I’ve been reading Liar’s Poker recently and it’s given me a better understanding of how market’s don’t work. To save time for novice investors I’ve created a few helpful definitions to guide them in their investment choices. In no particular order:
Bank – the generic term for an organisation that seeks to profit by controlling the flow of money.
Market – a mechanism to exploit the foolishness gap (often slim) between someone who has the means and desire to buy something and someone who knows what it’s worth. Innovations in the market have effectively rendered the “means to purchase” an outdated concept. Markets have the trappings of formality and the veneer of structure.
Risk Management – The process of substituting a relatively reputable product like insurance for bonds of indeterminate risk with the objective to save money over a specified term.