Say What You Mean and Mean What You Say
“Americans have mastered the art of being prosperous though broke.” Billy Boy Franklin
With all of the hype coming out of Wall Street continually, have you ever wondered exactly what it is they are saying? Take for instance the ratings the biggest brokerage firms place on various stocks. It seems as if they can’t just say buy, hold or sell. Oh no, that would make it too simple for the investor to actually tell if their predictions were accurate or not. Instead they obfuscate their recommendations with phrases such as “Outperform,” “Overweight,” “Underperform”, “Inline,” and “Peer Perform.”
Furthermore, the same word means different things at different brokerage firms. For instance at some firms a “buy” actually means a stock is expected to rise in value, while at others, it means the stock could fall—but less than its rivals.
As Sallie Krawcheck, chief executive and chairwoman of Smith Barney, in a speech last November to the Securities Industry Association asked, “Is an “underperform” stock in an “outperform” industry more attractive than an “outperform” stock in an “underperform” industry?” For example, Intel Corp. is currently rated “outperform” while the chip-making sector is “market weight” according to Credit Suisse First Boston. This is a prime example of the gobbly-gook Wall Street foists upon investors.
Wall Street knows it can’t predict what will happen to a particular stock any more than you can. But to admit that would be to admit that they can’t really justify the high commissions they charge their customers. Consequently, they fudge their predictions with words that don’t really mean anything.
In an article written some years ago, Jonathan Clements, a writer for the Wall St. Journal, chronicled some of the phrases often heard on Wall Street, and how you might interpret them.
The examples listed below are indeed hilarious but more than that, are a warning to investors not to take commissioned brokers seriously.
“It’s a dead-cat bounce”: Believe me there’s no justification for this rally.
“The market is in a narrow trading range”: Prices aren’t jumping around as much as usual, and nobody can figure out why.
“Bonds retreated on bearish comments from the Fed”: Once again, nobody understood what Alan Greenspan said. But why else could bonds have fallen?
“We’re near-term cautious but long-term optimistic”: Don’t blame us if the market tanks.
“The stock market was down on technical factors”: We have no idea why shares fell.
“The market fell on heavy selling by mutual funds”: We still have no idea why the market fell. But everybody knows small investors are stupid, right?
“The trend is your friend”: Stocks have been going up.
“Trees don’t grow to the sky”: Stocks have stopped going up.
“The market is looking a little extended”: We’re dumping everything.
“Don’t miss this compelling opportunity”: I need the commission.
“The market climbs a wall of worry”: Sure it’s tough to be blasé about rising oil prices, climbing interest rates and Middle East tensions. But I really, really, need the commission.
“Focus on total return”: Please, please, please don’t notice our fund’s outrageously high expenses.
“It’s cheap on a relative basis”: It is pretty darn expensive, but other folks own stuff that is even more ridiculously priced.
“Our strength is evaluating corporate management”: We play a lot of golf.
“The company has solid fundamentals”: It is a shame the shares are so absurdly overvalued.
“It’s a New Economy stock”: Don’t even bother asking about earnings.
“We rate the stock a strong but”: We need the company’s investment banking business.
“We rate the stock a hold”: For goodness sake, dump your shares.
“We rate it a sell”: I’m hoping to get the early-retirement package.
“The company’s quarterly earnings beat expectations”: The chief financial officer sandbagged analysts.
“We’ve researched this company thoroughly”: Here’s what we heard from the company’s vice president of investor relations.
“We’re fundamental investors”: We listened to the chief financial officer’s sales pitch.
“We’re technical investors”: We skipped the sales pitch and pulled out the Ouija board.
“We think the stock is a potential buyout candidate”: We sure hope some corporate raider is reading this.
Although the above makes for some humorous reading, the point is: Don’t listen to Wall Street hype. There simply is no substitute for employing good investment principles, developing an investment plan, implementing the plan and sticking to it.
Invitation
If you’re not a client yet, and you’d like to explore the option of developing a professionally managed investment portfolio comprised of no-load mutual funds, please give me a call.
I’d be happy to sit down with you and explain how as a fee-only investment advisor I can assist you in meeting your financial goals.
Marshall Sitarik - CFP
Ph. 407-977-3800