A few Wall Street Terms and Definitions

Oct 18, 2023 - 11:39

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A few Wall Street terms and definitions

For the uninitiated, "Wall Street speak" might sound like total hogwash. The financial market can be better understood through these phrases. But he stresses that investors shouldn't swallow these terms and definitions whole; instead, breaking them down and digging into their meanings will pave the way to making well-informed decisions.

Ever heard phrases like "buy the rumor, sell the news," or "never try to catch a falling knife"? Sounds confusing, right? Don't worry, here's your decoder:

1. Buy the Rumour, Sell the News: This is Wall Street lingo for anticipating stock prices before major public announcements such as mergers or big company revelations. But once the cat's out of the bag, the stocks might swing in different directions. This game of cat and mouse can be quite risky, especially for those who're in it for the long haul.

2. The market can stay nonsensical longer than you can remain liquid. Simply put, this means markets sometimes behave irrationally, typically seen during periods echoing past bubbles like the dot-com fiasco or real estate crunch. Asset prices might balloon beyond their fundamental principles, only to burst eventually. This uncanny phase is often tagged as "irrational exuberance".

3. Never try to catch a falling knife. It sounds pretty straightforward, doesn't it? When stocks are plummeting, don't play hero and jump in. Avoid getting sliced and diced trying to pick 'em up mid-drop. It's best to wait until everything settles before you consider buying.

4. Keep clear of bear markets: No one wants to stumble upon a bear trap! Stay tuned to spot and sidestep these plummets.

To sum things up, comprehension of these Wall Street terms is one of the keys to your financial decision-making toolkit.

Up markets, or bull markets, are often dubbed the "Wall of Worry." It signifies that even with gloomy economic scenarios or a lack of good news, stock prices are climbing. This condition might be a rare glow amidst the storm, indicating confidence or long-term strength. Although investors must stay on high alert for signs of trouble, like a rise in the fear gauge (Cboe Volatility Index), Other indicators, like government bond prices or price-to-earnings ratios, might also give some insights on the ongoing market sentiment.

Ever heard "Sell in May and bug off" and raised your brows? The skepticism isn't ungrounded! Going by recent years, it seems the summer has been quite generous to the market; take 2020, for instance, when the SPX hopped a whopping 15% from May to August. It's always a no-brainer to keep a round-the-year vigilance over the markets and your portfolio.

"More buyers than sellers" sounds pretty self-explanatory but can sometimes cause a misunderstanding. It could indicate a surge in interest or demand for certain stocks with piles of buy orders. This might pump up prices as people are ready to shell out more for those assets. On the flip, "more sellers than buyers" could mean sinking prices due to unwanted shares flooding the market, possibly after an unsatisfactory earnings reveal!

Bull markets and lasting uptrends typically take years to evolve, reflecting the economic and business cycles' snail pace. However, downturns in the market often happen quickly, taking only weeks or even mere minutes, marking steep descents. Perhaps a parting note would be that traders and investors have their own theories, but ultimately, it's the market that gets the last word.

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