16 September 2022

What’s in a name?

One of my first jobs in the investment world was as an unauthorised clerk on the floor of the London Stock Exchange.

We were known as “Bluebuttons”, because that was the colour of the badge we wore denoting the name of the firm for which we worked and which we needed in order to gain access to the market floor. And we were termed “unauthorised” because we were not permitted to deal in stocks and shares ourselves. That privilege was confined to authorised dealers and Stock Exchange members, but we were allowed to check the prices of shares. 

Back then, the market had its own special terminology. I well remember asking for the price of a textile machinery manufacturing company called Klinger Manufacturing when I was still a relative new boy. In those far off days, the Stock Exchange operated what was known as a dual capacity system, with trading taking place between the wholesalers of shares, known as “Jobbers”, who were not permitted to deal with the general public, and those bought and sold shares on behalf of clients, known as “Brokers”.

The jobber who I asked for the price of Klinger’s shares replied “Figure to over”. I thanked him and walked away, having not a clue what he meant. He called me back, chided me for not having the guts to request an explanation, and told me the price was 20 shillings to 21 shillings and 3 pence. He had been having fun at my expense, using terminology peculiar to the Government Securities market to express an equity price. It all made me conscious that understanding terminology was crucial to knowing what is going on in the investment and finance world.

Take the term “Bear Market” as an example. We all believe we know what constitutes a bear market, but it does have a very specific definition, which is a fall from peak to trough of 20% or more. Thus, we have seen a bear market in the US and China in recent months, but not here in the UK, which some might find quite confusing. Periods of high inflation, such as that which we are experiencing at present, have a nasty habit of engendering bear markets, despite the fact that they can favour real assets over time. 

When inflation places severe pressure on living standards, spending patterns can be disrupted and recessionary conditions develop. But a recession is similarly clearly defined as two consecutive quarters in which economic output shrinks. We already know that our economy contracted modestly in the second quarter of this year and soon we will have the Gross Domestic Product numbers for the third quarter, which finishes at the end of September. Many expect a recession then to be formally declared.

There are, of course, recessions and recessions. The contraction of our economy brought about by the pandemic was swift and severe, but the bounce back was also quick. This recession, assuming we are indeed in the grip of one, is likely to be a more difficult beast to tackle altogether. Already our finances are weakened by the measures needed to combat the economic disruption wrought by Covid, while the conflict that engendered the energy crisis that is at the core of our inflationary worries shows no sign of ending.

Understanding terminology was crucial to knowing what is going on in the investment and finance world.

The situation here in the UK is not made any easier by the political vacuum created by the resignation of Boris Johnson. By the time you read this, we should know who is leading the country and what, if any, measures are to be put in place to combat the energy crisis, but such knowledge is denied to me as I write. I do find it inconceivable, though, that some sort of support will be ignored by the incoming Premier, at a cost to the taxpayer, naturally.

Will this be viewed as a form of socialism – another term bandied around as defining how governments might behave? Rishi Sunak has certainly been tarred with the socialist brush, which might inhibit his chances of success. In the end, the leader of our great nation will be confined to acting within whatever possible constraints exist, with the Treasury doubtless demanding caution and those charged with securing a victory at the next election exhorting a populist approach.

However things pan out, words will be bandied around ceaselessly, so it is well to understand just what they mean. Recession means less revenue from tax and thus greater pressure on public services. A bear market – if it continues – means less wealth overall, including in our pension pots. But even difficult periods come to an end. By the end of 1974 – a year I remember all too well – our benchmark index in the UK had lost 70% of its value. By the end of the first quarter of 1975 it had risen by 150% from its nadir. I doubt – and indeed hope – we are not in as dire a set of circumstances. But only time will tell.

Illustration by Adam Mallett

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.

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