. Its spelling out of the rate hike "4.0% to 4.25%" also makes the meaning clearer.
  2. "The rally was derailed by exogenous forces." --> The rally was derailed by exogenous forces -- forces outside the stock market, such as the terrorist attacks." Personally I'd prefer to delete the term "exogenous forces," but if you've got a portfolio manager who insists on jargon, then explain the term immediately after you use it.
Have you got examples of jargon that you'd like to simplify? Enter them as a comment below. I'll try to come up with a more readable phrase.

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