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Browning on Market Clichés

The WSJ's E.S. Browning had a nice column taking apart some of the more common market clichés:

Words to the wise: Buy low, sell high, and don't follow the crowd.

The Street of Dreams (Wall Street) is paved with clichés. Analysts love to write that stocks offer "positive price potential" and are in "sustainable advances." Price targets get "revised upward." Stocks rarely seem to sport negative potential or falling targets.

And yet, some of the clichés can be helpful, if only as red flags. The above phrases scream that the advice being offered can be taken with a grain of salt. And some other old saws actually are rooted in market reality.

Here's Brownings favorites: 

Santa Claus Rally
Oddly enough, stocks often rise right after Christmas. In fact, the entire fourth quarter is, on average, the year's strongest.

Sell in May and Go Away
Sounds like nothing but a catchy phrase, but amazingly, it often is good advice. Over history, the market's biggest gains have come from October through April.

Summer Rally
This is talked about almost as much as the Santa Claus rally, but it is a dubious concept.

Beware the Dead-Cat Bounce
Some stocks -- and some entire markets -- are so troubled that they just aren't going to rebound for a while. In such cases, the temporary bounce is a fake, a rally that won't last.

Bulls and Bears Make Money. Pigs Get Slaughtered
Another saying that is cruel to animals, but at least it is self-explanatory. If you get greedy, pushing a bet too far or staying in a risky investment too long, you may suffer.

Don't Fight the Fed
An old rule on Wall Street is that two things drive stocks: Corporate profit and interest rates. When the Federal Reserve is raising interest rates, as it has been for almost 18 months now, it puts a burden on companies and consumers alike.

Don't Fight the Tape
To quote more clichés: Don't fight the trend. Timing is everything. Pick your spots. The trend is your friend.

Stocks Climb a Wall of Worry
Stocks tend to rise when investors are anxious. Stocks top out when people become too optimistic.

Buy to the sound of cannons; sell to the sound of trumpets.
Translation: Buy when people are too pessimistic, sell when they are too optimistic. I actually interpret this as buy the start of a War (i.e, March 2003, or 1991 Gulf I) and sell the end. . .

Don't Catch a Falling Knife

This is the opposite of the "wall of worry" maxim above. Sometimes, when things look bad, they are bad, and it is too soon to buy.

The opposite is: Don't stand in front of a freight train.

The Market is Driven by Fear and Greed
When the stock market is doing well, investors set aside fears and build higher and higher expectations for stocks. They become so greedy that they pay inflated prices, thinking stocks never will fall. Expectations become impossible to meet, and that's when a bear market sets in. As stocks crumble, greed is replaced by fear, driving stocks still lower. Eventually, fears become excessive and stocks have nowhere to go but up.

Buy the Rumor, Sell the News
Stocks often rise on chatter speculating about pending good news, such as a strong corporate profit announcement. When the news actually breaks, short-term traders sell to take gains. This cliché also works in reverse: If bad news is anticipated, you sell the rumor and buy the news.

Never Short a Dull Market
Don't mistake a lack of activity for Bearishness. If a dullmarket won't go down, there is a firm bid underneath -- and thats Bullish.

It's Not a Stock Market; It's a Market of Stocks
Money managers say such things when the overall market is going nowhere.

alternative: This is a stock picker's market

A Cliché a Day Keeps Wall Street Losses Away

E.S. Browning
THE WALL STREET JOURNAL, December 27, 2005; Page C1

Sunday, January 29, 2006 | Permalink


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