Ha ha, very funny, a blog about jargon with some really difficult words in the headline. (As you, ahem, already know, “prognostications” = predictions, “jejune” = naive or simplistic.)
In the ordinary way, we get rid of difficult words by doing what I did just then – replacing them with easier words. In the book (did I mention the book?), the example I give is the rather lovely word “crepuscular.” Not many people know it, but the problem is solved as soon as you know it means “relating to twilight.” Immediately, you know a whole lot of things about “crepuscular” – what it means, what it looks like, when it happens, why it happens (more or less).
Contrast that with an unfamiliar word from the language of investment jargon. To make my point, I’m choosing a tough one: “equalisation.” There’s absolutely no way that any better-known phrase or synonym will cast light on this. There isn’t one. The word describes an aspect of the workings of investment funds, which you’re never going to understand unless you learn practically a whole book’s-worth of stuff about how investment funds work (starting, for many people, with an explanation of what investment funds actually are).
Here’s an attempt from a website (actually Neil Woodford’s) to explain the term.
“Equalisation is a mechanism used by open-ended collective investment vehicles to ensure that income distributions from a fund can be the same for all shareholders, regardless of when the shares were purchased.
By way of background, funds that distribute income do so regularly – sometimes yearly, sometimes half-yearly, quarterly or monthly. In the case of the LF Woodford Equity Income Fund, income is distributed quarterly. When a fund pays out income, it does so by going ‘ex-dividend‘ (XD). Income that is received by the fund from its underlying portfolio holdings is reflected in that fund’s net asset value until it goes ex-dividend, at which point the income is removed from the fund’s net asset value and is paid to shareholders on the pay date on a per share basis, typically several weeks after the ex-dividend date.
If an investor has bought shares in the fund since the last XD date, he/she has not held the shares for the full period over which income is being received by the fund and so those shares will be grouped separately (usually known as group 2 shares, whereas all other shares are in group 1). When it comes to payment of income on those shares, they will be entitled to the same payment per share as any other shares in the fund, but not all of the payment will be treated as income for tax purposes – part of the payment will be treated as a return of capital. This is known as an ‘equalisation’ payment, because it equalises the per share amount that is paid on group 2 shares with that paid on group 1. Once group 2 shares have passed their first XD date, they become group 1 shares.”
I can’t find the words to express how utterly unhelpful this definition is to most of us. Within a dozen words most people’s heads have disappeared below the surface, and they never come back up again. So it’s “a mechanism used by open-ended collective investment vehicles,” is it? Great. That really helps me. Not.
I’m not saying this to beat up the Woodford website. I’ve had a go at explaining equalisation once or twice, and I don’t think I did any better. My point is that often, in financial services, a single word of incomprehensible jargon is in fact the tip of a vast iceberg of incomprehension, so that if you want to make sense of the word you have to melt the whole bloody iceberg. And, of course, long before you complete that enormous task, everyone will have left your website in search of something – anything! – more rewarding.
In the case of this particular example, you can argue that people really don’t need to know – that millions of people invest perfectly happily in funds without any understanding of equalisation, or indeed any idea of the existence of the concept. But there are hundreds of other terms that are, or at least seem to be, much more important if people are going to make half-decent investment decisions. (Pound-cost averaging is always a horrible one to have to explain. Or rebalancing. Or index tracking, to people who don’t know what an index is.)
Even after 30 years of writing this stuff, I don’t really have an answer. Basically, the choice you have if you want to de-jargonify is to be either incomprehensibly brief, or unreadably long, which isn’t really much of a choice.
So, I’m sorry if this blog has turned out to be a bit of a waste of time. But on the upside, at least you now know what “crepuscular” means.