The Finance Industry Cynic

Can we believe everything that the finance industry professionals tell us?
Should we take everything at face value?
What about the infamous Wall Street clichés (so-called words of wisdom)?
Perhaps we should be questioning their intent and their recommendations more often.
You might be surprised...

The cynic within us might agree...

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.

The performance of IPOs can be disappointing

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.

Blue chip stocks can disappoint

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.

The Santa Rally notion is actually a furphy

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.

Intrinsic value is a waste of time

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.

Are you for real? Can this be true?

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).

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.

"Where are the customers' yachts?"

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?

See book details at Australia's EducatedInvestor.com.au, or at Wiley.com, or at Amazon.com.

See related articles and news

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):

The FinancialCynic.com.

Cynicism is the best defence against banks’ mis-selling (Dec 2013):
http://www.ft.com/intl/cms/s/0/56fd6222-631b-11e3-a87d-00144feabdc0.html

Wall Street words of wisdom -> "Share Market GEMs"

Footnote

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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The information presented herein represents the opinions of the web page content owner, and
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© Copyright 2013, R.B.Brain - Consulting (ABN: 52 791 744 975).
Last revised: 18 December, 2013.