Ten Insane Things We Believe On Wall Street

[Midpack]

See if you can guess which (if any) are tongue-in-cheek...

To outsiders, Wall Street is a manic, dangerous and ridiculous republic unto itself – a sort of bizarro world where nothing adds up and common sense is virtually inapplicable.

Consider the following insane things that we believe on Wall Street, that make no sense whatsoever in the real world:

1. Falling gas and home heating prices are a bad thing
2. Layoffs are great news, the more the better
3. Billionaires from Greenwich, CT can understand the customers of JC Penney, Olive Garden, K-Mart 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 its growing faster

Away from Wall Street, no one believes in any of this stuff. It’s inconceivable. On Wall Street, these are core tenets of our collective philosophy.

Ten Insane Things We Believe On Wall Street

http://www.hulu.com/watch/715275 (more discussion at 27:10 remaining)

 

[M Paquette]

That looks like a perfectly cromulent list for those of us working hard to embiggen our portfolios.

 

[Palmtree]

It's a bizzaro world out there.

 

[robnplunder]

How about ....

- The same CEO who makes 400 times than an average employee can screw up the company, resign (or terminated), and get $50M golden parachute.
- On a same day, one analyst predicts that stock market will crash and lose 70% of its current value, and another predicts it will go up by 20% by end of the year.
- Everyone downgrades a company after a bad earning's report and the stock price already plunged by 40%. The same ones upgrades a company after a good earning's report and the stock price already went up by 40%.

 

[mpeirce]

It's because the market isn't a "thing", it's really just people.

I have a few engineering oriented friends who are driven batty by the stock market. They keep thinking it should work on logic. Wrong. Wrong. Wrong.

Over the long term it generally does follow the numbers, but in the short term it behaves like a group of fairly looney, flawed human beings. Which it is.

 

[Walt34]

It's because the market isn't a "thing", it's really just people.

I have a few engineering oriented friends who are driven batty by the stock market. They keep thinking it should work on logic. Wrong. Wrong. Wrong.

Over the long term it generally does follow the numbers, but in the short term it behaves like a group of fairly looney, flawed human beings. Which it is.

The best analogy that I have heard, the one that made the light bulb come on for me, was (I think) in The Millionaire Teacher.

Think of stock market prices as a 10-month-old Labrador retriever on a very long leash wandering in a field. Company profits, which are the real long-term driver of stock prices, are the dog's owner walking at a steady pace, the end of the leash firmly in hand.

The dog will periodically sprint ahead far in front of the dog's owner, but will then find something interesting and lag far behind. Those are stock prices.

But eventually and inevitably over time the (dog) stock prices will move at the average pace of the person firmly holding the end of the leash, those company profits.

Simplistic, yes. But it works for me.

 

[kgtest]

Three steps forward, two back and repeat. Those with the most shares, have the most shares. You are investing in american companies and there capabilities to profit.

That said, as humans, we act strangely in large groups. Never really quite understood that one. We also act strangely without consequence...meaning those who would not do harm...likely would do so without consequence.