Mad Money Machine

Name That Investing Style

Henry Blodget says in his blog post “In Search Of: A New Name for ‘Passive’” that the name “Passive investing” is misleading and deflating. Who wants to be passive when we all know that being active is the way to make things happen?

He suggests alternatives that he says don’t work: Indexing, Rules-based investing, Factor-based investing, Dimensional investing, Quantitative investing, and Weston Wellington’s suggestion of “Equilibrium-based investing.” Dylan Ross suggests in the comments to the post to use “Efficient investing.”

I’ve always been curious about how some things get named. Why, deep down, is Illinois named Illinois? Where do people’s last names come from and are there any new ones being put into use? Who thought up “guitar” and why?

Some folks say that names don’t matter. I fall more into the camp that says they do matter and that having a perfect name is like a metaphor; a concise way to convey the essential truths about something. A name should neatly summarize what you are talking about. Passive investing suggests that your money is automatically direct-deposited into your 401K, not quite the point. So what is the point?

We are talking about doing things the right way, the way that the academic studies say we should do them. Intelligent investing, Smart investing, Simple investing, Sound investing, Common-Sense investing, Lazy investing. All of these names, while correct, are generic and unfocused. Other names come from guys who either write books or blogs and develop lazy portfolios with names like Coffeehouse, Couch Potato, Margaritaville, No-Brainer, and Yale. Useful as labels but not great names for the complete discussion.

More specifically, what we are talking about is opposites. The opposite of trying to pick stocks. The opposite of selecting a winning mutual fund manager. The opposite of trying to time the market. The opposite of selecting the hot sector. But “Anti-Active investing” doesn’t sound all that friendly.

But wait, there’s more. Other concepts to get across include Broad diversification across the globe, low Expenses, low Taxes, low Turnover, Exposure to risk, and Rebalancing. Try to fit all of that into one word! Perhaps we need an acronym. BETTER investing? Taken. Ironically, by the National Association of Investors Corporation, an active-trading community. Or we could drop an E and do the Web 2.0 thing and have BETTR investing. Nah. Perhaps we add a U like Uniformity or Ultimate-buy-and-hold and hijack the word burette (an extremely precise piece of laboratory glassware) and dub thee BURETTE investing or the calmer Burette investing. The problem with hijacked names, though, is they are not great for Googling. You try to search for more info on Burette investing and you get a screen full of laboratory beaker manufacturers.

So how about creating a brand new word? Creating a new name out of the blue either takes some significant authority or a viral campaign. The President could come on TV tonight and announce that “Passive” investing will henceforth be called “Bretter” investing. He could go on to describe that what he means by Bretter investing are the concepts listed above and from that moment onward Bretter would be the name for that style of investing. On the other hand, a viral campaign could start by some forum poster describing an investing style that is a “Broadly-diversified, Rebalanced, Expense-efficient, Tax-efficient, and Turnover-efficient Exposure to Risk.” And all replies to the topic simplify it to BRETTER for less typing. Seemingly overnight, bretter (not capitalized, just a word) becomes the shorthand for describing what was formerly called passive investing. Two approaches to naming. Top-down and bottom-up. Imposed or organic. Come at it from both directions.

Bretter Investing! Just humorous enough for the tongue-in-cheek crowd, playing off of “Better Investing.” Thoughtful enough for those demanding meaning. Unique enough for the Googlers. Bretter investing. Say it often. As in, “Since I adopted a bretter investing style back in 2007, I’ve never had to worry about my financial freedom.” Or, “The bretter investing crowd doesn’t believe in picking stocks; instead preferring to buy index funds.”

The bretter investing style. You could get used to it. You got used to Illinois didn’t you?

B roadly-diversified,
R ebalanced,
E xpense-efficient,
T ax-efficient,
T urnover-efficient,
E xposure to
R isk

“It’s definitely a bretter way to invest(tm).”

Full disclosure: In order to avoid being sniped or swiped or otherwise misused, I went ahead and registered the domain name BretterInvesting.com, not that anything will ever come of it.