Given it’s a Wednesday, let’s take it down a notch and explore the lighter side of the finance world.
Many sayings are thrown around markets, some can make you seem smart, while others can make you seem like the taxi driver recommending you buy Afterpay in the early hours of the morning.
In today’s note, we will go over some of the more commonly used terms and phrases in the industry, ranging from a “dead cat bounce” to the old adage, “don’t catch a falling knife”.
“Don’t catch a falling knife”
This phrase is used to convey that investors should wait for a price to bottom out before purchasing. In doing so, investors can avoid experiencing the pain from a security trending downwards, but also have the potential to miss out on a quick rebound.
While the metaphor is immediately apparent, the investment philosophy is grounded in Newtonian physics, where financial assets have intertia and momentum, where falling prices often begets lower prices still.
“Stocks go up on the escalator and down by the elevator”
Markets tend to decline faster than they rise, hence going down by the elevator, and up by the escalator.
This is often coupled with “capitalist on the way up, socialist on the way down”.
“This time is different”
John Templeton described these as the “four most dangerous words in investing”.
The phrase has been used to justify why certain bull markets will last longer than their predecessors.
This phrase was widely spoken before most major economic downturns, including the 1930’s Great Depression, 1980’s Third World debt crisis, 1990’s Asian and Latin American meltdowns and the 2007 Global Financial Crisis.
As we have seen throughout history, the market will move in cycles, and make no excuses for why “this time is different”.
“The trend is your friend” …until the bend at the end
Markets tend to move in trends or regimes, and for the most part investors can benefit through investing with this in mind.
“Bulls make money, bears make money, pigs get slaughtered”
This Wall Street saying is a warning against excessive greed. Bulls and bears will always get their time; however, pigs (greed) have the potential to be wiped out from the market.
“If you pay peanuts, you get monkeys”
This phrase refers to the reality that employers who pay staff low wages are unlikely to employ talented staff, getting low-quality employees etc.
A stock price which is approaching $0 per share
Big, older companies, usually industrials
An asset backed security which uses revenue from current and future albums recorded by David Bowie as collateral. Yes, this really happened – in 1997, David Bowie packaged up the royalties of songs from 25 albums recorded between 1969 to 1990 to US insurance company, Prudential Financial for USD55m. The bond amortised throughout its lifetime, whilst paying a fixed rate of 7.9%, and served as one of the first instances of intellectual property (IP) acting as collateral.
Since then, bonds have been issued on classics such as Marvin Gaye’s “Ain’t No Mountain High Enough” and the works of James Brown.
An upgradeor downgrade by a stock analyst that is considered foolish.
Much like spotting a cockroach in your kitchen, it is the theory that bad news to the public usually means there is more bad news behind the scenes.
It is largely a psychological phenomenon, much like the fear a cockroach infestation may instil in you and can cause plummeting stock prices.
There is a derivative of this: “there’s never one cockroach”, referencing that cockroaches are rarely found in houses by themselves, the others may simply be unseen.
Dead cat bounce
A small, short-lived rise in the price of a falling security.
They are not uncommon, with many securities with long-term downtrends often experiencing temporary price increases.
The term is derived from the morbid idea that even dead cats bounce if they fall far or fast enough.
Eat your own dog food
If a firm expects paying customers to use their products, it should expect the same from its employees. Not using products internally may imply that the company has more confidence in the products of competitors.
Garbatrage (also referred to as rumortrage)
When stock prices and trading volumes increase across a whole industry, because of one high profile acquisition or merger, where the market expects more takeovers to occur. It is referred to as garbatrage, given the sentiment is usually false and “garbage”, and not based on fact.
An offer which can’t be refused – typically an offer at a valuation where the management of the target company is unable to discourage shareholders from accepting it.
Source: The Godfather (1972), Tenor
An over-allotment option for underwriters in an IPO, which allows them to sell an additional 15% more shares during the offering, should there be sufficient demand.
The term is derived from the first company to add the clause to an underwriting agreement: Green Shoe Manufacturing Company.
A company that appears prime for a takeover but is yet to be approached.
A holiday where stock markets are closed, also used to describe a slow day.
Fixed income issuances can also vary on the basis of the issuing country or currency.
Bonds issued by foreign companies in domestic markets (in the markets native currency) are referred to as Bulldog (United Kingdom), Kangaroo (Australia), Kiwi (New Zealand), Maple (Canada), Samurai (Japan) and Yankee (USA) bonds.
Knowledge of financial market jargon isn’t essential – however it can allow you to avoid confusion over whether your colleague bounces around dead cats, or if they are simply talking about the price action of a stock.
The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.