- Martin Fridson, CFA
Avoid "Cliches" Like the Plague!
Bloomberg Opinion contributor Barry Ritholtz recently tweeted about his dislike of financial clichés that reflect badly on the speaker and disrespect the listener. His Twitter followers responded with more than 500 examples of “hackneyed phrases” that can lead investors into error. Here are a few examples, along with the objections to them:
“This is the next Amazon.”
Stock promoters entice unwary investors with the prospect of huge gains in shares of XYZ, even though the odds are much greater that the company will go broke.
“The stock market hates uncertainty.”
Buyers and sellers always operate with uncertainty. If the outlook were certain, why would anyone be buying or selling? Furthermore, when market sentiment approaches certainty, it usually turns out to be wrong. Ritzholtz cites the examples of late 1999, when “everyone was sure markets had no limits,” and March 2009, when “everyone believed markets were going to zero.”
“How much is that in yen?”
Commodity traders fall back on this trope to justify unsuccessful trades. If they buy gold at $1,600 and it falls to $1,200, they translate the results into a different currency to make the trade look like a winner.
Exposing sloppy thinking on Wall Street may bring a smile to readers’ lips. But substituting platitudes for disciplined economic and financial analysis is no laughing matter.
Success in the securities market depends on having a sound rationale for every investment decision!