Things that finance people say which does not make a lot of sense

Dec 3, 2014 / Dwaipayan Bose | 66 Downloaded |  6758 Viewed | | | 3.0 |  10 votes | Rate this Article
Equity Investing article in Advisorkhoj - Things that finance people say which does not make a lot of sense
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About one year back, I read a funny article in article written by Morgan Housel in the popular US investment journal The Motley Fool. It was about excessive use of certain jargons by investment experts and financial journalists, but if you think rationally these phrases do not make any sense. For example Mr. Housel talks about a very commonly used phrase in the stock market. "We are cautiously optimistic". He questions what does this statement really mean and suggests that the investor does not know either. While Mr Housel’s article has a funny bone, it really begs the question, "is finance speak really useful for investors". After I read the article, I made it a point to make a note if investment experts here in India, whether on TV or print media indulge in the same kind of finance speak, which is confusing and in most cases, do not make any sense to the investors. I was not surprised to observe that the experts here use the same kind of lingo that Mr Housel referred to in his article. Here are a few examples.

  • A few months back, I read a report from a leading media house that said "TCS share price slumped after earnings missed analyst estimates". Did earnings miss estimates? Or did the analyst did not forecast accurately? EPS or earnings are reality and the analyst estimate is a forecast. The reality is not right or wrong. It is what it is. The forecast may be right or wrong.

  • Another leading website reported that, "Sun Pharma profits were in line with expectations, despite hopes of a beat". If somebody was expecting Sun Pharma to beat expectations, then what is the meaning of the word expectations? It is like, despite expecting India to score less than 250 in a one day match you were expecting India to score more than 250. It does not make any sense.

  • One phrase we commonly hear on business channels during market hours, "there are more sellers than buyers in the market". How can there be more sellers than buyers, or even the other way around. Every trade in the market has one buyer and one seller. The presenter may want to imply that there is selling pressure, but the phase "there are more sellers than buyers in the market" literally does not make any sense in the context of stock market.

  • You would have often heard analysts saying, "We are neutral on this stock". A few days back some brokerage houses said "they were neutral on SBI". Now how is this useful for investors? Should investors buy SBI, sell SBI, hold SBI? It is not very clear. As an investor would you not want your broker to give you an unambiguous recommendation? Often we use the "neutral on this stock" recommendation, to ignore the stock. If the brokers indeed want their clients to ignore the stock, why give not give a clear recommendation like "avoid this stock" or not give any recommendation at all.

  • Here is an example of a market news headline that is not at all useful for the average retail investor. On November 18, I read a headline in a leading business journal that, "Sensex falls most since October, down 161 points". How is the first part of the sentence relevant for the retail investor? October was just 6 weeks back, when the headline was published. What message does the new headline seek to convey? Should investors be worried? Should investors not be concerned? This is an example of using an irrelevant data point, just to make up a headline.

  • I am sure you would have heard that this "scrip is a strong buy". I read somewhere that "ICICI Bank buy is a strong buy". What is a strong buy? As Mr Housel would say, are you supposed to click your mouse harder when placing the buy order online? A buy is a buy. Strong buy is really aggressive selling by your broker.

  • You would have heard this many times on TV from well known investment experts, especially in the last few months. "It is the time to buy stocks". Who is the advice for? For a 28 year old single IT professional or 70 year old retiree with no Mediclaim. Chances are that both are watching the TV channel at the same time. Should not a disclosure of some sorts with regard to the suitability of the advice be added?

  • Finance experts are often seen quoting from Nassim Taleb’s popular book "The Black Swan". But referencing some scenarios as Black Swans is an over simplification. One expert predicated that oil will be at $60 a barrel in the not too distant future. He also said that would be a Black Swan event. Surely Nassim Taleb meant a Black Swan event to be something else. If a Black Swan event could be predicted, it would not really be a Black Swan event.

The Finance community should make an attempt to make things simple for investors. Use of such jargons is not at all helpful, because to the average investor it is either misleading or simply does not make any sense. If you have come across jargons and found it confusing, please share your thoughts with us by posting your comments below.

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