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Can we believe everything that the finance
industry professionals tell us?
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There are a few Wall Street clichés that are actually misleading furphies. In reality we should not be taking some of them at face value. In some cases, this particular viewpoint might be considered extreme and questionable; but the sceptic in us might be able to readily relate to the following.
Did you know that a large percentage of Initial Public Offerings (share market floats) are actually under water for at least three months (and sometimes more, a lot more). See more details about IPOs.
There is no agreed definition for the term blue chip. If you think that investing in a blue chip company should be profitable, then think again. Profitability, or a successful investment, are not guaranteed. The only consolation from investing in a blue chip stock is that the company should be able to withstand the test of time through all phases of the economic cycle. See more details about how blue chip stocks can disappoint.
It could be argued that the so-called Santa Rally phenomenon is a notion dreamed up by the Wall Street bankers to give a glimmer of hope regardless of the economy, and to encourage share market investors to participate (and provide more liquidity, and to increase brokers' commissions at an otherwise quiet time of year). See more details about the Santa Rally.
So many of the finance industry professionals advise that we ought to consider the intrinsic value of a company's shares, and to consider value investing. However, the sceptic in us suggests it might be a total waste of time. See why the intrinsic value is not helpful.
Don't forget, the huge majority of professionals who work in the finance industry (bankers, brokers, insurers, advisors) want to earn a living by selling something to their customers. That is, they are in it to make money, and not necessarily to be your best friend. If they really cared about your personal well being, then perhaps they would work in the social service industry (which does not pay very well, and doesn't have obscene bonuses and perks).
Consider this somewhat similar analogyThe car salesman is keen to sell you a car. Why?
Choose one of the tollowing options:
If you chose option C, then you need to realise that this might not be the case for some of the people in the industry. Now you might say that a car salesman is not representative of the finance industry; but some people might have had an experience with which they can relate.
The honest truth is that many of the finance industry professionals have a vested interest in selling you a product or a service. Perhaps they are not permitted to receive a bonus for sales, nor commissions, but if they don't "perform", then they won't be keeping their jobs.
In 1940, Fred Schwed authored a book titled "Where are the customer's yachts - or A Good Hard Look at Wall Street". Fred was a professional trader who lost a bundle in the stock market crash of 1929, so perhaps he learned a few lessons the hard way. One quote from this book sums it up well:
"An out-of-town visitor was shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, "Look, those are the banker's and then brokers' yachts." The naive visitor asked, "Where are the Customers' Yachts?"
Think about it... Enough said? Would this story be as relevant today as it was back then?
How about some more related snippets and comments? See the following links to various independent sources (which were current at the time of publishing this web page):
Cynicism is the best defence
against banks’ mis-selling (Dec 2013):
We have to include a comment about the strict and appropriate definition of the two words - cynic, and sceptic. It is possible that they are incorrectly used here. These words are often used interchangeably.
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