How to discern fact from fiction

JOHN Dorfman, a financial journalist for Bloomberg News Services, has released his explanation of some of the terms he comes across regularly.

Chinese wall

The separation between the investment-banking wing of a brokerage house, which helps companies underwrite stocks and bonds, from the analytical wing, which makes buy and sell recommendations.

Chinese walls take their name from the Great Wall of China. And for brokerage houses, they really are a great wall because the houses earn great profits by slipping through the cracks. Virtually every deal a brokerage house brings to market mysteriously receives a “buy” rating from its analysts.

When to Sell

Hold. A “hold” recommend-ation from a brokerage house is less exciting than kissing your sister.

In most cases it is simply a euphemism for “sell”. The houses won’t use the word “sell” because they don’t want to offend a company.

They want continued access to the company, and they probably hope some day to pick up some lucrative investment-banking business from it.

That’s why the average rating for all publicly traded US companies in the Bloomberg recommendation database cur-rently is 4.29, on a scale where 4.0 is “buy” and 5.0 is “strong buy”.

That’s right folks, the average company is better than a mere buy, even after the longest-running bull market in history has pushed prices way up.


The enforcement division of the Securities and Exchange Commission really should be called the “selective enforcement division”. What else can it be when the SEC has a limited staff to police thousands of mutual funds, more than 20,000 investment advisers, and countless Internet touts?


Remember when companies baked bread, manufactured aluminium and transported passengers?

In short, they provided goods or services. Well, no longer do companies have such straightforward business des-criptions – especially if they are Internet-related companies. Instead, they provide “solutions”.

With all these solutions running around, pretty soon there will be a shortage of problems to be solved.

I guess it’s only a matter of time before we see companies that provide problems.


The word “consensus,” used to describe the average of analysts’ earnings expectations, was always a tiny bit of a misnomer.

It was never a consensus, just an average. But these days the word has passed into the realm of euphemism.

The companies all know that stocks are punished if they don’t beat the consensus earnings per share number by at least a penny or two.

So they deliberately guide analysts’ expectations down-ward. Analysts, ever willing to play the game, peg their estimates a few pennies short of the earnings they really expect.

Valuing Stocks

New metrics. Brokerage houses are in the business of buying and selling stocks. You can’t sell ’em until you buy ’em.

But today’s new issues, computer-related stocks, biomedical stocks and com-munications stocks often sell at prices that violate the time-honoured standards of securities analysis.

The result? Let the price dictate the valuation method, instead of the other way around.

Wave Riders

Momentum investing. There are serious practitioners of the momentum, or relative strength, school of investing.

But in the hands of many naive market participants, momentum investing is just the practice of blindly buying whatever has been going up lately, especially if it has been promoted on the person’s favourite Internet bulletin board.

The trouble with this approach is that it renders the so-called investor vulnerable to the old “pump and dump” technique.

*There is not a lot that we can add to this fine list.

If there are additional euphemisms that you would like to share with us, email them to

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