If you follow stock-market punditry obsessively, like we do, you’ll quickly notice something.
A handful of analysts speak English. But the vast majority don’t.
Rather, they speak a language unique to the investment business.
This language consists of market phrases that sound intelligent but actually don’t mean anything.
The phrases don’t sound like they don’t mean anything, of course: On the contrary, they sound like they mean a lot. In fact, they make the speaker sound as wise as Warren Buffett (who, to his great credit, never speaks this way).
Most of these phrases also have another key benefit, which is useful in the investment business: They never commit the speaker to any specific recommendation or prediction. In other words, no matter what happens, the analyst can always be “right” and never be “wrong”–because they didn’t actually say anything!
So if you want to sound smart about investing without really saying anything, read on!
When to use it: Any time a market or stock has already gone up a lot.
Why it's smart-sounding: It implies wise, prudent caution. It implies that you bought or recommended the stock a long time ago, before the easy money was made (and are therefore smart). It suggests that there might be further upside but that there might also be future downside, because the stock is 'due for a correction' (another smart-sounding meaningless phrase that you can use all the time). It does not commit you to any specific recommendation or prediction. It protects you from all possible outcomes: If the stock drops, you can say 'as I said...' If the stock goes up, you can say 'as I said...'
Why it's meaningless: It's a statement of the obvious. It's a description of what has happened, not what will happen. It requires no special insights or powers of analysis. It tells you nothing that you don't already know. Also, it's not true: The money that has been made was likely in no way 'easy.' Buying stocks that are rising steadily is a lot 'easier' than buying stocks that the market has left for dead (because everyone thinks you're stupid to buy stocks that no one else wants to buy.)
A classic. Can be used in almost all circumstances and market conditions.
When to use it: Pretty much anytime.
Why it's smart-sounding: It implies wise, prudent caution, but also a sunny outlook, which most people like. (Nobody likes a bear, especially in a bull market). It sounds more reasonable than saying, for example, 'the stock is a screaming buy and will go straight up from here.' It protects the speaker against all possible outcomes. If the market drops, the speaker can say 'As you know, I was cautious...' If the market goes up, the speaker can say, 'As you know, I was optimistic.'
Why it's meaningless: It's too general to mean anything. It can accurately describe any market outcome in history, merely by adjusting the unspecified time frame. (If you were 'cautiously optimistic' in 1929, you were 'cautious,' which was good, and you were also optimistic, which was also good. Eventually, the market recovered!)
Another classic. Sounds smart, but is completely meaningless.
When to use it: Especially useful in bear markets or flat markets, but can be used anytime.
Why it's smart-sounding: It suggests that the current market environment is different from other market environments and therefore requires special skill to navigate. It implies that the speaker has this skill. It suggests that, if you're talented enough to be 'a stockpicker,' you can coin money right now--while everyone else drifts sideways or loses their shirts.
Why it's meaningless: If you pick stocks for a living (or for your personal account), all markets are 'stockpickers' markets.' In all markets, traders are trying to buy winners and sell dogs, and in all markets only half of these traders succeed. (It's a different half each time, of course--and most of the 'winnings' of the winners are wiped out by transaction costs and taxes, but that's a different story). It is no easier (or harder) to win the stockpicking game in a flat or bear market than in a bull market, and if you try, you'll almost certainly do worse than if you had just bought an index fund.
When to use it: Any time.
Why it's smart-sounding: It sounds deeply profound--the sort of wisdom that can only be achieved through decades of hard work and experience. It suggests the speaker understands the market in a way that the average schmo doesn't. It suggests that the speaker, who gets that the stock market is actually a 'market of stocks,' will coin money while the average schmo loses his or her shirt.
Why it's meaningless: Again, it's a statement of the obvious. Of course it's 'a market of stocks.' But it's also a 'stock market.' And viewing the stock market as a 'market of stocks' doesn't help you in any way, other than reminding you that all stocks don't move up and down the same amount. (See: 'It's a stockpickers' market.')
When to use it: Any time.
Why it's smart-sounding: It sounds generally optimistic, which everyone will like, but it doesn't commit you to any specific recommendation or prediction or time period. It doesn't even require you to to say that the market will go up or down or how you are investing or think anyone else should invest. It just sounds generally optimistic, and it leaves you plenty of wiggle room if the market suddenly tanks.
