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If you were paying attention to the market Friday, in the middle of a long holiday weekend, you might have noticed some of the terminologies used to describe the market action:
– Sell off
– Crash
– Pullback
– Retracement
– Reversal
– Wealth Destruction
– Volatility
– Bear Market
– Collapse
– Dip
– Bubble
– Profit-taking
– Crisis
– Panic
It is not a coincidence that today, you are likely to hear a different set of terms:
– Recovery
– BTFD
– Snap back
– Priced in
– Bounce
– Counter-trend
– Bull Market
– Bargain-hunting
– Calm
– Gains
– Trend
– Greed
Whenever we have a one-day event that looks different from the prior few days or weeks, I wonder how the language used might impact investors . . . Is a “Sell off” worse than a “Pullback”? Should people be more worried about a “Correction” than a “Dip”? What about the plunges, overbalances, surprises, lurches, debacles, ruins, depressions, failures, smash-ups, and wrecks?
These descriptive phrases are exciting but lack any sort of precise meaning. The NBER has a formal definition of “Recession,” but there are no similar definitions for any of the above phrases for market action. Indeed, that entire colorful list is squishy and imprecise. What information do they provide to an investor?
None.
Consider this to be a truism whenever you flip on the news and become frightened by the first draft of history. The odds are very much against decisions made under those circumstances working out well for your long-term portfolio.
Previously:
How We Experience Time, Inflation Edition (November 10, 2021)
Redefining Bull and Bear Markets (August 14, 2017)
Cyclical Bear or Secular Bull Market? (March 20, 2015)
Lose the News (June 16, 2005)
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