Wall Street words This just in: The stock market appears to have hit bottom.
of wisdom
Stock market followers go to
great lengths in order to get
their message acrossDeciphering some of the phrases
Market followers weigh in with their favorite sayings
By Dave Segal
dsegal@starbulletin.comIf that sounds familiar, it's probably because investors have heard that mantra almost daily as equities have broken through support levels and retested lows faster than you can say Maria Bartiromo.
The stock market, not surprisingly, has a language all its own. And then it has its unwritten language.
If that sounds like doublespeak, welcome to the world of investing.
It's difficult enough for investors to try to understand P-E ratios, book values and market caps.
But, on top of this financial speak, there's also Wall Street jargon, where buzzwords and phrases take on their own colorful existence.
Visibility, anyone?
Frustrated investors, seeking direction in the market, have taken a flight to safety as the bulls and bears duke it out. While cash was trash during the market's heyday two years ago, cash is now king. And investors, with a mountain of that cash on the sidelines, now wait for a signal to commit new money.
Their dilemma, though, is that Wall Street never rings a bell at the bottom. And, if they wait too long, the train will leave the station without them and they won't be able to get on the rising tide that lifts all boats.
So, investors turn to analysts for support. The problem there is a ratings system where a "hold" rating means "sell."
Investors also turn to CNBC, where talking heads like "The Big Kahuna," "The Brain," "Lawrence of Arabia," "Harvard Boy" and "Batman" espouse their opinions and report the news.
Still, it's a lonely world out there when you have to climb the wall of worry. Everyone knows you should buy low and sell high. Yet, investors frequently flee for the exits when stocks go on sale. Then, when investors do jump back in, the easy money already has been made.
No one ever said investing was going to be easy. (Remember Nasdaq 5,000?) After all, you've got to be selective because it's a stock picker's market.
And just when you think you've got it figured out, it turns out to be a bear trap or a sucker's rally. You also should never short a dull market because there's no telling when the market is poised to explode. But be careful about bottom fishing because you shouldn't try to catch a falling knife.
The best advice is to be patient because it's time in the market, not timing the market, that matters. And, of course, diversify, because you don't want to put all your eggs in one basket.
That irrational exuberance you heard about before is nowhere to be found now. Neither is the wealth effect. No wonder some investors can't sleep at night. It's because their 401(k)s have turned into 201(k)s.
At long last, confession season finally is behind us. Now all we have to worry about are companies hitting their whisper numbers and what they're going to say for forward guidance.
It's easy to jump on the bandwagon when analysts are pounding the table on certain stocks. But when stocks are going south, investors have to watch out for a lot of pitfalls.
There's the "greater fool theory," the "cockroach theory" and just the general premise that bulls make money, bears make money and pigs get slaughtered.
Maybe it's best to heed the advice that no one ever lost money taking a profit.
And keep in mind that past performance is no guarantee of future results.
Wall Street often inspires colorful phrases. Here's a sampling from today's D1 story. Deciphering some of
the phrasesBy Dave Segal
dsegal@starbulletin.com>> Visibility (or lack thereof)
The ability of companies to give guidance on their future financial performance.
>> Taking a flight to safety
Buying bonds, money market funds, CDs and other safe investments while the stock market sorts itself out.
>> Never short a dull market.
If a market is directionless, don't borrow shares from your broker to take a "short" position because you never know when stocks will take off again.
>>Wealth effect
The American phenomenon that occurred from the booming stock market.
>> Whisper numbers
Earnings estimates analysts give VIP clients that are supposedly more accurate and timelier than published forecasts.
>> Greater fool theory
If you buy a stock at a high price, another fool likely will come along later and buy the stock at an even higher price.
>> Cockroach theory.If there's bad news on one company in a sector, similar bad news may hit others in the industry. It's a takeoff on the assumption that if you see one cockroach in your house, there must be others lurking around.
>> Bulls make money, bears make money and pigs get slaughtered.
You can make money betting on a stock to go up or down, but if you get greedy, you can lose a bundle.
Here are a few of the favorite market sayings of some notable stock market followers in Hawaii, along with their explanations of the phrases: Market followers weigh
in with their favorite sayings
Jeanette Daly, analyst, First Honolulu Securities
>> The market is ruled by greed and fear.
It has to do with investor motivation. It seems frequently that investors as a whole are greedy, or motivated by fear as they have been in the past year or so, whereas during the heyday of the stock market in the '90s it was mostly greed.
>> Don't fight the Fed.
When interest rates are coming down, the market stands to benefit and go up. When interest rates are rising, we saw what happened (as evidenced by the current 11/2-year slump).
>> The trend is your friend.
Don't fight with the way the market is trading. If the market is trending upward, you should be long and go with it. If it's trending down, like it was the last year or so, you're better off out of it, or buying short, or buying puts (option contracts predicated on the stock falling).
Randy Havre, chief executive officer, Hawaii Venture Group
>>Buy on the rumor, sell on the news.
Basically, people are investing in anticipation of what might happen, where you think things will be three to six months down the road. Invariably, you'll see the stock move up on the rumor, and as soon as the rumor is verified, people will sell on it.
>> The market climbs the wall of worry.
If people are concerned about where the market is going and where the economy is going, you typically see the market climb that wall. When there's too much euphoria in the marketplace, you're typically at the top of the market.
>> When there's blood on the street, you mortgage your house and buy.
I attribute this to Warren Buffett. Basically, when things are looking very, very bad, it's typically the time the market is going to turn. So you mortgage your house and commit all the capital you can.
Paul Loo, senior vice president, Morgan Stanley (Bishop Street office)
>> Don't ever think the market is there to accommodate your thinking.
Julius Grodinski, a Wharton (School of Business) professor of great reputation (at the University of Pennsylvania), told my graduating MBA class that when you get into the investment world, never forget that the market is not there to accommodate your thinking. So people who have not invested before and have ideas where they think the market is going to go have to never forget that the market is not there to accommodate their particular point of view. It's a humbling statement, which tells you to listen to what the market says and not be fixed and concrete so if you take a position, the market has to follow your thoughts. In the marketplace, that's a luxury you can't afford. You need to listen, put your antenna up and be sensitive to what the market is going to tell you?
>>When you buy a stock, have you ever wondered who sold it to you?
It conjures up some thought because what if you bought it from the president of the company or one of the best analysts on Wall Street? That statement conjures up the feeling of whether you're well informed. When you do buy a stock, sometimes you may be buying it on (what you think is) good knowledge and you're actually on the other side of the transaction of the seller.
>> Stocks often rise far more then they should in good markets. They often decline far more than they should in bad markets.
This is the mystery of the pendulum. It swings to great extremes. The challenge is to determine where in that pendulum the value is. It's an ongoing battle, and as long as investors recognize that's what happens, they can set some kind of policy as to how they invest. We've seen it where some of the dot-coms went far more they should and some of the good quality technology stocks dropped far more than they should. In between is where some value should be established and that's the eternal valuation mystery?
Dwight Melton, president, Patience and Discipline Investment Club (Hawaii family club)
>> Investing requires patience and discipline.
Each individual investor has to develop their own investment strategy, and once the strategy is developed, have the discipline to follow that strategy and the patience to wait for the parameters in your investment strategy to be confirmed. We even named the investment club after that phrase.
>> Investing is simple. Keep it that way.
All the elements that go into individual investing, whether it be individual stocks, options trading or mutual funds, the basic element is to keep it simple. People like to make investing complicated.
Compiled by Dave Segal Back to top