The Devil's Financial Dictionary

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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INDENTURE, n.   A document that stipulates all the obligations and conditions under which a bond issuer borrows from its lenders or bondholders. The term comes from the Latin dentem, “tooth.”  An indenture is something furnished with teeth, like a document furnished with tooth-like incisions. For security, each party to a legal or financial agreement insisted that the document be written in duplicate on a single piece of parchment or vellum that was then cut in two with a toothed pattern. That prevented forgeries or illicit alterations of the terms: Whenever a dispute arose or the contract expired, the two parts of the document would be authenticated by touching them together to confirm that the indentures, or “teeth,” meshed perfectly.

A bond indenture with real teeth, Massachusetts, 1777.  Courtesy of Museum of American Finance.

A bond indenture with real teeth, Massachusetts, 1777. Courtesy of Museum of American Finance.

The word first appears in English in the 14th century, as in this description of a land grant from Robert, Earl of Menteith, to John Logy in 1385: “to…the forsayde endenturis I hase put my Cele.”

William Caxton, in The Cronicles of England (1480), described how indentures worked: “The fourme of accord…was in a payr of Endentures and they put her seales unto that one part, and they they comen in the kynges name putt her seales to that other part of endentures.”

In the medieval period, the indentures cut into documents were shaped like  incisors, presumably to remind the participants of their bite. With the passage of time, they became less toothlike; by the 18th century, they were gentle scallops or waves, and by the late 19th century they had disappeared entirely. Only the name “indenture” remains. And, in recent years, some junk-bond purchasers have discovered too late that their indentures lacked any bite at all.

If debtors and bondholders alike remembered that indentures are meant to be the documents that put teeth into creditors’ claims, they might well borrow and lend more carefully in the first place.


INDIVIDUAL INVESTOR, n.  Someone who, without wise advice, is likely to ruin a small portfolio, generally $1 million or less. See INSTITUTIONAL INVESTOR.

INSTITUTIONAL INVESTOR, n.  Someone who, without wise advice, is likely to ruin a large portfolio, generally $10 million or more.  See INDIVIDUAL INVESTOR.

As Warren Buffett wrote in his annual report for 1986:

Investment managers are even more hyperkinetic: their behavior during trading hours makes whirling dervishes appear sedated by comparison. Indeed, the term “institutional investor” is becoming one of those self-contradictions called an oxymoron, comparable to “jumbo shrimp,” “lady mudwrestler” and “inexpensive lawyer.”


IRRATIONAL, adj.  A word you use to describe any investor other than yourself.


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