Monday, October 27, 2014

10 Things Wall Street Believes

Check out the full article by Jeff Cox, a finance editor at CNBC.

The gist of the story is that while we may have been told by various sources that the markets, particularly the financial markets, are efficient--yeah, not so much. We can go into a defense of the markets as the best thing we have, which is true, but that mechanism is often derailed by emotion.

When I was first involved in the financial business, I was told that there are only two emotions in the markets, fear and greed. Sometimes one wins, sometimes the other. The classic bull/bear. We read "analysts" telling us how the price of a stock is this or that based on, well, this or that. Others consult their Ouija board of charts and based upon those charts (and I suppose a few tea leaves), make predictions as to when and how much.

Below is the list of Ten Insane Things Wall Street Really Believes.
  1. Falling gas and home heating prices are a bad thing.
  2. Layoffs are great news, the more the better.
  3. Billionaires from Greenwich, Connecticut, can understand the customers of JC Penney, Olive Garden, Kmart and Sears.
  4. A company is plagued by the fact that it holds over $100 billion in cash.
  5. Some companies have to earn a specific profit—to the penny—every quarter but others shouldn't dare even think about profits.
  6. Wars, weather, fashion trends and elections can be reliably predicted.
  7. It's reasonable for the value of a business to fluctuate by 5 to 10 percent within every eight-hour period.
  8. It's possible to guess the amount of people who will get or lose a job each month in a nation of 300 million.
  9. The person who leads a company is worth 400 times more than the average person who works there.
  10. A company selling 10 million cars a year is worth $50 billion, but another company selling 40,000 cars a year is worth $30 billion because it's growing faster.
Yogi had it right. Predictions are hard, especially when you're talking about the future. Just discovered, via the Google machine, that this sentiment has been attributed as well to Niels Bohr talking about quantum mechanics. Too bad it appears to be apocryphal because it says a lot.
Snarky observation: surprised that Mr. Cox is an editor. From the looks of a lot of articles on the internet, didn't know they bothered with editing.

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