Working On The Street: Wall Street Jargon Explained

I worked on the street. It’s true!

For years, I told my college students and colleagues what I had done for a living before I taught business courses. They would exclaim, “Wow! I never knew anyone who did that!” or “What was that like?” “That’s tough, man!”

A True Story

The first time it happened, I was surprised. I realized, with a delay, the students were replying to another universe until Ron approached me. Ron was a disheveled-looking student I had noticed sitting in the back. Walking toward me, he said, “Professor, that took a lot of guts to share your background with us. I, too, live in the park most nights.” 

Suddenly I was aware I was taking it for granted that they understood “the street” as a common phrase for Wall Street. No, I was not “a lady of the night” but had been an equity analyst on Wall Street. This student had awakened me not only to a misinterpretation I was conveying but his plight living on the streets. With the school’s help, I was able to get him some support, but that story is for another day.

Language can be confusing. Those who have worked on idiosyncratic Wall Street recognize a different language and culture that permeates the business. Each area–research, sales, trading, investment banking, and money management— has its jargon that can be interchangeable. For those who want to work on Wall Street or simply want to know the basics of investing, this post is for you. Invest as early as possible. Use small increments of money at first just to get started..

Wall Street Jargon That Can Be Confounding:

Sellside/ Buyside

When I began my first Wall Street job, I had a lot to learn. As a newbie sell-side junior analyst, I was unfamiliar with a lot of jargon and felt stumped in others’ conversations. I had one particular experience that gave me a lot of personal grief and embarrassment.

It was a conversation with one of my peers, Amy, when she introduced herself. Amy asked me where I had previously worked and shared that she had come from the buy-side. I had come internally to join equity research from the “back office,” that is, the non-revenue producing part of the term.

When Amy said she came from the buyside, I had no idea what she was talking about nor what side I was on. I felt like I was in a war zone for a moment. In my early 20s, I used to turn bright red and never be able to hide it. Immediately, I marched into my boss with my beet-red light bulb face to ask him to explain. He patiently drew a lot of pencil diagrams. We were on the sell-side working for a brokerage/investment banking firm.

As a sell-side analyst, I covered the telecommunications services industry. I evaluated relevant stocks within that sector, published research reports, and made Buy/Sell/Hold recommendations.

The telecom industry was undergoing dramatic deregulation changes, facing new competition, entering the cable, internet, and video markets. I was marketing my research ideas to the buy-side analysts (did their own research) and portfolio managers, that is, institutional investors who were buying equities in my sector.

Long/Short Or Go Long/Go Short

Long/Short refers to what kind of security positions you have in shares. Investors who have “long” Apple shares expect that the stock will rise in value in the future. Short-selling or shorting is a more complex term. A short position is the opposite of a long position. It refers to the borrowing of shares by an investor and immediately sells them, hoping he or she can purchase them later at a lower price for a profit.

Short Interest

Short Interest is a gauge reflecting the number of shares sold short but not yet covered. Investors track them as a percentage or a number. An extremely high short interest for a certain stock may indicate negative market sentiment or high pessimism for that stock.

Short Squeeze

A short squeeze may occur when there is a rapid rise in stock. That happens due to a lack of supply accompanied by an excess demand for that stock. Stock prices rise when unexpected good news or better than expected earnings.

Overly negative sentiment about the company spurs short interest in the company’s shares. Short sellers get caught racing to cover their short position in the stock. Short covering happens to controversial or cult-like stocks like Tesla rise very quickly. Some investors didn’t believe Elon Musk or analysts’ bullish stance and shorted the stock. Then they got squeezed when the Tesla shares rose due to higher revenues than expected. 

GameStop Example

GameStop, a company with uninspiring fundamentals, is a recent example of short squeezes. Influenced by  r/WallStreetBets, there was excessive buying of this stock for no apparent reason other than seeming to want to impact short-sellers. Short squeezes resulted to cover high level of short-selling by hedge funds, among others.

As a result, GameStop (and other stocks) soared in this frenzy, before coming back down to more appropriate prices. Many young investors were caught, owning GameStop shares at these irrational levels, and potentially losing money.

Bull Market And Bear Market

We had a long bull market, or a rising market without a bear market threat until March 2020. The pandemic effects on our economy and the market came swiftly. The bear market arrived, but for only a few weeks.  For it to be a bull or bear market, the rise or fall has to be 20% or more. The term “bear market” came from the early 18th century.  Daniel Defoe said: “Thus every dissembler, every false friend, every secret cheat, every bear-skin jobber, has a cloven foot.” The bear market was first popularized when there was a huge market crash known as The South Sea Bubble of 1720.

There is more to the history of the origination of bulls and bears here. Envision these animals’ movement: bears swipe their paws downward while bull horns rise.

And The Pigs

“Bulls make money, bears make money, pigs get slaughtered,” a saying often recited by investors, portfolio managers, and traders alike. This old Wall Street saying warns investors against excessive greed. If you have a nice profit in your investment, it is a good idea to sell all or a portion to “ring the register.” No stock or investment continues to rise without abatement. A good strategy is to sell part of your position after your security has generated a 20%-25% return.

