10 insane things we believe on Wall Street (cash, corporation, invest)

[NickofDiamonds]

Reference : 10 insane things we believe on Wall Street
10 insane things we believe on Wall Street

Josh Brown | @ReformedBroker








This commentary originally appeared on TheReformedBroker.com.\



To outsiders, Wall Street is a manic, dangerous and ridiculous republic unto itself — a sort of bizarro world where nothing adds up and common sense is virtually inapplicable.
Consider the following insane things that we believe on Wall Street, that make no sense whatsoever in the real world:
1. Falling gas and home heating prices are a bad thing
2. Layoffs are great news, the more the better
3. Billionaires from Greenwich, CT can understand the customers of JCPenney, Olive Garden, K-Mart and Sears
4. A company is plagued by the fact that it holds over $100 billion in cash
5. Some companies have to earn a specific profit — to the penny — every quarter but others shouldn't dare even think about profits
6. Wars, weather, fashion trends and elections can be reliably predicted
7. It's reasonable for the value of a business to fluctuate by 5 to 10 percent within every eight hour period
8. It's possible to guess the amount of people who will get or lose a job each month in a nation of 300 million
9. The person who leads a company is worth 400 times more than the average person who works there
10. A company selling 10 million cars a year is worth $50 billion, but another company selling 40,000 cars a year is worth $30 billion because its growing faster
Away from Wall Street, no one believes in any of this stuff. It's inconceivable. On Wall Street, these are core tenets of our collective philosophy.
No wonder everyone else thinks we're insane.

[IDtheftV]

Originally Posted by NickofDiamonds

Consider the following insane things that we believe on Wall Street, that make no sense whatsoever in the real world:

I don't get the impression that people on Wall Street believe that stuff. Obviously Josh Brown doesn't.

All 10 of those items are half-truths. There is a portion of the statement or certain times when those things may or may not be true.

Some thoughts:
- - - - - - - - - -
2. Layoffs are great news, the more the better.


Depending on the circumstances, layoffs can be the right decision and might even make things better for those who didn't get axed.
- - - - - - - - - -
4. A company is plagued by the fact that it holds over $100 billion in cash

This doesn't even seem like a complete thought. I know what they are talking about, but it's incomplete.
- - - - - - - - - -
7. It's reasonable for the value of a business to fluctuate by 5 to 10 percent within every eight hour period

This happens? No it does not.

It might happen in AN eight hour period. Fluctuation implies that it goes up and then down and then up ... over and over.

When a company's value changes by 5 to 10% overnight it's generally because some information came out that was unknown to the public earlier. It might be totally reasonable.
- - - - - - - - - -
10. A company selling 10 million cars a year is worth $50 billion, but another company selling 40,000 cars a year is worth $30 billion because its growing faster.

The valuation of TSLA has nothing to do with Wall Street. It's driven by the public just as companies were during the .com bubble when there were 100:1 and higher P/Es.
- - - - - - - - - -
I think this list is goofy.

[jrkliny]

So many big issues have not been included. The Fed is looking at a small, inconsequential increase in interest rates. The investors have a hissy fit whenever that is mentioned.


We went through months and months of see sawing stock prices because Greece was possibly going to default and leave the common market. Big deal.


No one seems to want to invest in a company that makes a good product and a decent return but is not setting the world on fire and is not growing.

[mathjak107]

good company's don't always make good stocks . you can be the best hidden gem in the market but if you get no institutional coverage you go no where for an investor .

i had that once with a well run small regional bank in new jersey . great company , good profits , but got no coverage . it sucked as an investment . in fact i clicked sell and it took two days to get enough buyers to take my shares and this was no penny stock .

about 10 years later they got bought out by another banking chain .

on the other hand those dot com stocks with no profits made lots of money for investors until they didn't .

but the point is a good company and a good stock are not always the same

[oneslip]

Lighten up IdTheftV, it is just a generalized list just trying to point out the craziness of how wall st. operates. We all know stocks do not trade with 5-10% variances in a day unless something is going on with that particular stock or sector.


One just has to remember that wall st is self serving always just look at this past Jobs claims- who cares if the economy is not growing to employ more people- we just want to know the fed will not be raising rates anytime soon.

[mathjak107]

don't forget raising rates can be like a tax on corporations who borrow or have vendors who borrow and charge them more . their earnings are directly effected even if not another job was created . the stocks value takes the cost of money in to the equation when guessing at the quarters bottom line .

after all that is the whole game of stocks . guessing at the earnings and revenue that is going to be reported. if the unexpected happens it is priced in to the stock .

[oneslip]

My only issue mathjak107 with leaving interest rates at such low levels is we are stretching the valuations of various assets/markets causing distortions which lead to dramatic corrections in the future. The boom/ bust cycle is perpetuated further.


Fiscal responsibilities need to be enacted....my personal opinion of the jobs numbers is the expected unemployed rate will never truly drop with increased population/ more efficient technologies utilized and unequal trade agreements.

[mathjak107]

that remains to be seen . not every thing is a bubble because it went up . think about it , on an inflation adjusted basis we averaged maybe 2% a year in real return since 2000 .

earnings and valuations are a world of difference .

corporate profits have been beating estimates the last 2 quarters . oil prices stabilized , industrial production has risen the last 3 of 4 months , new home sales are at their highest levels since 2007 .

so there is lots of good stuff going on too .

remember everyone thought stocks were insanely priced in 1982 yet as conditions got better that was the start of the greatest bull market in history . most investors lost out on the juciest gains early on because they thought valuations were crazy .

they were only crazy for the moment . they were not so crazy as more and more improved