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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ONOCENTAUR, n.  A mythical creature described in ancient and medieval bestiaries, also mentioned in the Bible. The onocentaur has the torso and head of a man but the lower body of a wild ass (onos in Greek). Although an onocentaur can seem rational from the waist up, its lower body is lusty, wild, and dangerous.


This… this...

…plus this…


...equals this.

…equals this.


The onocentaur is not merely a figment of the imagination of ancient myth-makers. Nor is the creature extinct: The onocentaur is the dominant species in modern financial markets. Its mix of rationality and wild behavior appears to be an evolutionary adaptation that suits this species ideally for survival in a market habitat. The onocentaur is so well-adapted, in fact, that its numbers have grown into the tens of millions. The creature’s rampaging impulses, punctuated by occasional outbreaks of good judgment, make its behavior so unpredictable that predators have only sporadic success in hunting it. Furthermore, onocentaurs can kill with a single kick, and they breed prolifically — if not constantly. These traits assure that their genes will pass on to the next generation, even though individual onocentaurs almost always die young.


OUTLOOK, n.  A guess.

In a depressingly typical result, an informal survey of market strategists by The Wall Street Journal in December 2006 found that nearly all had a positive outlook for 2007, without a trace of worry that a financial crisis could be on the horizon. On the other hand, the outlook on March 3, 2009 — six days before the U.S. stock market bottomed — was abysmal.

The outlook of market experts is not a forecast at all; it is an aftercast, based not on what is likely to happen but rather on what has already happened. (For deeper insights into why experts can’t predict the future, read Philip Tetlock’s magisterial book Expert Political Judgment.) If markets have been doing well lately, then the outlook will be positive; if they’ve been doing poorly, then the outlook will be negative. The remark often attributed to Mark Twain — “History doesn’t repeat itself, but it rhymes” — doesn’t apply to financial markets. They don’t repeat themselves, and they don’t rhyme. They exist to produce the unexpected.

No investor should ever take confidence from the positive outlook of a market strategist or even the consensus view of strategists as a whole that the market will do well. By the same token, a negative outlook by professional investors doesn’t indicate that the market is likely to drop.

The only sensible conclusion to draw from a market outlook is that you should think long and hard about whether the opposite outcome might be even more likely to occur. (See also FORECASTING.)

Fortunately, investors don’t need to invest on the basis of anyone’s outlook, including their own. The wisest course is to build a portfolio diversified enough to withstand any scenario, so that your wealth will be relatively unimpaired regardless of which outlook turns out to be valid.


OVERSIGHT, n.  Like sanction (which means either to permit or to forbid) and cleave (to stick to or to split apart), oversight is what is known as a contranym or auto-antonym, a word that also means its opposite. In one sense, oversight means supervision, as by a regulator or risk manager; alternatively, it means omission or negligence. The fact that oversight is a contranym should be carefully noted by any investor who might otherwise be inclined to place blind faith in markets.


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