5 Classic Wall Street Expressions You Should Know
Every profession has its own set of sayings. Let’s go over five classic financial expressions, maxims and sayings every investor and money nerd should be familiar with.
“Don’t invest in something you don’t understand”
One of the best ways to lose your hard-earned money is to invest in something you don’t understand. Maybe it sounds obvious, but it happens all the time.
If you don’t understand how you’ll get your principal back and how you will make a profit, skip the “investment.” If you can’t explain to your grandma what the investment is about in a few words, don’t invest in it.
“Don’t put all of your eggs in one basket”
If you put all of your money, or a large proportion of your net worth, in a single investment that doesn’t perform the way you were hoping, your financial security could be at risk.
This is what diversification is about. Spread your risk. Invest smaller amounts of money into several, non-correlated investments. This way, if one doesn’t work out, hopefully the others do.
“History repeats itself – or at least it rhymes”
Bubbles are a perfect way to illustrate that saying. Bubbles – and crashes – are predictable events. They happen every few years. Look at the dot com boom and bust. The real estate boom and bust. Bitcoin. The current market we’re in as of this writing.
All of these situations were different, yet the patterns and the psychology behind them, are very similar.
Yet some investors are convinced that “this time, it’s different” (another classic expression). They will buy high and sell low. Of course, the exact opposite is the goal: buy low and sell high.
“Cut your losses early”
Many investors tend to fall in love with their investments (“Don’t fall in love with your investments” is another classic expression). So when a stock or a mutual fund decreases in value, they tend to hold for way too long.
This is not to suggest that you should be day trading, or buying & selling all day, based on emotions. Quite the opposite: you should sell based on a set percentage.
There’s no better way to prevent massive losses than to set – and stick to – an exit strategy on every investment you make. It’s the simplest thing you can do to continually increase the value of your portfolio. The best way to do this is a “trailing stop.”
“Boring is beautiful”
This truth about this statement is usually discovered after years of playing with hot, risky or “sexy” investments. Age probably has something to do with it.
Younger investors tend to get excited by Bitcoin, Reddit stocks and Tesla. Sometimes it works… and sometimes it hurts… a lot.
Seasoned investors eventually realize that boring investments, i.e. those that deliver consistent, predictable, steady returns or dividends or cash flow, are much better for their blood pressure, their sleep and their portfolio. Experienced investors know that volatility kills your returns, while consistency is key. At the risk of oversimplifying, large caps, dividend stocks and (some) real estate are, generally speaking, good examples of boring and consistent investments.
Phil Zeltzman, DVM, DACVS
Meredith Jones, DVM
Co-Founders of Veterinary Financial Summit