Image Credit: Christophe Vorlet
By Jason Zweig | Nov. 13, 2015 5:30 a.m. ET
Wall Street Journal personal-finance columnist Jason Zweig’s new book, “The Devil’s Financial Dictionary,” is a satirical glossary of investing terms that was inspired by Ambrose Bierce’s classic work, “The Devil’s Dictionary” (first published in 1906). Following are excerpts.
BOURSE, n. An exchange building or meeting place for traders, described in 1688 by a merchant in Amsterdam as the structure that encloses traders like a purse or the place where everyone seeks to fill his purse. “As the word ‘purse’ means skin in Greek, [so] it is that many players leave their skins.” A synonym for STOCK EXCHANGE; borrowed from the French bourse, or “purse,” from the Latin and Greek bursa, meaning “pouch” or “sac,” originally a wineskin made out of hide. (For other financial terms whose early use was related to alcohol, see BROKER; PANIC.)
The financial use of the term is purported to have arisen in Bruges, Belgium. The aristocratic Van der Buerse or Van der Beurze family had run a hotel on the square since at least 1276. Its ancestral coat of arms, featuring three money bags or sacks (bursae in Latin), was carved onto the front of one of the family’s buildings along the square. Trading occurred outdoors, under the sign of those bursae, thus leading the area to be called the “bursa.”
Sharing the same root as “bursar” and “disburse,” the word is also related to the medical terms bursa and bursitis, which can be caused by repetitive motion syndrome, a condition that can afflict frequent traders.
BUBBLE, n. A mania; a rise in asset prices that seems irresistible at the time and irrational in retrospect; a bull market blown full of hot air until it reaches the bursting point.
The term is commonly believed to have originated around 1719–1720, when shares in the Mississippi Co. in France, the South Sea Co. in Britain, and the Dutch East India Company in the Netherlands rose approximately tenfold in a matter of months and then collapsed.
But the word is older. To bubble, meaning to cheat or trick, was a common term in England decades before the Mississippi Co. mania. “Let them be bubbl’d by them that know no better,” wrote Daniel Defoe, in his pamphlet “The Free-Holders Plea against Stock-Jobbing Elections of Parliament Men” (1701).
As a noun, “bubble” was also a synonym for someone who had been robbed or defrauded. As the rake Dorimant advises in George Etherege’s Restoration comedy, The Man of Mode (1676): “Lose it all like a frank gamester on the square, ’twill then be time enough to turn rook [swindler] and cheat it up again on a good substantial bubble.”
The Dutch were also familiar with the word “bubble” (which they presumably borrowed from the English). It was closely related to windhandel, or “dealing in wind,” the Dutch expression for trading in stocks that weren’t in the speculator’s possession, as SHORT-sellers may still do today. (Windhandel also referred to trading in derivatives such as options and futures.)
CAPITAL, n. The wealth of an individual, company, or nation, a word deriving from the Latin caput, or head—paradoxically, the organ that many investors use the least in their effort to amass capital.
Capitalism is, therefore, the art of using one’s head. But it also invokes the animal nature of wealth. In many cultures, livestock was the safest store of value. Cattle, sheep, and goats transform common grass into a steady supply of protein in the form of meat and milk—much the way capital, properly tended, can be a reliable source of investment income. Capital may have come to describe wealth because so many preindustrial societies measured prosperity by the quantity of livestock a family owned, counting it as so many “head of cattle.” The more head of livestock a family had, the more capital it had.
In the ancient Middle East, as in rural areas of the world today, livestock was the most prestigious measure of prosperity. In the Book of Genesis, when Cain offers God an offering of “the fruit of the ground,” the Lord rejects it in favor of Abel’s sacrifices of “the firstlings of his flock.” Putting first things first, Genesis 13:2 describes Abraham as “very rich in cattle, in silver, and in gold.”
CRASH, v. and n. To collapse or drop in price by a frightening amount; a broad and sudden decline that sweeps through a financial market. An onomatopoeic, or imitative, word that mimics the sound of something shattering, crash dates back in English to about 1400. (Craze, which takes its meaning from the supposedly distinctive fissures in a lunatic’s skull, likely shares the same root.)
Surprisingly, crash wasn’t a familiar financial term as late as 1817, when the poet Samuel Taylor Coleridge described the typical credit collapse, in his Biographia Literaria, as “a rapid series of explosions (in mercantile language, a crash), and a consequent precipitation of the general system.”
