“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” – Warren Buffett
Everyone knows that jargon on Wall Street is a major issue. It’s typically designed to elevate the speakers’ self-image, rather than tear down barriers towards knowledge and education. This is one of the reasons why complexity and black-box strategies are still so commonplace.
Yet, even when you break through the bull and or have been around long enough to see through the big words, there are still some phrases that leave you shaking your head. Even veteran investors and professional market participants have to groan when they hear some of these useless predictions.
“We are in the _____ inning of this cycle.”
I get the metaphor of comparing a trend in the stock market to a baseball game. If the speaker proposes we are in the first or second inning, it is just beginning. If we are in the seventh or eighth inning, then it is time to watch out for a turn.
The problem is that the forecaster really doesn’t have any greater insight than anyone else into where the trend starts and where it will end. They are simply guessing. It’s a forecast based on their gut feeling, probabilities, or past experience. Ultimately though, hearing this phrase should have no real bearing on how you govern your portfolio.
What if the game goes into extra innings? What if it gets rained out early?
The analogy breaks down under even the simplest of counter arguments. Do yourself a favor and tune this one out when you hear it.
“There is a _____ percent chance that _____ happens.”
You hear this one a lot on TV and in the financial media. It usually goes something like “Mohamed El Erian thinks there is a 65% chance the Fed raises rates in September.”
Oh my gosh, there is a 65% chance the Fed raises rates? 85% chance? 51.9999% chance?!?!
What exactly are you supposed to do with that information? How did that person even calculate that number or how the market will react to it?
I’m not trying to pick on Mr. El Erian by any means. You can substitute his name for virtually anyone who has made a similar forecast. The same principles apply for predicting the performance of the stock market in any given year or what the probabilities are for a bear market, recession, etc…
Probabilities of a specific event don’t give you any investment edge whatsoever. End of story.
“Owning _____ is the equivalent of picking up pennies in front of a steamroller.”
The obvious connotation in this phrase is that you are taking an extreme amount of risk for a very minimal reward. I’ve heard this one used frequently when referencing bonds, but it also applies to stocks, commodities, volatility, forex, futures, etc…
It’s become the hip way of saying that the end is near. Why don’t you just say that instead?
Furthermore, how many investors have been destroyed by calling absolute tops in a specific asset class? There is no accurate way to predict the exact top or exact bottom. Remember that next time someone uses this expression.
Here are a few more pet-peeves that deserve an honorary mention…
“Things can go one of two ways here.”
You mean up or down? Thanks for that fierce insight.
“This is a low risk play here.”
It’s only low risk for the guy who doesn’t have real money involved.
[any phrase invoking war, battle, or military action]
You’re sitting behind a computer, not in some far-off land where your life is at risk. Let’s not let the hyperbole get out of control here.
I know there are a lot more phrases that I missed. Feel free to drop me a line if you come up with some good ones…
Looking for new ETF ideas? Check out our library of free special reports on growth and income investing.
The post The Worst Phrases That Stock Market Forecasters Love To Assert appeared first on FMD Capital Management.