Understanding Wall Street Lingo
November 5, 2010
SAN DIEGO (ETFguide.com) – In an effort to help the investing public better understand the investment process, Wall Street has invented a myriad of sayings that few individuals outside of its well protected boundaries understand.
To that end, I thought it would be helpful to mention some of these popular adages in an attempt to explain their true meaning.
“Gentlemen Prefer Bonds”
This particular saying was made popular by an American banker named Andrew W. Mellon who said it in the 1930s in protest of the rising tax burdens of the rich. And then in 1953, Hollywood got a hold of it and turned it into a movie called “Gentlemen Prefer Blondes.”
Today, this wise old proverb has been embraced by top corporate executives and Wall Street types everywhere as “Gentlemen Prefer Bail Bonds.”
“Don’t Fight the Fed”
First off, the Fed refers to the Federal Reserve which is actually a private bank and not a federal agency like most people think.
This fact was made very clear in the case of Lewis vs. United States, 680 F.2d 1239 (1982) which stated in part:
“Federal Reserve banks, though heavily regulated, are locally controlled by their member banks, banks are listed neither as “wholly owned” government corporations nor as “mixed ownership” corporations; Federal Reserve banks receive no appropriated funds from Congress.”
Anyway, the Fed controls monetary policy. And “Don’t fight the Fed” means they can manipulate interest rates, the monetary system and whatever else they want and anyone that gets in their way will probably wind up dead. Of course, if any of us tried this we’d go straight to jail.
“Never Meet a Margin Call”
Margin? People still do that?!
In any case, this saying basically means if you’ve purchased securities with borrowed money from your broker (margin) and the broker alerts you to send in more money because what you own isn’t worth as much as it used to be, don’t send them the money. It also means to sell your losing positions as quickly as possible to avoid further losses and to find a less expensive hobby.
“Sell Down to the Sleeping Point”
This popular saying suggests a strong connection between investing and sleeping. “Selling down to your sleeping point” basically means the holdings inside your investment portfolio should never interfere with your sleeping schedule. Insomniacs are you listening?
But what about investors that have already fallen asleep? How is it possible for them to “sell down to the sleeping point” if they’re already in a state of unconsciousness? I don’t know the answer to that question; ask the people who came up with this saying.
“The Trend is Your Friend”
The trend always indicates the direction in which the market or certain stocks are moving. It can be up, it can be down or it can be sideways. Put another way, this particular saying means you should position your money in the same direction of the market.
In many instances, the trend is your friend until it suddenly and unexpectedly annihilates you and everyone else around it. At that point it becomes your enemy.
“Trees Don’t Grow to the Sky”
This fine saying, like many others on Wall Street, completely contradicts other sage maxims. “The trend is not your friend” is another way to think of it. Or as they teach in flight training school: “What goes up must come down.”