10 Investing Buzz Phrases Every Investor Should Ignore

Like all occupations, investing is rife with buzz phrases. Pundits and commentators lean on these phrases – clichés really – to sound intelligent or to explain what they don’t know.
So, should you encounter any of the following phrases – and I’m sure you will – at least ask yourself this: Is someone imparting useful information or simply filling space? You’ll likely answer with the latter.

1. “The market did (fill in the blank) today.”

When used: Whenever the market index prices changes materially from the previous day.
Why it’s useless: Markets don’t “do” anything. Markets are processes by which individuals meet and exchange. Markets are populated by buyers and sellers. The individuals within the market are the actors, not some ethereal all-encompassing “market.”  There is never any one thing that moves a market.

2. “The low-hanging fruit has been taken.”

When used: When someone has no idea what to buy or recommend.
Why it’s useless: Investing is never easy. There are never investments so obvious and so apparent that everyone buys them. Things become obvious and apparent only in hindsight. When you look ahead, investments are much more opaque. The “low-hanging fruit” is always picked because it never existed.

3. “It’s a market of stocks, not a stock market.”

When used: When there is a feeble attempt to sound professorial.
Why it’s useless: “It’s a market of apples, not an apple market.” Understand what I’m saying? Of course, individual stocks matter, just like individual apples matter. It’s a market of apples, not an apple market. You don’t want every apple in the market, just the apples that best appeal to you. The same goes for stocks.

4. “Stocks are down on profit-taking.”

When used: After the market indexes post lower after several up days.
Why it’s useless: This platitude implies that you can read the mind of every investor, but you can’t. Investors sell for many reasons: tax management, portfolio reallocation, tax-loss harvesting, a major purchase, etc. If the major stock market indexes are down that doesn’t mean stocks are down because everyone was taking a profit, or even that profit-taking was the main motive for the sell-off.

5. Stocks are overbought (or stocks are oversold).

When used: When someone wants to sound like he has technical expertise.
Why it’s useless: The term is nonsensical. How can anything be overbought or oversold? If apples rise in price, are they overbought? If apples fall in price, are they oversold?  Whoever utters this phrase wants to sounds like he has command of some recondite analysis. He doesn’t.

6. There are more buyers than sellers (or sellers than buyers).

When used: After stock indexes rise (or fall).
Why it’s useless: For every buyer there is a seller, and vice versa. Buyers and sellers can’t outnumber each other, because you need a buyer and a seller for every transaction. On the margin, the next buyer might be willing to buy only at a lower price. A seller might be willing to sell only at a higher price. Buyers and sellers acting on the margin are what lead to price movements. Buyers and sellers don’t outnumber each other, because they can’t.

7. Markets are bottoming (or topping).

When used: After the stock market indexes move sideways after falling (or rising) in price.
Why it’s useless: Again, markets don’t “do” anything. Just because the market indexes moved sideways, doesn’t mean they will move up tomorrow. That said, even if the market indexes move up after trading sideways for a few days doesn’t mean they moved off a bottom (or a top). You can’t possibly know the motives of all market participants.

8. Investors remain on the sidelines.

When used: When trading volume is low or when savings rates and cash balances rise.
Why it’s useless: Here, we’re talking pretense of knowledge. If an investor trades infrequently that doesn’t mean he is on the sidelines. It also doesn’t mean he is on the sidelines if he carries a cash balance. Rarely are investors all in or all out of the stock market. Investors adjust the percentage of their portfolio of stocks based on expected future returns.  If investors were “on the sidelines,” no trading would occur.

9. The smart money is … (fill in the blank).

When used: After a prominent investor buys or sells a stock.
Why it’s useless: No investor, or group of investors, gets it continually right. Every investor makes mistakes. Every investor gets it wrong. What’s more, prominent investors don’t collude to pile in or pile out of a stock. Prominent investors act independently. There is no “smart-money” set.

10. The trend is your friend.

When used: When an investor spots a linear trend.
Why it’s useless: Yes, the trend was your friend – if you bought the stock and the share price trended higher. Stock prices move up and down daily. You have no idea whether the trend will be maintained going forward, and going forward is what matters most. Often the trend isn’t your friend.
What sounds profound frequently isn’t. Keep that in mind should you cross paths with any of these investing buzz phrases.

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