5. "The easy money has been made." This phrase is only made in hindsight. What this bias translates as is “Darn, I missed an opportunity for a money-making trade, if only I knew then what I know now.” It never is easy.
6. "Earnings missed estimates." This phrase is backwards. When an analyst creates an estimate as to a company’s next quarterly profit, he or she is making an educated guess as to that future data. A compilation of the analyst community’s various guesses together is a consensus estimate.
But make no mistake about it: One is a fact and the other is an opinion. When the quarterly facts get released, we find out how accurate the opinions were. Hence, it was the guesses – and not the earnings – that were wrong. Stated with greater precision, the estimates missed the earnings – and not the other way around.
7. “Cash on the sidelines.” Every trade swaps cash for stock between both sides of the trade. T+1 (or T+3) settlement dates mean money is always moving back and forth between various parties. Hence, there are always trillions of dollars on the sidelines, in transaction settlements, at prime brokers or in trading accounts. I have yet to see a study that correlates all that cash in money market accounts with some accurate forecast of future market performance.
8. "On a go-forward basis." Other than historical analysis, isn’t everything on a go-forward basis?
Anytime you are discussing what the economy or the market or a company or stock might do, it is on a go-forward basis. What already happened is history, and unless you are Marty McFly you can’t go backwards in time. What is happening live, in real time, hardly needs any prediction; it’s already too late. Pretty much all you are left with is the future. Saying “on a go forward basis” is useless and redundant.
9. “It is already in the price.” This is a tough one, because when used correctly, it is an accurate statement. The problem arises from its occasional incorrect usage.
Thank Nobel laureate Eugene Fama. He eloquently explained how prices incorporate all known information in his efficient market hypothesis. Price reflects the sum total of this known information, manifest in the decisions buyers and sellers have collectively made.
But genuinely new and unknown information is not in the price. A sudden surge or sell off of stocks occurs when that new information gets reflected in new prices. When that happens, it obviously was not already in the price.
10. “110%” (Alternatively, “1000%”). This phrase isn’t limited to the world of finance. It’s often used in the world of sports and a lot of other places. The maximum anyone can ever give, or feel, or believe, or whatever, is 100%. Anything over that is a mathematically impossible embellishment.
Lately, we have been witnessing “hyperbole inflation.” To wit: 110% has become 200%, and then 1,000%. But this raises a question: If you are going to do something more than the maximum of 100%, then why only a little more than the most possible? Whenever someone says they blank something 1,000%, you might wonder why they are being so stingy. Why not 2,000% or 100,000% or a billion percent?
Either its 100%, or it’s a nonsense number that is less than an infinite amount of even bigger numbers, a hyperbole-fail. Unless you give an infinite percentage, which is either impossible, or the same exact thing as 100%.
Those are my most useless phrases in finance. What are yours?
This article was provided by Bloomberg News.