Performance Perspectives Blog

Terminology time

by | Jan 28, 2010

It is my profound belief that many folks use words they don’t even know the meaning of (I’ve been guilty of this, too). People have an inherent fear of admitting ignorance, so rather than say “what is meant by that term” and appearing (in their minds) ignorant, they’d prefer to go on pretending they fully understand what’s being said.

Sometimes we think we know the meaning, but are wrong. Take the terms “buy side” and “sell side.” What DO they mean? What are we buying or selling? Take a moment to think about this before moving on (and ignore the clipart as it probably has no bearing on the topic).

And the answer is (as I open the previously hermetically sealed envelope) leverage!

And what IS leverage? This is a confusing term with different opinions and ideas. Essentially it’s the ability to buy or sell something when you want to. Money managers in general buy leverage, while brokerage firms sell leverage. It’s not quite that simple, but it’s close enough.

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