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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MAD MONEY, n.  A distinct account, separate from all the rest of your portfolio, dedicated exclusively to speculative bets. Much like someone who prevents himself from gambling all his money away by locking his wallet in his hotel-room safe while he brings a finite amount of cash down to the casino floor, with a “mad-money account” you put a strict limit on how much money you can commit to trading. Once you hit that maximum, you can’t add any additional money to the account no matter what.

If you make 100 times what you put in, you will have committed enough initial capital for the final profit to make you significantly richer. But if you lose 100% of what you put in, your losses won’t be so large that you end up significantly poorer.

As Benjamin Graham wrote in his classic book The Intelligent Investor:

Speculation is always fascinating, and it can be a lot of fun while you are ahead of the game. If you want to try your luck at it, put aside a portion — the smaller the better — of your capital in a separate fund for the purpose. Never add more money to this account just because the market has gone up and profits are rolling in. (That’s the time to think of taking money out of your speculative fund.) Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.

The problem is that speculation, like gambling, is addictive. When you are “on a roll,” you will feel an overwhelming urge to add more money to your “mad money” account. Unfortunately, just when you feel like the world’s hottest trader is just when your trades are most likely to blow up on you. If you don’t resist the urge to add more to your mad money account, you may well end up losing not just everything you put in to begin with but whatever you add. In fact, the impulse to add more money to a mad-money account is the best indicator that you should be taking money out of it instead. Instead of putting more money in, sell your own euphoria before it turns into regret, as it surely will.



MARK, v. and n.  To record the price of a security, or to create a price where none exists.

It is worth mentioning, as noted in David W. Maurer’s classic book The Big Con, that “mark” is an old term used among con men to signify “victim” or “dupe.” Thus, investors who believe that a fund’s “mark” on an asset is exactly what the asset is worth are themselves the biggest marks of all.


MARKET MAVEN, n.  Maven (from the Yiddish and Hebrew mavin, or “understand”) means “expert” in just about any field except investing — where it means someone who has no idea whatsoever what will happen in the near future, the intermediate future, or the distant future. However, he does know one thing: how to sound as if he knows what will happen.


MARKET STRATEGIST, n.  A direct intellectual descendant of the ancient Roman official known as a haruspex, who was practiced in the Etruscan art of divining the future by inspecting the livers of sacrificial sheep and chickens. The typical market strategist uses methods fairly similar to those of a haruspex, but is considerably less accurate.  However, the modern market strategist has much higher social status and earns vastly greater income than a haruspex, even after adjusting for more than 2,000 years of inflation.

MATURITY, n.  What all bonds have and what most bond traders lack.


MR. MARKET, n.  An allegorical figure invented by the great investor Benjamin Graham in his classic book The Intelligent Investor.

As Graham wrote:

Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.

The true investor is in that very position when he owns a listed common stock. He can take advantage of  the daily market price or leave it alone, as dictated by his own judgment and inclination…. Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

Graham also explained:

…the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment….

The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: ‘Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.’” 

In short, Graham teaches, Mr. Market is there to serve you. When you don’t need him or don’t like what he has to say, you should send him away or ignore him. Above all, remember that Mr. Market is your servant. You must not be his. If you do what Mr. Market tells you, instead of the other way around, you will not only end up poor; you will be miserable, too.


MODEL, v.  To write complex mathematical formulae that capture every conceivable variable in every possible situation — except, that is, the one that is about to happen next, which will destroy the value of the portfolio that has been built around the model.  That doesn’t always happen, but you would be sensible to expect it.

As a noun, model can best be defined as “a weapon of math destruction.”





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