Why it's meaningless: Because being generally optimistic about the market over some unspecified time period is no different than being generally optimistic about life over some unspecified time period: Odds are, whatever happens, life will go on and the world won't be destroyed by an asteroid. And, besides, you're not even saying you're 'optimistic.' You're saying you're 'constructive.' That can mean anything!
When to use it: Any time you are asked to explain why the market (or a stock) is down after a strong run.
Why it's smart-sounding: It sounds like you know what professional traders are doing, which makes you sound smart and plugged-in. It sounds like common sense: Traders have made a lot of money--now they're 'taking profits.' It doesn't commit you to a specific recommendation or prediction. If the stock or market goes down again tomorrow, you can still have been right about the 'profit taking.' If the stock or market goes up tomorrow, you can explain that that traders are now 'bargain hunting' (the corollary).
Why it's meaningless: Traders buy and sell stocks for dozens of reasons. And for every seller, at any time, there is a buyer on the other side of the trade. Whether or not the seller is 'taking a profit'--and you have no way of knowing--the buyer is at the same time placing a new bet on the stock. So collectively describing market activity as 'profit taking' is ridiculous. Any trade, at any time, in any market, can be described as 'taking a profit' or 'cutting a loss' or 'bargain hunting' or 'filling out a position,' and so on. You have no way of knowing what's actually going on, and there's always someone on the other side of every trade. But no one will ever prove you wrong!
Corollary: 'Bargain hunting.' Can be used to explain why stocks that have dropped recently are now going up. Equally meaningless.
When to use it: Any time.
Why it's smart-sounding: It sounds pithy and wise. It sounds like you've been along for the ride (whatever ride that is). It sounds calm and confident.
Why it's meaningless: Stocks do tend to move in various directions, as anyone can see in hindsight. Sometimes they go up for a while. Sometimes they go down. Sometimes, they go sideways. Alas, knowing what stocks have done -- the trend -- tells you almost nothing about what stocks will do. So, yes, if stocks continue to do what they have been doing, the trend will be your friend. And if they don't, well, that will be a new trend that will be your friend!
When to use it: Any time you are asked to explain why the market (or a stock) is going up.
Why it's smart-sounding: It sounds like you know what's really going on, which makes you sound smart and sophisticated. It sounds like you understand how the market works, in a way that Joe Schmo doesn't. (Ahh...there are more buyers than sellers! Fascinating!)
Why it's meaningless: In every trade--every one--there is exactly one buyer and exactly one seller. You cannot buy a stock without having someone sell it to you. To say that the market or a stock is going up because there are 'more buyers than sellers,' therefore, is not just meaningless, it's wrong. What is actually happening when a stock or market ticks up is that the next buyer is willing to pay more for the stock or market than the last buyer was. What is actually happening when the market or a stock goes down, meanwhile, is that the next buyer is not willing to pay as much for the market or stock as the last buyer was. There are never 'more buyers than sellers' or 'more sellers than buyers.' There are always the same number of buyers and sellers. There are simply different price levels at which a buyer and a seller are willing to trade.
General: A classic way to suggest that the market will eventually go up.
Alternates: 'Dry powder.'
When to use it: Any time you need to justify a bullish outlook.
Why it's smart-sounding: It sounds like common sense: Wimpy investors are hoarding cash instead of 'putting it into the market.' When these investors finally grow a pair and put their cash 'into' the market, the market will go up.
Why it's meaningless: There is no such thing as cash 'going into the market' or 'coming out of the market.' In every trade--every one--a seller sells stock to a buyer in exchange for cash. Importantly, with the exception of initial public offerings and other sales of primary stock, the cash used to buy the stock does not go 'into the market.' It goes to the seller. After the trade, the seller now has cash instead of the stock, and the buyer now has the stock instead of cash--and the overall amount of neither cash nor stock has changed. At some times, some investors--mutual funds, for example--might have more cash than usual in their funds (for a variety of reasons), and this cash might eventually be used to buy stocks, but this cash will not go 'into the market.' It will go to the investors who own the stocks that the mutual funds buy. In short, again, cash does not go 'into' and 'out of' the market. Someone always holds the cash, and someone always holds the stocks. So, in a literal sense, the cash is always 'on the sidelines.'
