The Truth Behind the Most Famous Slogans on Wall Street

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2:05All right, folks. Welcome to the Investing for Beginners podcast. Today, we are going to talk about the truth behind the most famous slogans on Wall Street. Some of these are some goodies. some come from movies others come from some famous people on wall street we thought we would just talk through some of them so this could be kind of fun uh i think we should start with the first one uh the first one to me is i think it's a fun one uh greed is good so this is the made famous slogan from gordon gecko the fictional character which was recorded or made back in 1987 uh some of you probably weren't, but this was a great move.

2:44I think we should, I think we can have some fun talking about this. So what does greed is good mean to you and how did you, how do you interpret this? Yeah. It's like the forever optimist or techno optimists where everything that feels good is good kind of a thing, or just wanting to justify all of your own behavior. I mean, in a way, right? Like having a good work ethic, having the ambition to go find great stocks and all of that can be a good thing. And for sure, there are great businesses that do great thing. But I think there's also a lot of things to be careful about with the greediness because that can be a trap for a lot of investors.

3:25Just like there's a bad side to a lot of different things and a bad side to being overly ambitious or overly greedy or overly impatient to become wealthy is you can actually set yourself back by making a lot of different mistakes. That's the kind of first thing that comes to mind for me. What about you? Yeah, definitely. I think it certainly epitomizes certain periods of market behavior, the dot-com bubble, what happened after the great financial crisis, what happened after the pandemic, the first few years after the pandemic, those to me were the greed is good eras. And it kind of epitomizes the aggressiveness, the uber enthusiasm, the phrase to the moon, those kinds of things really, when I think of greed is good, I think of those sayings.

4:19And it certainly reminds me that there can be a lot of enthusiasm when there's not blood on the streets in wall street and that's i guess that's kind of how i think about it yeah uh definitely something to be careful of as an investor you you usually have the people who are finding out and kind of like being envious about the big gains are usually the ones who get left holding the bag that's that's something we hope doesn't happen to y 'all much right no kidding yeah for sure yep for sure all right so kind of maybe the the opposite of that is buy low sell high this is a very timeless mantra for investors and i guess what is this what does this phrase say to you yeah i think it's what we're all trying to do and i also think it's harder done than said i think it's a lot easier to say yeah i buy low sell high but that's a lot harder to do would you argue that there are investors who don't even care about that.

5:24Oh, yeah. Yeah, there definitely are. And there's a style of investing that this doesn't even really kind of play into. I'm not saying that it's good or bad. I think it really depends on how that fits your personality and your mindset and your mind frame of how you think about things. You did a great interview with David Gardner, And I would argue that he probably doesn't buy low, sell high, doesn't really apply to the way he invests. It's mostly just keep buying even as the companies go up. And I think it works for him and he's had great success with it, but it doesn't fit me and my personality.

6:08I like Warren Buffett's idea of I like to buy everything on sale from stocks to socks. So that kind of fits me better. Yeah, me too. The trend is your friend. Have you heard this one? I have. To me, when I think of the trend is your friend, I think of traders. I think of swing traders. I think of day traders. And that's what it always kind of reminds me of. What about you? I'm reminded of the other one, which is don't fight the Fed. That used to be a pretty common thing. But basically the idea that, and you heard this a lot in the greed is good periods that you were talking about a couple years after the pandemic, was like, the Fed's lowering rates just keep chugging along.

6:55Choo-choo, to the moon, bull market. Jerome Powell with a money machine and he's cranking it and it's just spitting out greenbacks. That was kind of the idea. So the idea of being like when the Fed is lowering rates, don't even try to sell, just buy the stocks that are going up. And again, that works until it doesn't. And you don't have to be an investor very long to understand that trends that are positive don't always stay positive forever. And growth in businesses often isn't perfectly linear, but there are ebbs and flows. And so as investors, we need to respect that and not get discouraged if you feel you're hitting the trend and you're killing the trend every time.

7:47That's something that can be kind of discouraging if you start to feel that way. Right. Yeah, for sure. Yeah, I think when I think of things like trend is your friend, there is certainly something to momentum, of course, when things are doing well and people get excited about it. You just have to be careful if you're just jumping on the trend because everybody else is jumping on the trend or whether you have identified that this is a fantastic business and they're doing something really well and you think that will continue to do really well over a long period of time. So I kind of like try to disassociate the two parts of it.

