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. Reactions were always punctuated with an exclamation point as in “Wow! I never knew anyone who did that!” or “What was that like?” “That’s really tough, man!”

It never dawned on me that they were replying to another universe until I was approached by Ron. He was a grungy student I had noticed in back. He came up to me, and said,”Professor, that took a lot of guts to share your background with us. I too live in the park most nights.”  Ron made me realize only then that I was taking it for granted a common phrase was often misunderstood. 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 own plight living on the streets. 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—have their own lingo 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 JargonThat Can Be Confounding:

Sellside/ Buyside

As a newbie sellside junior analyst I was totally unfamiliar with a lot of jargon and felt stumped in conversation with others. A particular experience that gave me a lot of personal grief and embarassment. 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 buyside. I had come internally to join equity research from the “backoffice,” 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 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 changes of deregulation, 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 a 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 these levels which can be expressed 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 rapid rise in a stock. That happens due to a lack of supply accompanied by 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. This has happened to controversial or cultlike stocks like Tesla. 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.

Bull Market And Bear Market

We have been in a bull market or a rising market for so long that the threat of bear market has been increasingly bandied about. For it to be a bull or bear market, the rise or fall has to be 20% or more. The “bear” market term 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” 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. This is a smart move when you have made a 20%-25% profits. You do not want to be too greedy. On the other hand, a frothy market is a kin to a frothy 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 can be found when the S& P 500 index is carrying a price-to-earnings ratio well above its historical range.

Market Correction

A correction usually refers to a decline of at least 10% of any security or the market itself. It may occur when the market has been rising without many declines and needs some kind of pause to that trajectory. Corrections may happen over a period of 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 newstories can provide an overhang to the financial markets, a certain sector (eg. energy) or particular stock (eg Tesla). This is when there is headline risk. Examples of this in recent 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 of 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 personal computer, the Internet, September 11, 2001, Wolrd War I and financial crisis.

Bubbles

The most famous bubble is the Dutch tulip mania of the 1630s. Its 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 its 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 on 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.

History Rhymes

There is old saying that, “History doesn’t it repeat itself but it does rhyme.” 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 in order to point out that we have not learned our lesson from financial history. 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 doing any of their own analysis.There is a danger in doing that as they may at the end of that bullish cycle and be purchasing at higher prices. This can be seen in stocks rise 20% on average on the after post 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 a some kind of defect in a company, for example, a business that has little to no growth or potential for any improvement. A dog with fleas can go to a vet and be treated. 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 its 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 solid businesses. However, there were no major new products 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 AppleWatch 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 awhile.

Clearly, Apple is not a dog with fleas now.  On the other hand, dog with fleas often refers to a company whose weak businesses that may not be that apparent. The Boston Consulting Group (BCG) matrix recommends selling dogs as businesses with little potential for growth. Unfortunate 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 a number of factors that converge on the markets which add substantial risk. These issues could be rising interest rates, slowing economy and reduced earnings estimates for the upcoming quarters. Investors may rotate out of certain 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 downturns, 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 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 certain industry, say energy or apparel, may see all such companies in the sector benefit from the fundamental strength of their industry. Often, some investors seek the best stock in the group which  may carry a premium valuation to its peers. 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

Some shares that are priced for perfection are difficult to hold onto going into earnings results. Priced for perfection means that the shares are now trading at a premium valuation relative to its historical valuation. Any disappointment in its earning report–revenues, margins, subscribers, earnings or forecast–will be reason for  the shares to 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 trading day, there is a tendency to think that those shares must be reaching bottom. If so, it could help you to reduce your cost of those share 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 a fundamental 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 for GE appears to be happening positively.

Dead Cat Bounce

We have to give cats their due after using dogs, 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, telling them that the stock should be bought aggressively. This is called 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  disappointmenting 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 just bought the shares from your firm recently. The salespeople had the difficult task of explaining to their clients why their analyst’s perspective had changed.

 

Final Thoughts

Every industry has its own 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 are only a small portion of words that belong in a larger glossary. I will add investment banking and equity analyst terms to make investing easier for you. I believe wholeheartedly that everyone should be learning how to invest. The earlier the better to make use of a longer horizon and the power of compounding returns for your retirement and investment accounts. For now, I hope this helps.

We have a number of related posts on Investing:

Guide For Investing Beginners

Diversifying Your Portfolio

How Stock Markets Games Can Teach Investing

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