Five Words to Ban

If I were benevolent dictator of the investment industry, I would ban five words:

Conviction. Portfolio managers love to talk about conviction. They understandably want their analysts to have strong opinions so they can take big positions. The problem is that conviction measures confidence, not correctness. Pressure to feel conviction can make it hard for junior analysts to change their minds when the facts change. Conviction can become stubbornness with better branding.

Research. Research is at the core of developing an investment opinion, but sometimes it is mistaken for the end-product. It is the process, not the conclusion. “Research reports” often take the form of glorified book reports where the author shows off how much they know. Too passive. Let’s be investors, not researchers.

Recommendation.

Just as investors should not aspire to merely produce research, neither should they view their job as coming up with a recommendation for others to consider. The word is too detached. It lacks accountability. Make the case for your idea, then own the implications.

Beat-and-raise.

Who doesn’t like it when one of their companies beats estimates and raises its forward guidance? But, when a buy-side analyst says it, they sound like they are caught up in the game of management spoon-feeding a narrative to the Street, rather than conducting independent analysis.

Setup. “The setup into the quarter looks good.” This sounds too short-term, like something a day trader might say rather than a long-term owner of a business. Also, it potentially violates Howard Marks’ concept of second-level thinking since an identifiable setup is likely already in the price.

Which investing word or phrase would you ban?