So of course, I absolutely agree with both Nick and our reader that we should “make sometimes complicated things clear, using as much plain English as possible”. That said, I disagree with his specific complaint over our use of the word drawdown. It’s meaning as a measure of the peak-to-trough fall in the value of an asset has been around far longer than its use in the pensions industry: income drawdown, as it should be correctly described, was contrived post the abolition of compulsory annuities in 1995. But we will nevertheless take care not to confuse, if that helps more retail investors cut through the murk and understand that investing isn’t too complicated - and that they can in fact go it alone.
There are, of course, times when an investor will need professional help, and we’re also here to guide them towards those professionals worth paying for, as some most certainly are (the better ones also tend to be much more plain-speaking and open with their investors). One area we’ve previously noted where retail investors might do better to use professionals is when buying the very smallest companies – that may sound counterintuitive, but the information and access advantage, the ability to buy at a better price, and to spread risk makes a huge difference. For die hard stock pickers, we feel Aim’s better-researched larger companies, the top 50 of which we analyse this week, are a safer bet.
However, I do think that whilst there is a lot to be said for plain English in financial services, I also believe that anyone wanting to invest should take the time to learn the lexicon of finance. That’s partly because if we simplify too much, financial guidance would cease to become useful – try having a conversation about a company’s valuation without discussing price-earnings ratios or enterprise value (or, in the case of Algy Hall’s stock screen this week the price-to-tangible-net-asset-value ratio) – “it’s cheap” isn’t really enough to go on. Also, arming yourself with the vocabulary the professionals use makes it far less likely you’ll be hoodwinked by the more unscrupulous among them.