8:31But if you jump on the trend because everybody else is jumping on a trend, then that's where you can get burned. Because if you don't get off at the right time, that could be very, very dangerous. Likewise, if you don't understand a business and you don't understand why they're doing so well, then that can also burn you too. Because if you don't notice, if you don't know what's going well, you won't know when the train is stopped or where the whistle is blown and it's time to get off, you won't understand it. It's time to get off. how do you differentiate between when you see a stock where the trend is really really nice how do you differentiate between whether that's business driven or whether that's just crowd hysteria right um i i don't think there's to me there i don't think there's any perfect way to discern it it has to come from a combination of things and this is probably easy fruit to pick But if you look at what happened at Zoom during the pandemic, that was very easy to see that that was a narrative-driven people jumping on the bandwagon happening.

9:42When you looked at the operations of the business, yes, it was doing well, but you had to ask a question that it was, in hindsight, it's easy to ask, but at the time, it would have been harder to ask, is this really going to be different? Is the way people are going to use this product going to be that vastly different that everything that's happening right now, will that continue when this situation is done? And for a large part of the pandemic darlings, it turned out that that was not the case. And that's where maybe having an understanding of history and an understanding of how these things work in the markets.

10:20And I'll give you another example. the Peloton was hugely popular during the pandemic. And if you knew a little bit about market history, the vast majority of health-related type of fads, if you will, have never consistently done well. Most of the companies that are health-related, i.e. exercise, fitness, those kinds of things, generally haven't done well in the markets for long periods of time. They will catch a wave, so to speak, and do well over a short period of time. But to have long-term success has been harder to find. And so if you just look at that particular historical fact, you would have looked at something like Peloton and go, yeah, this isn't gonna last.

11:02And it didn't. And could you have made money getting in and out quick? Sure. But that's not a game I like to play and I don't know how to play it. And so it'd be like me trying to play Go instead of playing chess. I don't know how to play Go. And so I can't play that kind of game. So anyway, that's kind of all I think about. What are your thoughts on that? You want my thoughts? I want your thoughts. My thoughts are you just look at the valuation and you just stay away from expensive stocks because to your point, I think it is really hard to differentiate between a hype story or a business that's doing really, really well.

11:45and um i i would i would dare to guess that a lot of the businesses where you see this stock price going really higher you also see great numbers revenue pick up pick a high number 40 a year 60 a year 70 a year whatever the number is like it all looks great and there's so many of those that can do that for a short period of time but not many of them continue that over a long time period Whereas if you flip the difference, if you find businesses that are kind of more mature and they're growing a lot slower, a lot of those can keep their momentum because it's not super hard to grow 10 % a year, let's say, for example.

12:31But it's a lot harder to continue to grow 70 % a year. so I think nature has a good parallel to that when you look at small plants versus trees and you're not going to usually see a tree grow double over a year a lot of the trees will stay versus plants they might kill each other out and you'll have one fast grower very many that have died and I think there's a lot of that in capitalism as well so I don't know how to do that. And so I just, like you, I just choose not to play that game. Like never looked at Peloton, never looked at Zoom because I was like, those valuations are insane. The price to sales is insane.

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15:34Yeah, too hard pile. How about this one? Sell in May and go away. What do you think about phrases like this? And I think October is like another one like that. I can't remember what the phrase is about October, but what do you feel about these monthly sayings on Wall Street? I just kind of look at them and chuckle and go, that's cute. Yeah. You know, like the, like the, the Santa rally. Right. And I think there's one, there isn't there one around January too. I don't, I don't remember what the, what the phrase is, but I have never, I have never bought, you know, I've never invested based on the seasons.

16:11Like I'm, I'm not going to invest in meta in May and then never look at it again. If I think it's a great company, I will buy it in March and won't wait till May. So I think these are cute and they sound fun and nice and whatnot. But I think if you're going to invest based on seasons, then you might want to just stick to picking, I don't know, ETFs or something and call it a day. The stock market's hard enough. If you try to market time and everything, you are really playing a tough game. And good luck is what I would say. Yeah, for sure. I think I've seen studies that have shown that if you look at historical numbers, there is a vast difference between buying something in October and in March or in May or in September.

