Rant to finance folks everywhere: Please stop talking about ‘basis points!’

This is a nerdy finance rant inspired by my frustration with the stupidest units ever created, with the exception of the English system of measurement, ‘basis points’.  Basis points, as used in financial jargon, simply refer to hundredths of percentage points.  For example, 100 basis points = 1%.  Thus, if some annoying MSNBC commentator says that Wal-mart’s stock went up 10 basis points, they mean it went up 0.1%.

Why, you might ask, wouldn’t they just say ‘Wal-mart went up 0.1%’?  GOOD QUESTION!  The only answer I can come up with is that Wall Street & financial gurus enjoy unnecessarily complex lexicon that confuses lay people and makes themselves sound wise & competent, despite any evidence to the contrary.  Hence the conflagration of obsfucating terms, which I eschew, in financial jargon (see, I can do it myself using non-financial English!)

Introducing extra units that add no value to discussions of finance makes things more difficult.  Good choices of units (which are units of measurement that one groups together, like inches or gallons) should make discussions and math easier, not harder.

Case in point

Here’s  a formula taken from a Harvard Business School article on bond duration (don’t worry about what that is) which uses basis points, which they abbreviate as ‘bps’ (= more useless notation.)

dP/P = -8*dY = -8*10bps = -80bps = -0.08% [sic; the author screwed up the answer, which should be -0.8%.  This is probably a result of using stupid basis points.]

Here’s the exact same equation using percentages, like any rational person would:

dP/P = -8*dY = -8*0.1% = -0.8%

To me, the second equation looks way easier (no weird ‘bps’ units),  is quicker to write out (1 less step), and less error prone since you’re not converting units back and forth.


Thanks, I feel better now.

“Make everything as simple as possible, but not simpler.”
—  Albert Einstein

Find out what salary your co-workers are making (then ask for a raise)

I’ve talked about saving money on this blog, but not a whole lot about making more money.  Often the quickest and most significant way you can earn more money is by asking for a raise, or finding a job that pays more.  In order to do this successfully, it helps to know roughly what you’re ‘worth’, and what salaries are typical (or atypical) for your given position, company and location.

Glassdoor.com has excellent data to do this.  You’ll need to take 5 minutes to fill out your own salary & create a login (you can choose to omit the company you work for if you want, but that makes your input less valuable to others!)  Once you do that, you’ll have full access to all the glorious salary details on many major companies.  I live in Seattle, so I took a snapshot of this Boeing salary chart for Seattle, WA to give you an idea of what you can find out:

You can also drill down to get more detail about a specific job title:

Arm yourself with this info when negotiating salary (which you should ALWAYS do) for a new job, or at your next performance review when negotiating a raise.  Here’s a very useful (and short) book on how to negotiate your salary: Negotiating Your Salary: How to Make $1,000 a Minute.   It’s a must read (and re-read) before any job or performance review.