A couple weeks back I introduced a partial list of market talk phrases to avoid when focusing on markets. Today we have more to consider. Always remember the reward is from your own effort and ability to make tough decisions in challenging times. Rely on your own instincts and use sound judgment.
‘There is little risk in markets’ – Just when it seems markets are going to lose gravity and go higher than anyone expects, reality bites. Markets have risk and if we are willing to take it then we have a chance to be paid. As market players we measure risk in terms of volatility, and when it is rising the big money is often leaving the party (for a time). Market risk is defined with a beta of 1, it is not zero. Hence, be aware that markets go up AND down.
Following media gurus – When there is little to explain market movements we often seek the advice or counsel of the pros. But often we find they know little more than we know, but are mostly talking their own book. Stay away from the commentary because while sometimes they will be right, it is more like a broken clock – which is right only twice a day.
‘The end of the world is coming’ – This one is often heard when the pain of a big market drop is at it’s peak. As investors we are all filled with hope, since none of us can predict the future with any consistency or accuracy. According to history, markets correct all the time, but the biggest and fastest drops make our stomachs turn. The media portrays market drops and corrections as frightening events where we all need to take cover. CNBC will use these moments to broadcast a ‘markets in crisis’ show or segment, making us all painfully aware that we are losing money (if long the market) and we better be careful because the markets may continue to collapse into oblivion. The end of the world comes around only once, and it has yet to occur (and none of us will get out alive!).
‘Follow the business media channels’ – Reading and learning from all possible sources is the best way for us to be informed. Yet, the business channels – while sometimes useful – are about trying to keep you tuned into programming at all times. Pertinent, relevant and timely are all we really need from a business media outlet, but that is often mixed with entertainment and sensationalism. I often keep the channels on but often with the mute button unless something very important is divulged. Don’t rely on the media as your only source, you’ll be late and often taken for a ride.
FOMO – One of our chat room addicts Jan Long reminds us that for us to make money we have to be in the game. FOMO, or ‘fear of missing out’ is one of those adages that serves as a painful reminder that the markets can and will move without our presence. Therefore, have a plan but do not regret if the plan includes being on the sidelines.
‘Fed to the rescue – PPT’ My good friend Maria says there is no such thing as a ‘fed rescue’, but we always hear it being phrased as the PPT (plunge protection team). While I’m certain the Federal Reserve and government are not in the business to destroy markets, it is inconceivable that these entities would step in at every moment markets swoon, providing a floor or a put option for investors. Markets move up and down, but if the Fed is given credit for something they do not take part in – well, so be it.
‘The New Normal’ This is a term brought out by PIMCO’s Mohammad el-Erian after the financial crisis. His thought were the days of easy money were coming soon (still here) and we had better get used to it. Burt Sugiki reminds us that markets never really change, but the players and conditions certainly do. The key to winning in any environment is to adapt to the change and modify our behavior.
Risk on/Risk off – This is a good one, my good friend John tells us to be more observant of overbought/oversold conditions that cause money flow to go in/out of the markets. Risk on simply means money for a time is going into riskier assets like stock, while a risk off mode favors more defensive issues like bonds and the dollar. Regardless, using these terms are not going to help you get a jump on the trade – they are only labels to conditions after the fact.