During the late 15th century, William Shakespeare penned his famous play Romeo and Juliet. A phrase therein gained popularity over time: “What's in a name? That which we call a rose by any other name would smell just as sweet.”
In perhaps less poetic times, we’d use this same phrase nowadays to infer that things are what they are, no matter what name you give them.
Taken a step further, an object's underlying traits and your perception thereof determine your experience, not its name, label or title.
Whether that object is a flower, a food or a financial asset, this holds equally true. But with Shakespeare already grabbing the flower, allow me to take the other two! Let's start with food then.
For food lovers.
I’m writing this note enveloped by sunshine, so we’ll pick some delicious yellow-colored snacks. Being a Global Indian with a Gujarati heart, a couple of these immediately come to mind: ‘khaman’ and ‘dhokla’.
Yes, I can feel your smiles already. But let’s wait for everyone to be on the same table, I mean, same page.
Think of khaman as a 2-inch tall, fluffy, steamed cake made of gram flour. Khaman is almost always cut in squares and always yellow in colour, almost no variations.
Think of dhokla as a 1/2-inch tall, dense, steamed cake made of fermented batter from crushed rice and split chickpeas along with curd. Dhokla is traditionally cut in the shape of a rhombus and white in colour. But there are innumerable variations of dhoklas!
Now Google either khaman or dhokla. Go ahead, I’ll wait.
Surprised? In today’s instant world, an overwhelming majority of recipes and food packets are labeled ‘khaman dhokla’. The world thinks this is one dish. But alas, only a trained eye and an aware mind can tell the difference!
In the realm of healthy eating, both qualify. But one more than the other, depending on your context.
If you’re watching your glycemic index, khaman is a better option. But if you have an upset stomach and are trying to keep it light, dhokla wins.
Whatever you label it, your choice of food is largely determined by (a) your personal context and (b) your understanding of the underlying traits.
For financial wizards.
I know you’re ready to snack already but let’s decipher some financial assets first. We’ll pick the famous two, stocks and bonds.
Think of stocks as a partial ownership in a business. It’s an owner's claim on the future cash flows of a business after all borrowings are paid off. In general, stock prices tend to fluctuate a lot and therefore, are perceived to be riskier investments than bonds.
Think of bonds as a promise by the borrower to repay a lender’s principal, usually with some interest. In general, bond prices tend to fluctuate little and therefore, are perceived to be safer investments than stocks.
In the realm of assets in investment portfolios, both qualify.
But as Buffett says in his 2011 letter to shareholders, “assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a non-fluctuating asset can be laden with risk.”
Buffett has not labeled assets as stocks or bonds. He’s simply focused on (a) personal context – hence “over their holding period” and (b) underlying characteristics – hence fluctuation and risk.
When interest rates rise rapidly, some stocks behave like bonds and some bonds behave like stocks. Once you understand deeply the traits of an asset, the label simply doesn’t matter.
Let's conclude the financial wizardry with two labels which diverge from their underlyings: (1) asset allocation and (b) life insurance. Am sure there are many more across the financial landscape as well as the myriad realms of life!
For everyone.
The reality is that labels everywhere, while created to move us faster in the moment, have the potential to slow us down in the long run.
What is required to go beyond the labels? Well, that’s a profound topic best left for another time. For now, I am mindful of your time, so let's wrap up.
Here's wishing that the next time you are fortunate enough to be in a deep conversation with yourself or someone else, you don’t seek to label, you simply seek to observe, to listen, to better understand.
Because, after all, what’s in a name?
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