As value investors we do extensive research on companies and the markets to ensure we make the best investment choices, for maximum returns with the smallest margin of risk. While conducting research we have all come across financial jargon that seems indecipherable, reminding us of our first attempt at solving a Rubik’s cube. Would you believe me if I told you that the confusion you experience while struggling through the jargon, has been deliberately instilled so that we would seek the help of investment advisers and fund managers to decipher it for us? Our confusion equals their financial success. Why do I say this?
Alan Greenspan, former Chairman of the Federal Reserve of the United States and father of Fedspeak, has admitted to creating a dialect designed to confuse the masses with ambiguous messages. Mr. Greenspan once said: “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
What is Fedspeak?
A phrase used to describe former Federal Reserve Board Chairman Alan Greenspan's tendency to make wordy statements with little substance. Many analysts felt that Greenspan's ambiguous "Fed speak" was an intentional strategy used to prevent the markets from overreacting to his remarks. – Investopedia
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Between 1987 and 2006, Alan Greenspan was Chairman of the Federal Reserve of the United States. In his 2007 book, The Age of Turbulence: Adventures in a New World, he confessed to creating an intentionally cryptic, indecipherable yet credible sounding language to convey an ambiguous message.
Greenspan claimed that Fedspeak was devised to prevent unintended jolts to the stock markets as a result of any public comments he made. Statements made in Fedspeak were deliberately confusing because confusing statements are typically ignored by journalists and so never make it into the papers. The purpose of this, he insisted, was to allow the Federal Reserve and government to manage the economy without unnecessary interference from the general population. In reality, it was the distortion of facts through censorship and deliberate confusion.
On US current affairs show, 60 Minutes, in September 2007, Greenspan told interviewer Lesley Stahl that when faced with questions from congress regarding interest rates in the years leading up to the subprime mortgage crisis, he would, “engage in some form of syntax destruction which sounded as though I was answering the question, but in fact, I had not.”
Stahl challenged Greenspan that his profoundly impenetrable responses resulted in two newspapers publishing opposing headlines after attending the same hearing. He replied, “then I succeeded.”
Whether Greenspan intended it or not, Fedspeak has permeated every layer of the financial industry. By the time we ask someone to help us make sense of it all, the deliberate confusion has already done its job: we are already convinced of our ignorance and their knowledge.
Beneath the Skin and Between the Layers of Confusion
Even the most intelligent person, when faced with words that make no sense to them, can feel ignorant, insecure and overwhelmed. How comforting it is to enlist the help of someone informed to translate. With a sigh of relief, we walk willingly into the interim world of the financial adviser and investment manager; people who know what they’re doing and are here to help. But to think like this is to misunderstand quite how deliberately confusing the strange world of money really is.
Greenspan might have compounded the confusion with Fedspeak but the financial world began forking its tongue as early as 1602, when the first stock market was established in Amsterdam. According to NASDAQ, the financial lexicon now contains 8000 words and terms. Something, it asserts, that even a seasoned pro often needs help with.
In the past few decades there has been an upsurge in the complexities associated with financial literature and jargon that seems to parallel the growth of the industry. The exact extent of this growth is also subject to confusing anomalies.
It is your financial professional’s job to make you feel safe in this expanding world of new words and meanings, all the while throwing in the odd bewildering term to remind you just how much you need him. His profits rely on you feeling stupid. It means you will see value in him, therefore remaining happy to pay his fees and in turn feed further growth, however tricky to measure, into the financial sector.
So What Can We Trust?
Words are fickle and easy to manipulate. So maybe it’s best for us to look to solid figures for proof as to what’s really happening in the markets.
Unfortunately, this is where it becomes apparent that it’s not only financial jargon that’s misleading. Financial institutions are able to use market data to support pretty much any claim they care to make due to the fluid, malleable nature of statistics. There are no set parameters by which stock market figures must be set; we can look at market performance over any time period, from any start date we like. And it’s perfectly legitimate to do so.
So where does this leave the independent investor? Confusion has been sown to divert our attention from one thing and draw it towards something else, usually with the sole aim of generating profit for somebody, somewhere.
The best option is to look past the outward show in front of us: market peaks and troughs, tips, media stories and anything written or spoken in Fedspeak. The truth lies below this confusing surface in data that can’t be manipulated. We need to look inside the businesses themselves to understand what makes a good investment. We should make our investment decisions based on cold, hard financial facts as far removed from tricky language or shifting statistics as possible.
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