FINANCIAL JARGON THAT ROBS YOU OF PEACE—AND MONEY

Recently, I spoke with someone who had read that markets are “expensive”.

- DHIRENDRA KUMAR

They sensibly assumed this meant stock prices were high. In their view, a ₹100 share was obviously pricier than one at ₹20. I had to clarify that when analysts cail stocks expensive, they mean valuations like the price-to-earnings ratio—not the market price. In fact, a ₹20 stock can be far more expensive than a ₹100 one if its fundamentals don’t support it.

The equivalent confusion is even worse in mutual funds, something I've written about earlier. People often assume that a fund with a net asset value (NAV) of ₹15 is cheaper and therefore a better deal than one at ₹150. The reality is that NAV is just the per-unit price and tells you nothing whatsoever about whether the fund is a good investment or likely to grow. Yet this misunderstanding leads investors to make completely illogical choices, hunting for low-NAV funds as if they were bargains at a sale.

Should we blame these people for the confusion? Absolutely not. The fault lies squarely with those of us who work in finance. We've taken ordinary words that people use every day and given them a completely different technical meaning—and then we act surprised when ordinary investors misunderstand us.