To test a MUTUAL FUND in private, with money only from the firm that runs the fund – giving the portfolio the unusual advantages of great flexibility and very small size. If it works, the company will launch the fund after a year and attach swarms of new investors by promoting its one-year track record of “outperformance.” If it fails, the firm will shut the fund down and no one will be the wiser.
The attempt to predict the unknowable by measuring the irrelevant; a task that, in one way or another, employs most people on Wall Street.
Because the human mind hates admitting the truth that the world is largely random and unpredictable, forecasters will always be in demand, regardless of their futility. Wall Street follows what marketing professor J. Scott Armstrong has called the seer-sucker theory: “For every seer there is a sucker.”
To earn an imaginary profit on paper, savored temporarily before it turns into an actual loss. In one of the primary paradoxes of finance, those who pursue gain with the greatest intensity are the least likely to achieve them; those who wait patiently for them are the most likely to receive them.
What people think they will make piles of when they buy a shiny yellow metal that is useful primarily for melting into cuff links and charm bracelets.
To own a variety of investments with countervailing risk and returns, making your portfolio safer; most investors, however, di-worse-ify instead, making their portfolios more dangerous by buying lots of whatever has been going up lately. If all your holdings go up together, they have high CORRELATION and will also go down together. The world “diversify” comes from the Latin diversificare, to make different; to be diversified, you must own assets that sometimes make you feel good and sometimes make you feel bad.
Long Term (adj.)
On Wall Street, a phrase used to describe a period that begins approximately thirty seconds from now and ends, at most, a few weeks from now.
Market Timing (n.)
The attempt to avoid losing money in bear markets; the most common result, however, is to avoid making money in bull markets.
A publication that contains no news but many letters. When the letters are formed into words claiming to predict the returns on financial assets, subscribers will usually get their money’s worth, and then some. Those who paid $199 for a subscription will end up at least $199 poorer, those who paid $500 will end up at least $500 poorer, and so on.
Automatically buying some of whatever has gone down and selling some of whatever has gone up. All investors say they want to buy low and sell high, which rebalancing does mechanically and unemotionally. Most investors fail to rebalance when they should, however. Buying high and selling low is much more exciting.