4 Things I Hate on Wall Street

There are many things I hate on Wall Street. Here is a list of four of them.

Fed Watching - I spend a considerably amount of time hating talking heads on CNBC and Bloomberg espousing on the intentions of the Federal Reserve and its esteemed Chairman. Will they ease? Will they cut? Are they pausing?

The truth is, who cares what the Fed does? If you can find a stock worth $10 a share selling for $8 a share, then the Fed chairman could stick his head up his ass and it won't matter one bit. If you are a day trader, then I suppose you should care, but since I am not, I don't. A case can also be made that the financial media perpetuates and reinforces deviant behavior in investing by devoting too much air time to these events.

Smart Money - There is an enduring myth on Wall Street about "smart money." The term is a little condescending as it implies that everyone else is not "smart money" but therefore is "dumb money." The myth is that somehow, once an investor gets enough publicity and name recognition, and then has a decent track record, then somehow that investor has some sort of mystical power to select stocks that will outperform. Just think of a herd of investors, and the "smart money" is a cow in that herd that stands out from the rest and once he or she moos, everyone follows them.

So I don't actually hate investors that are "smart money," since most of them I have never met, and probably never will. What I hate is the concept, and the concomitant and Pavlovian response of other investors who blindly follow these people around without doing their own research or work.

Catalyst Investors - I hear many investors talk on TV about a stock and how much they like it, etc. But then they say something like this - "I really like the stock, but I just don't see a catalyst for the stock going forward." What does this really mean?

A catalyst is defined in science as "a substance that speeds up a chemical reaction without itself undergoing any permanent chemical change." For our purposes it is a "thing that causes an important change to take place." Well don't you get it, you jackass, if you were a Value Investor, you wouldn't need a catalyst. Your "catalyst" in fact, is the rest of the market finally realizing that the stock is undervalued relative to its assets or earnings power.

The Market - There are many investors who use the market as a crutch or to defend their beliefs and/or stock picks. They will say "Well, that's what the market thinks, or that's what the market is saying." The problem with this, of course, is that the market is dominated by short term irrational investors who herd en masse into stocks and chase performance. This also creates and perpetuates investment bubbles. The fact that the market supports what you happen to be saying at that moment is not an investment thesis.

Comments

[DownOnMyLuck]

Here is another one: "It's priced into the stock."

[notsosmart]

the rising tide lifts all boats.a dead cat bounce. a falling knife.lol.its all turned into a game so all this doesnt matter.there is very little the average investor can do.sad

[300mph]

How about the mother of all meaningless statements: "Only time will tell."

[wpdragon]

how about "value investor"... 99% of them started out as "growth investors" before their stock(s) took a 40% haircut

[User 218405]

Great article Eric Fox. I agree everybody follows what the crowd is doing and when the stock turns around they lose their profits. Like you say "Do your own research and if you buy quality companies you'll be o.k. in the long run. Always buy when theirs blood in the street and sell when everyone in buying. (sort of like in real estate)

[opt]

The price of the stock DEPENDS on what the MASSES you ridicule think its WORTH!
You think its good to invest in an $8 stock because YOU think its worth $10... that same stock.. their is another smart guy just like you that thinks the stock is worth $6 and shorted it at $8 ...
Your so-called hoping the stock will catch up to what YOU believe the stock is worth is just the EXACT same as the others that are buying or shorting the same stock.
Long-term investing or day trading... the concept is quite simple... buy thinking some other sucker will buy it from you at a higher price.... or short and hope some sucker will sell it to you at a lower price.

The "CROWD" is the MARKET...

[Ivan the Terrible]

Eric: I hate those four things about Wall Street, too. But the "Smart Money" phenom is the worst. When I was a full-time journalist, I would joke with mutual fund managers about this, and say, "Well, if they start writing about your fund in the Podunk News, that's when you should worry," because the mainstream press esp. is a laggard when it comes to investment trends -- a day late and a dollar short. -- ITT