17:06I think there's good days and bad days. And I think trying to base it on when the season is, it'd be like, okay, I'm only going to invest in Walmart right before Christmas because that's going to be the busiest time of the year for them. Well, yeah, it is, but that doesn't necessarily mean that that's when the stock is going to go up or it's going to appreciate the most just because they're the busiest. What if they have a bad season? They don't sell as much as they expect, then they're not going to do as well. So yeah, I think it's cute. Yeah, it is cute. Actually, I like that example. I think it's a good example.

17:42When I was a beginner, I remember thinking things like that. And then only to learn a little bit later that things are priced in. So the investors who are looking at Walmart are going to be experts on Walmart's business. The analysts, the investors, the fund managers, they're going to know that the holiday season is coming up and that that's a bigger season for Walmart. so there is no information edge or timing edge because like you're saying uh the market correlate to the stock it's based on people's expectations about the business and that's what drives stock prices so trying to time things it probably could be really fun you know like a fun intellectual challenge but like you're saying i don't think people will be successful with it no all right so i want to throw one at you so this is one that i came across early in my investing career so i'm curious what your take is on this buy the rumor sell the news okay i uh i just wrote a email about this it's gonna go live in a couple days um i do remember hearing this too i guess the best way to describe it it's a speculation and that's how I would describe it.

19:01Yeah, that's exactly how I would describe it. I remember when I first started getting into investing and I was talking to the financial advisor at the branch I worked at and I couldn't understand. I was just starting to get into the whole idea of fundamentals and looking at the numbers of the business. I don't remember what company it was I was looking at but everything looked really good to me. The revenues were growing, the margins were growing The returns on capital were really good. Just everything just seemed to be positive. And I couldn't understand why the stock was down. And so I went to him and he said, buy the rumor, sell the news.

19:42I went, what? He said, well, what's going on with the company in the news right now? I said, oh, there's some big drama about one of the managers or something. And he said, yeah. So people are freaking out because the stock is dropping because they think the manager is doing badly. And he said, if you look at the chart, I said, I bet you see a run up before that all happened. And now everybody's selling it because it's negative news about the CEO or something. And sure enough, he was right. I went and looked at the chart and I could see that right before all this, the stock was going up. And then when this bad news came out, it dropped, you know, 15, 20%, you know, in a couple of days kind of thing.

20:22So kind of like what happened with Netflix a few years ago where they reported the stock was doing really well. And then they reported that their subscriber count was down for the first time ever. And it dropped like 15, 20 % in a day. And so everybody was selling the news. And I was like, okay, you know, made sense to me once I figured that out. Okay. What about bulls make money, bears make money, pigs get slaughtered? I am actually not as familiar with that one. So what does it mean? What's a pig? I get a bear, I get a bull, but what's a pig? Just someone who's being too greedy. Oh, okay. Okay.

21:08Yeah. I mean, to me, it's definitely a warning. It's a warning about greed, right? And I think, you know, kind of to go back and, you know, greed is good. Well, it can be, uh, if it's, you know, positioned properly. Uh, but if you're just trying to overreach, then I think that's when you can really get slaughtered. Yeah. It's funny. A lot of these kind of go to how stock prices behave and how they move around. Um, but our viewpoint, which has been helped shaped by the things that Warren Buffett and Charlie Munger have taught about for decades publicly is that as investors, we're looking at businesses and what do businesses do over the long term.

21:56So if, you know, if being greedy, like I'll give an example, I think this phrase can be used to say, oh, if a stock goes up too much, you should take profits. Otherwise, you're being greedy and you're going to be a pig and get slaughtered. But as we've tried to talk about a lot on the show, hopefully it's landed, is if a stock goes up because the business does better, then you should not just take those profits and assume that you're being greedy by continuing to hold that stock. If Costco triples in stock price, but it also tripled the number of its warehouses, then the stock price is tripling not because people are getting overly excited, but because the business is executing and growing.