When William Armstrong published Stocks and Stock-Jobbing in Wall-Street in 1848, he used the word repeatedly. However, at least in the United States, it then usually meant a sudden fall in a single stock, not in the entire market. A general drop in the stock market in Armstrong’s day was an “explosion,” a “break,” a “crisis,” or a “convulsion.”
HIGH-FREQUENCY TRADING, n. A technique often used to cheat other traders by a few fractions of a penny in a few millionths of a second, much faster than deceptive trading used to be. The practice of snooping on stock quotes and using private information to trade ahead of others is as old as Wall Street itself. High-frequency trading became controversial only after it was based on advanced computer technology rather than cheating by hand.
In 1790, high-frequency traders cashed in on Alexander Hamilton’s proposal to restructure the federal debt by hiring fast ships to outrace the spread of the news on land. That enabled the traders to snap up U.S. bonds at bargain prices from holders who were still in the dark.
Around 1835, reporter Daniel H. Craig began boarding steamships in Halifax, Nova Scotia. He swiftly digested the financial news in the European newspapers on board, then recorded it in tiny bulletins on tissue paper that he strapped to the feet of trained carrier pigeons. As each ship approached Boston, Craig released the birds, which homed in on his office, where clerks transcribed the news and distributed it to high-frequency traders who paid up to $500 for each hour they were able to get it ahead of the general public.
For decades, trading intermediaries called “specialists” or “market makers” shaved at least 12.5 cents off every trade for themselves. The take of today’s high-frequency traders appears to average 1 cent or less. Their equipment is much faster than it was in the 1790s, but the techniques some high-frequency traders use are just electronic updates of the same old dirty tricks.
INVEST, v. To wrap oneself in a financial asset and hold it close; from the Latin vestire, to dress, clothe, wrap in robes, surround or envelop. Investiture, the conferring of the dignity of a formal office, usually by clothing the officer in honorary robes, has the same Latin root. There is nothing dignified about the frenzied trading of many people who call themselves “investors,” however.
STOCK, n. The right to own a fraction of a business, regarded by most investors as the right to play a video game.
The word “stock” is rooted in the Old Teutonic stukko, a stick, trunk, or log—an ancient metaphor largely forgotten as television and the Internet have reduced the idea of a stock to a TICKER SYMBOL and a stream of prices flickering on a screen. A tree trunk is a solid foundation for many branches bearing green foliage and grows higher unless it is trimmed back, in which case it sprouts new growth. The history of the word stock thus expresses what most investors want from a stock itself—but seldom get, because they treat it like a weed rather than like a tree.
As early as AD 862, it appeared in Old English as stocca or stocce. One of its earliest meanings, by analogy to a tree trunk that generates many smaller branches, was as the source of a line of descent. That sense is still used, as in “She comes from good stock.” In another early nuance, stocke meant a stem in which a graft, or transplanted twig, is inserted.
Early on, stokke referred to the wooden chopping blocks on which butchers and fishmongers hacked up their merchandise. In 1282, a “stokkes market” was built in the heart of the City of London; it survived until Dickens’s day. A city chronicle recorded, “This yere [1450] the stokkes was dividid bitweene fishmongers and bochers [butchers].” Because London’s securities market later sprang up in the same district, it is conceivable that the term stock market originated in this haggling, open outcry, and bloody chopping of goods into little pieces for resale.
A stoke or stocke of money appeared in English by the fifteenth century to describe a sum set aside to fund future expenses. Soon, the image of a deeply rooted core or trunk led stock to mean the total wealth of an individual or nation.
In 1729, for instance, Jonathan Swift’s “A Modest Proposal” satirically claimed that if the Irish raised babies for food, “the Nation’s Stock will be thereby encreased Fifty Thousand Pounds per annum.”
Stock was first used to describe the funds available for a company’s operations in the early seventeenth century. “Many…put in different summes, which all together made up six hundred thousand pound, the first stock upon which this Company has built its prodigious Encrease,” a historian of the East India Company wrote in 1669. Individual shares of that total were called stock as well, as were what today we call bonds.
Instead of playing with stocks as if they were blips in an electronic game, investors would be far better off planting them like trees.
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Excerpted from THE DEVIL’S FINANCIAL DICTIONARY, to be published by PublicAffairs on Nov. 17. Copyright 2015 by Jason Zweig. Used by permission of PublicAffairs, a member of the Perseus Books Group.
Source: The Wall Street Journal