I spent most of my youth playing football. I played football in junior high, high school and college. Our playbooks included diagrams and words not legible to the lay person. Some of the plays were “I right 30 trap”, “trips right 382”, or “Alabama 99.” Each play had a different meaning. After the play was called we all knew our specific assignment. The language became second nature to everyone on the team because we practiced them constantly.
My friends and I would play pickup games at the park when we weren’t playing organized football. The play calling for these games was simple and clear. I might tell Steve to run towards the hippo water fountain and Randy to run at the rocket. Dave might run to the dead grass spot and then towards the swing set.
Watching CNBC this past week I was amused and horrified with the language used to describe various investments and investment strategies. Here is a sample.
- “We are tactically allocating our risk assets to deliver alpha to our high net worth clients by purchasing high beta cyclical names.” What? Here is my interpretation of what was said, “We are buying profitable stocks so we can make money for our clients.”
- “We are removing risk assets from our satellite portfolio by purchasing low volatility, negatively correlated assets.” Huh? I would have said we’re buying bonds.
- “We’re going to deleverage our non-liquid, alternative assets and transition the proceeds to our short-term liquid account.” Come again? I think they meant to say they’re selling assets and then depositing the money into their cash account.
Wall Street lingo is designed to confuse the masses. The wolves use big words and fancy wrappers to sell high commission products to the sheep. At the end of the day folks there are only three things you can do with your money. You can invest for growth, income or safety. If you’re investing for growth, buy stocks. If you need income, buy bonds. If you crave safety, keep your money in cash.
As you construct your portfolio ask yourself what investments are needed to achieve your goals. Focus on simple investment strategies with clear language and hold them for the long haul. Capisce?
If as one people speaking the same language they have begun to do this, then nothing they plan to do will be impossible for them. Come, let us go down and confuse their language so they will not understand each other. Genesis 11:6-7
Bill Parrott is the President and CEO of Parrott Wealth Management and is a fan of the simple. If you want more information on financial planning or investment management please visit www.parrottwealth.com.
April 13, 2017