22:42So if we can take that mindset of look at the business and analyze what it has done and then compare that to what's happening in the market, then you're not going to run into that issue of the scarcity mindset of, I have to take the profits, otherwise it's going to disappear. Not the case if you're invested in businesses for the long term a lot of the times if it's business driven. But I think the other argument to that is being greedy when other people are greedy. That's where I think you could be a pig and get slaughtered. Because going back to what we were saying about picking the stocks that everybody's so hyped up on, these very expensive stocks have charts that completely depart from where their businesses actually are trading.

23:31Those are instances where you're going to be wrong more than you're right. And so just be careful that the odds are not in your favor if you are buying these overhyped stocks. Yeah, for sure. And I love that. And I think a great example of that that just kind of popped into my head was remember the NFT craze a few years ago? Everybody was going crazy over that. That was, I think, an example of pigs because people were bidding up a rock, a picture of a rock, and going crazy about that. And the last person standing got slaughtered. And it's worth pennies on a dollar now. So those kinds of things, you know, there were some gentlemen recently that paid, paid millions, if not millions, I think for a banana on a wall that was attached to the wall with a bandaid and he paid millions and he ate the banana and now the thing's worth nothing.

24:33But to me, that's an example of a pig, you know, he was greedy and he bought something and now he's showing off his greed by eating the banana. No, it's like, okay, you could argue it's art and, you know, I'm not going to, I don't want to get into a philosophical debate on what is art. Cause I don't think anybody could win, but I think you could argue that that was pig, pig like behavior for sure. So what, what do you make of the whole, like bears make money? I think there's a certain element in the market that are always looking for the downside, that they're always either betting on the downside or looking for companies to have a moment where they do drop and they can take advantage of it.

25:21You sometimes hear this term perma bear, where they're always negative about the stock market or stocks in general. and I don't have any, maybe you could verify this for me, but sometimes it feels like those are the people that are maybe shorting, are perpetual shorters that always have short positions on a company like a Tesla, for example. There's lots of people that are very perma bears about Tesla. They always think it's going to go down and so they may be betting that it's going to go down. That's not the way I choose to invest, but I think there are a lot of people out there that are like that, But enough of them do make money that they can be successful at it.

26:04But to me, that's also kind of the two-hard pile. Yeah, me too. It's a more complicated strategy. I think there's ways to do it intelligently. But you definitely at least want to cap your downside because if you go as a bear and you're shorting a stock, your potential downside is unlimited, which is a very scary idea. I could put in a hundred bucks and be down, you know, four grand or something. Which is why I think a lot of those people use hedges. They use options. They're still bearish on the stock and they have negative exposure, but they're managing their risks. So it's not blowing up in their face.

26:46And to your point, that's just really complex. It's a lot of active management. and I don't think my skill set's there as far as being able to trade those kind of options. And so, yeah, I choose not to go that way also. Too hard pile for me. Too hard pile. Is that the trend for today? Every quote we can answer by saying too hard pile. Yeah, too hard pile. Too hard pile. What about markets can remain irrational longer than you can remain solvent? Yeah. Famous quote by John Maynard Keynes. I think this is a fantastic quote. And how many of us raise our hands, have been super bullish on a company, thought this is going to be an amazing business, and you invest in it and the market doesn't see what you see, and it goes on for a long, long time.

27:47And I think that's one of the risks of investing is that sometimes you can find a great company, but it doesn't do as well as you think it will. And so you may not lose money, but you won't make money. And in essence, because of the way markets and money work, you may not be losing money, but you're not making money. So you're in essence kind of losing money or losing out on the opportunity to make money because you're in this particular company. Yeah. And if you're a perma bear, I can't remember who said it, but one of the hardest ways to short a stock is on valuation. Because if you short a stock where the business is going down, usually as the business shrinks, the price will tend to go down.

28:35I mean, valuation plays a role as well. But the length of time that a stock can be considered overvalued can be so long. Like how long has Tesla been overvalued? Pretty much as long as I can remember. As we started the show. Since we started the show, since even before that. So yeah. Yeah. Sometimes the best businesses in the world will just always be overvalued. And if you are trying to play that game where you're saying, Hey, this stock's a bubble, that stock's a bubble. I'm going to short that stock. I'm going to short that stock. That's a great way to go bankrupt. Yes. I've been paying a lot more attention to what's actually happening inside my body when I train lately, especially when I hit a wall with my performance and nothing I do seems to move the needle.

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