General: A classic way to describe a stock or market that has fallen a lot and might do anything from here.
Alternates: 'Forming a base.' 'Bumping along the bottom.'
When to use it: Any time you don't know what a stock will do but want to imply that it might eventually go up but hedge yourself by saying that it also might go down.
Why it's smart-sounding: It sounds highly informed. The stock is 'in a bottoming process.' It's 'forming a base.' It sounds reassuring, without being too precise. Sure, the stock might drop some more, you seem to be saying, but it's generally settling in here--and then it will eventually go up. It sounds like you have command of 'technical analysis,' which almost always sounds smart (and is almost always meaningless).
Why it's meaningless: Because it describes a price pattern that has happened but does not tell you anything about what will happen. A drop followed by a sideways move does not mean the stock won't drop more. It also does not mean the stock will go up. And it commits to no time frame. It can be used to describe any stock that has moved sideways for a while, without offering the slightest insight into the future.
General: Another classic way to describe a stock or market that has gone up a lot.
When to use it: Any time you don't know what a stock or market will do but want to sound generally bullish while also implying that the stock might be 'due for a correction' (also meaningless).
Why it's smart-sounding: It sounds highly informed. It sounds like common sense: The stock just went up a lot--so it must be 'overbought.' It hedges all future outcomes. (Just because it's 'overbought' doesn't mean it will go down. What if it gets more 'overbought'?) It sounds like you have command of 'technical' and 'quantitative' analysis, which always sounds smart--even though they're almost always meaningless.
Why it's meaningless: What does 'overbought' mean, exactly? Does it mean that traders bought too much of the stock? How can they have done that--the amount of stock in the market didn't change. Does it mean that traders paid too-high prices for the stock? OK, maybe it means that. But does that mean the stock is going to go down soon? Why? In short, it's a fancy and sophisticated-sounding way of saying nothing.
When to use it: Any time you don't actually have the balls to say 'buy' but want to be able to say later that you told everyone to buy if the stock should happen to go up.
Why it's smart-sounding: It sounds highly informed. It sounds prudent (don't be stupid and chase the stock here). It sounds like common sense. It allows you to take credit for predicting any bullish move in the stock, while also being able to say 'I said buy on weakness' if it crashes. It hedges all future outcomes.
Why it's meaningless: It's too vague to be interesting or helpful. It can be applied to almost any stock or market at almost any time. It reveals that the speaker has little or no conviction about what he or she is saying and just wants to have it both ways.
Corollary: 'Sell on strength.'
General: A perennial favourite.
When to use it: Any time you don't know (which is to say, always).
Why it's smart-sounding: It sounds prudent and cautious. It sounds appropriately sceptical. It plays to the viewer's sense that, somehow, things are more uncertain now than they usually are. (Absurd--the future is always uncertain.) It sounds like there's a specific event or events that you're waiting for that will suddenly turn you into the Donald Trump of Conviction, instead of suggesting that you're just perpetually wishy-washy. But it doesn't actually specify what this event or events are.
Why it's meaningless: It means nothing. How long are you going to wait? What are you waiting for? Why, when what you're waiting for finally arrives, won't everyone else see it at the same time and bid prices up or down? Why will the future be any less uncertain tomorrow, or next week, or next year, or whenever it is you're planning to 'wait-and-see' until? What are you waiting for?
General: A classic way to describe a company that has blown it.
When to use it: Any time you don't know what a banged-up stock will do next--especially if you're worried that viewers might think you were dumb enough to have owned it when it cratered.
Why it's smart-sounding: It sounds tough, decisive, and judgmental. You're not going to take management's word for anything--not like those other idiots who just got blown up in the stock. You want to see the results. You want to make management show you that they can deliver, before you entrust them with your clients' hard-earned money.
Why it's meaningless: All stocks are 'show me' stocks. If management 'shows you' that they have delivered results that beat the market's expectations, the stock usually goes up. If management 'shows you' that they have blown the quarter, the stock tanks. Even when applied to the limited realm of companies that have just choked, if management 'shows you' that they can deliver, they will show everyone else, too. The stock will go up before you can buy it. And then, once the stock goes up, management will have to 'show you' that they can continue to do better. And so on. By the time you and everyone else finally trust management enough again to buy into their vision of the future, the stock will have soared--and it will then be time for management to show you that they have blown it again.
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