Taking Profits Off The Table/ Frothy Market

These terms are not synonymous but gradations. Taking money off the table or profit-taking are terms that indicated you sold your shares. Trimming some stocks is a smart move when you have made 20%-25% profits. You do not want to be too greedy. On the other hand, a frothy market is akin to a bubbly glass of beer leaking on the top. These are times when the market has been rising unsustainably.

Irrational Exuberance

As Federal Reserve Chairman, Alan Greenspan, in a late 1996 speech, referred to the risk of irrational exuberance associated with “unduly escalated asset values.”  Asset price inflation occurs when the S& P 500 index carries a price-to-earnings ratio well above its historical range.

Market Correction

A correction usually refers to a 10%  or higher decline of any security or the market. It may occur when the stocks have been rising without many drops and need some kind of pause. Corrections may happen over weeks or months. This produces buying opportunities in the long run. Historically, there have been more corrections than bear markets. Since November 1974 there have been 22 market corrections but only four bear markets according to Schwab Center For Financial Research.

Headline Risk

Sometimes markets seem impervious to bad news and continue to climb. Those are great days but seem too rare. More often, one or more negative financial news stories can provide an overhang to the financial markets, a certain sector (e.g., energy), or particular stock (e.g., Tesla).

Headline risk is news that may affect the price of stocks. Examples of this in past markets are US-China trade talks, Mideast conflict potential, Fed action, coronavirus. or Boeing 737 Max safety issues.

Black Swans

A black swan event comes as a surprise (can be negative or positive) that has a major effect impact on potentially ground shifting magnitude. The term is an ancient saying that relied on black swans not existing in contrast to white swans. However, Dutch explorers were reportedly the first to see black swans in Western Australia in the late 1600s.

Nassim Nicholas Taleb wrote of its theory in his book, “The Black Swan: The Impact of the Highly Improbable.” He argued black swan events have three characteristics:

  • Unpredictable;
  • Massive impact; and,
  • After the fact, an explanation is concocted that makes the event appear less random.

Some examples of black swan events are the rise of the personal computer, the Internet, September 11, 2001, World War I, and the financial crisis.

Bubbles

The most famous bubble is the Dutch tulip mania of the 1630s. It’s considered to be the first speculative one. It occurred during the Dutch Golden age when tulip bulbs were fashionable and had grown to extraordinary levels until their collapse.

A more recent well-known bubble was the US dot-com era in the 1990s until March 2000. Any company that had a “com” at the end of its name benefited from being associated with the hot Internet market. The company LDDS changed its name to Worldcom in the hopes that they would receive a higher valuation like the dotcom companies. The housing bubble is a more recent and familiar phenomenon. The higher pricing of housing financed by subprime mortgages caused the Great Recession.

When stocks rise without taking a pause, market participants fear their prices exceed reasonable valuations causing bubbles. Investors have growing concerns about cryptocurrency and SPACs  (special purpose acquisition companies) becoming bubbles. 

History Rhymes

There is an old saying that, “History doesn’t repeat itself, but it rhymes.” It is often credited to Mark Twain though there is no real proof that he said it. The saying (sometimes  “history rhymes”) comes up as people like to spot new bubbles or new patterns to point out that we have not learned our financial history lesson. Lately, I have been hearing there may be too much corporate debt taken on because of lower interest rates and that this be a bubble about to burst.

Following The Herd

A herd mentality is when investors follow what they believe other investors are buying without using their analysis. There is a danger in doing that as they may be purchased at higher prices at the end of that bullish cycle. This can be seen in stocks rise 20% on average after their initial public offering (IPO). Investors who didn’t participate in the IPO jump in to buy stocks after a big rise. In contrast to the herd instinct, investors often look for stocks with strong volumes as an indicator of increased institutional interest. I have used this strategy to a great degree to spot increased bullishness.

A Dog With Fleas

This saying points to some kind of defect in a company, for example, a business that has little to no growth or potential for any improvement. Most of the time, you can take a dog with fleas to a vet for treatment. Every investor wants to find a stock that has declined or has been “beaten to a pulp” undeservedly because its businesses are performing well. Sometimes it may mean that the shares are trading at a low valuation compared to their peer companies. Therefore, the shares could be “cheap,” “attractive,” or “value” or it may be like a dog with fleas.

An Improved Apple

One example of a dog with fleas was Apple a few years ago. Its growth had appeared to slow. Apple shares were trading at a low valuation despite having reliable businesses. However, no significant new products were being rolled out. Investors were lukewarm to Apple’s uninspiring new releases of its iPhones, iPads, and iMacs. Had it become a dog with fleas? 

The Apple Watch then gained popularity while the company transitioned to a service company from its lower-margin equipment roots and began its streaming business.  As a result, Apple shares have been performing well for a while.

Clearly, Apple is not a dog with fleas now.  On the other hand, dogs with fleas often refer to a company whose weak businesses may not be that apparent. The Boston Consulting Group (BCG) matrix recommends selling dogs as businesses with little potential for growth. Unfortunately for dogs, a lot of terms use them with negative sentiment.

