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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REGULATOR, n. A bureaucrat who attempts to stop rampaging elephants by brandishing feather-dusters at them. Also, a future employee of (or provider of services to) a bank, hedge fund, brokerage, or investment-management firm. (See REVOLVING DOOR.)

Regulation fails to stop giant financial firms from periodically destroying billions of dollars of their clients’ wealth and from imperiling the global economy, but it does ensnare smaller firms in tangles of red tape that handicap their ability to compete against the larger firms. That is what lobbyists for giant financial firms call “leveling the playing field.”


RESEARCH, n. The study of a company, industry, market, national economy, or asset class — at a cost to investors of approximately 1% of their total assets annually.

“Fundamental research” consists of pretending to study the underlying forces of supply and demand that should determine the long-term future profitability of an asset while, instead, spending most of your time fixating on short-term fluctuations in market price. “Technical research” consists of looking at squiggly lines all day long.


ROGUE TRADER, n. A trader working for a large bank who incurs an unauthorized loss in pursuit of an authorized risk.

At least once every three years or so, a rogue trader loses $100 million or more, in a cycle that no major bank has been able to stop. It is a matter of time before a rogue trader loses $10 billion. W. Arthur Benson, Nick Leeson, Yasuo Hamanaka, John Rusnak, Jerome Kerviel, Bruno Iksil, Kweku Adoboli: the list goes on and on. Why? As the head of a major investment bank once said while giving a visitor a tour of his firm’s trading floor, “I’ve got 500 traders here. I know there’s a Nick Leeson somewhere on this floor, but if I try to rein him in, then all the other 499 will stop doing things that go right up to the edge but don’t cross it, and I can’t afford to bear that cost.”


RUMOR, n.  The Wall Street equivalent of a fact.

Rumors have always been the fuel of financial markets. The modern Wall Street saying “Buy on the rumor, sell on the news” would not have been surprising to any Dutch trader in the 17th century. As Joseph de la Vega wrote in Confusion de Confusiones, his book about the Amsterdam Stock Exchange, in 1688:

The expectation of an event creates a much deeper impression upon the exchange than the event itself. When large dividends or rich imports are expected, shares will rise in price; but if the expectation becomes a reality, the shares often fall; for the joy over the favorable development and the jubilation over a lucky chance have abated in the meantime.

The figures shown at the right in this painting of the Amsterdam exchange, painted around the time of de la Vega’s book, appear to trading the latest hot rumor:

The Courtyard of the Stock Exchange, by Job Andriaenszoon Berckheyde (ca. 1670-1690),

The Courtyard of the Stock Exchange, by Job Andriaenszoon Berckheyde (ca. 1670-1690),


Deliberately spreading false rumors was one of the most effective tactics for profiting on stocks in the 18th century. In his pamphlet “The anatomy of Exchange-Alley,” published in 1719, Daniel Defoe wrote:

There are those who tell us, Letters have been order’d, by private Management, to be written from the East-Indies, with an Account of the Loss of Ships which have been arriv’d there, and the Arrival of Ships lost; of War which the Great Mogul, when they have been in perfect Tranquility, and of Peace with the Great Mogul, when he was come down against the Factory of Bengale with One Hundred Thousand Men, just as it was, thought proper to calculate those Rumours for the Raising and Falling of the Stock, and when it was for his Purpose to but cheap, or sell dear.

As it was then, so it remains in modern times.

Rumors on Wall Street, the great investor Benjamin Graham once said, reminded him

…of the oil man who went to heaven and asked St. Peter to let him in. St. Peter said, ‘Sorry, the oil men’s area here is all filled up, as you can see by looking through the gate.’ The man said, ‘That’s too bad, but do you mind if I just say four words to them?’ And St. Peter said, ‘Sure.’ So the man shouts good and loud, ‘Oil discovered in hell!’ Whereupon all the oil men begin trooping out of Heaven and making a beeline for the nether regions. Then St. Peter said, ‘That was an awfully good stunt. Now there’s plenty of room, come right in.’ The oil man scratches his head and says, ‘I think I’ll go with the rest of the boys. There might be some truth in that rumor after all.’

Rumors may be even more powerful than reality because anticipation is limited only by the extent of your imagination, while getting exactly what you had expected leaves you with nothing left to hope for. Recent research in NEUROECONOMICS has shown that the human brain activates more intensely when it anticipates the prospect of a future gain than when it experiences the actual gain.


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