According to Bill Gates, “if you can’t explain something simply, you don’t really understand it”. If we apply that maxim to investment concepts, how well do we really understand them? To find out for myself, I’m trying an exercise devised by Randall Munroe, bestselling author and cartoonist. In his book The Thing Explainer, he explains everyday items and scientific concepts – using the 1,000 most commonly used words. Here’s his explanation of a submarine:
The investment industry is steeped in jargon. The longer you’re part of it, the more normalised it becomes. That’s a problem, because a good financial writer should be slaying jargon whenever it appears, not wearily letting it slip by, because of frequent, pained encounters with ‘market melt-ups’ and ‘market rotations’.
As well as being ugly, jargon is also dangerous. In Do I Make Myself Clear?, the brilliant Harold Evans explains how the inability to name complex financial instruments contributed to the global financial crisis: “the gobbledegook was so alien that nobody in government had any appetite for exploring the jungle to tame the tigers”.
Surely, if Randall Munroe can describe the inner workings of a microwave (a “food-heating radio box”) with just 1,000 common words at his disposal, I can explain some common investment ideas and jargon? I’m starting with something easy – the concept of retirement. To make it easier, Munroe has created an online tool that shows if my lexical choices are allowed.
So far, so good. Now for some jargon:
Was this a useful exercise?
The biggest challenge of this exercise was the lack of financial and investment words. Out of 1,000, the only words that directly related to the investment industry were money, company and share. These limitations forced me to write plainly, but I had to forgo words that would have made the explanations easier. The concept of retirement is easy to get your head round, but harder to explain when the following words aren’t allowed: invest, retirement, fund, pension, price, value, worth, growth and markets. And my explanation of volatility misses the mark, because I can’t adequately explain financial markets, much less the concept of statistics and how investment returns are dispersed (if you can do a better job, please leave it in the comments section for me).
Pros and cons
I also had to be more direct. In Randall’s submarine description, he calls nuclear weapons “machines for killing cities”. All euphemisms are stripped away. Similarly, companies marketing products to people in retirement often use silken phrases like ‘in your golden years’. They wouldn’t describe this demographic as ‘old’, as I’ve done in this exercise.
But being direct brings benefits too – especially when you’re describing the risks of a prospective investment or explaining why a client’s fund lost money. There are real-life consequences if people misunderstand. The Financial Conduct Authority says that investment communications and financial promotions must be clear, fair, and not misleading. A bit of plain speaking – and clear writing – doesn’t go amiss.
On the downside, I had to use more words to explain the concepts in (ultra-)plain English. A ‘microwave’ is snappier than a ‘food-heating radio box’, and ‘saving for retirement’ is less cumbersome than ‘money for when you can no longer work’.
Precision is also lost when we can’t use specialised words. My definition of a fund manager could just as easily describe a bank manager or a financial adviser, for example. It seems to me that there’s a time and place for using niche, specialised vocabulary. If you trade derivatives, for example, you’re likely to need words that describe what you’re doing – which is jargon, essentially. Perhaps the key is to keep such language between peers, and out of communications to clients. At the very least, it seems sensible to explain define jargon when it’s first used. For example, “In the third quarter, liquidity (the ease with which assets can be bought and sold) worried investors. This echoes the liquidity concerns we saw during the global financial crisis”.
What’s cheering is that in the real world, we’re not confined by the vocabulary we use. After this exercise, that feels like an absolute luxury, but one we shouldn’t abuse. Harold Evans (yes, I’m a fangirl) said that “never come there fog so thick, never come there mud and mire so deep, never come there bureaucratic and marketing waffle so gross as to withstand the invigorating wind of a good English sentence”. Our lexical choices are ours to make, and they can make all the difference.
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