Dogs Of The Dow

The Dow refers to  30 stocks of well-known large publicly companies, also known as “blue-chips”,  that compose the Dow Jones Industrial Average (DJIA).  An investment strategy popularized by Michael O’Higgins in 1991 was to buy the Dogs of the Dow, the 10 stocks which were part of the DJIA and had the highest dividend yields. The premise was investors could buy these high yielding but relatively safe stocks that had sold off. Many believe these stocks would rebound faster than the overall Dow.

Dividend Aristocrats

Another investor strategy is to buy stocks that are “Dividend Aristocrats.” A dividend aristocrat is a company that pays dividends consistently and raises its dividend relative to the size of its payouts to shareholders for at least 25 years consecutively.

Flight To Quality Or Safety

At times there may be several factors that converge on the markets, which add substantial risk. Stocks may decline if there are rising interest rates, a slowing economy, and reduced earnings estimates for the upcoming quarters. Investors may rotate out of specific sectors like tech growth stocks and flock to safer stocks with above-average yields. They may even rotate out of the equity markets and put money into Treasury securities. As the housing sector weakened leading up to the Great Recession, buyers sought refuge in these safer securities.

Widows and Orphans Stock

During times when there is an economic downturn, investors turn to safe harbors or “a flight to safety.” When a broker refers to buying “widows and orphans” stock for your portfolio it is usually for your protection against market volatility. Along with elderly people, widows and orphans refer to those most vulnerable in our society. These “vulnerables” require the preservation of capital associated with stocks like utilities with lower risk and lower return profiles.

Rising Tide Lifts All Boats

This term typically means that an improving economy will generally help most industries. Investors seeking shares in a specific industry, say energy or apparel, may see all such companies in the sector benefit from their industry’s fundamental strength. Often, some investors seek the best stock in the group, which may carry a premium valuation. On the other hand, value investors may look for those stocks in that particular industry trading at a discount hoping the valuation gap will narrow, thereby making a profit.

Bottom Fishing/Taken To The Woodshed

Going bottom fishing is often done by investors looking for bargains in stocks. Bad or unexpected news cause declines in share prices. It could be that the company reported earnings below expectations or apparent weakness in its business. The market–analysts, traders, investors–may have taken the company to the woodshed. That stock is now reflecting a cheap valuation because of its disappointment in the market. When valuation reaches a depressed level, and its risk is now fairly reflected in its price, investors go bottom fishing for potential good value.

Priced For Perfection

When shares are at high valuations relative to their historic levels, some say they are “priced for perfection.”  It may be challenging to hold these stocks because investors may treat the shares harshly if there is any earnings disappointment.  Any disappointment in its earning report–revenues, margins, subscribers, earnings, or forecast–will be why the shares sell-off.

Catch A Falling Knife

The image of this term used to make me wince a bit. When you own a stock that seems to be falling day after the trading day, there is a tendency to think that those shares must be reaching the bottom. If so, it could help you to reduce your cost of those shares by dollar-averaging. However, catching a falling knife refers to a stock that has its own downward trajectory, and investors should exercise some patience.

In 2017-2018, GE shares, historically considered a blue-chip stock part of the Dow Jones index, became such a stock. It was an absolute wreck, and its shares were in a downward spiral. Many analysts who covered this stock essentially said, “Don’t touch,” which caused GE to fall further. Sometimes, these falling knives may become bargains or even beautiful swans but it often takes major management changes and aggressive restructuring, which appears to be happening for GE.

Dead Cat Bounce

We have to give cats their due after using dogs, swans, pigs, and fish. After a long downward decline in the market or certain shares, a dead cat bounce occurs when there is temporary upward movement until the decline resumes.

Pound The Table/Back Up The Truck

Analysts on the sell-side must back up their recommendations or any changes they make to their earnings model, price targets, and earnings results. If a company reported better than expected numbers, the analyst would speak to their salesforce at the morning meeting, aggressively recommending a “Buy” on the stock. This event is “pounding the table” or telling others “to back up the truck” to load stock. Having a lot of confidence in a stock or sector often is mixed with the fear of being wrong as analysts undeniably are.

Among the more intimidating experiences analysts face is when you have to address this same audience with disappointing news in one of your stocks. That often feels like going in front of a firing squad. If you were downgrading your stock to “Sell,” this was an awkward conversation if they had recently bought the shares from your firm. The salespeople had the difficult task of explaining to their clients why their analyst’s perspective had changed.
 

 Final Thoughts

Every industry has its bewildering lingo. When investing on your own and doing your own analysis, running into Wall Street jargon can be a distraction. This list of terms or sayings is only a small portion of words that belong in a larger glossary. I will add investment banking and equity analyst terms to make investing more manageable for you. I believe that everyone should be learning how to invest. Make use of a longer horizon, so you benefit from compounding returns for your retirement and investment accounts. For now, I hope this helps.

We have several related posts on Investing:

Guide For Investing Beginners

Diversifying Your Portfolio

How Stock Markets Games Can Teach Investing

 

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