Brb, waiting things out until the “dead cat bounces” (Investing Lingo)
This week is jam packed with some news, a fun infographic of a very famous investor’s brain and a cheat sheet of investing lingo.
As always, if you have any questions about our newsletter, requests, or want to offer your very own original investing slang for us to pepper into our next newsletter, feel free to reply to this email or DM us on IG or Twitter. 😎
This Week’s Headlines
- Did you mail out your packages for Christmas yet? Well, better luck next year because apparently, FedEx and UPS are already almost at full. ¯\_(ツ)_/¯ #shipageddon Read more.
- The FDA has approved Gilead Sciences’ Remdesivir. It has been found to shorten the recovery time of COVID-19 and will be used as a form of treatment. At this time, there has not been a major breakthrough with a vaccine. Read more.
- Quibi came in super hot this year, and has bowed out in the same spectacular fashion. After less than 6 months, streaming platform Quibi decided to shut down, citing COVID-19 as the primary reason for its demise. Others suggest its swift failure was due to much more than that. Its shows, for lack of a better word, “sucked.” Others suggest it was a total rip off (both in price and its lacking originality). While these reasons could also be true, the pandemic has not made it easy to launch a business. Nonetheless, let this be a cautionary tale for all who dares to enter the streaming war. Read more.
- Facebook announced plans to launch a feature called Neighborhoods. Its focus is to bring local communities closer together (and keep its competitive edge with Groups). This idea isn’t revolutionary. Neighborhoods is a clone of an app that already exists called NextDoor, which recently announced plans to IPO. Facebook clearly has a firm strategy: either build a product in-house that replicates a product that already exists, or acquire a company in order to own a sliver of the market. Sometimes, Facebook does both (i.e. when Instagram video wiped out Vine). Sometimes, Facebook fails (remember Facebook Dating? We don’t). Honestly, it could go either way. Read more.
- At this point, stimulus updates and weekly unemployment data should be hard-coded into our newsletter template. Let’s just sum it up to this: a stimulus package hasn’t been passed yet, but there’s optimism floating around, which, as we all know, leads to investors feeling optimistic about the stock market, too. Realistically, if a stimulus isn’t passed today, it likely won’t be until after the election. Read more.
- First-time unemployment claims are at an all-time low since March. This likely isn’t due to an influx of re-hiring but instead the Pandemic Emergency Unemployment Compensation program, which provides another 13 weeks of benefits. Bear in mind that the PEUC program was passed as part of a stimulus. Many believe, including our Federal Reserve Chairman Jerome Powell, that a stimulus is needed to strengthen the current labor market. Entering from stage left: a chart. Read more.
Do remote employees say OOO when they take time off?
What will the post-pandemic workplace look like? Looking at some of the biggest U.S. companies, we’d place our bets on the best office chairs getting back-ordered until next Summer. In July, Google announced its offices would be closed until July 2020. In August, Facebook also extended its work from home policy to July 2021. And just this week, Amazon announced it will allow its corporate employees to work remotely until June 2021.
Across those 3 companies alone, there are nearly 1 million employees – just in the U.S. When asked, 75% of Facebook employees said they’d likely live in a different city if their job became fully remote. Of course, there are caveats with that. Many companies, including Facebook, have stated that if employees move, their salary would get adjusted to align with its relative cost of living.
There’s also the “gig economy,” which has seen an explosive growth (UpWork reported a 50% increase in signups since March!). However, freelancers aren’t entitled to employer-sponsored health care, which has been an ongoing battle that Uber and Lyft are no stranger to. Yesterday, a California appeals court ruled that both companies must classify their drivers as employees rather than contractors, meaning they would be entitled to benefits. And as a result, Lyft and Uber has threatened to leave the state.
With the focus on the bottom line, there’s a lot to consider when predicting what the future of work will look like for businesses and for employees. One thing’s for certain, though; things are going to change – hopefully, for the better. 🤞
How to Talk Like a Total Wall Street
This list is not a comprehensive chronicle of every investment term you’ll encounter as you embark on your journey. However, if you’re just getting your foot in the door, these definitions are a pretty good place to start.
When you first start investing, it’s easy to get overwhelmed by the sheer volume of strange lingo floating around. This can make the investing process confusing and stressful – but it doesn’t have to be.
Q.ai is here to help you cut through the clutter. We’ve put together a quick, handy guide to some of the most important terms in the market, from bull run to bear hug (and let’s not forget the dead cat).
General Terms to Know
Let’s start with the basics.
Blue chips are stocks issued by large, well-established companies, such as Microsoft and Apple. These entities often have a history of generating profits and increasing dividends, sometimes over decades.
Unicorns are privately held startups that rocket their way to $1 billion in value. This term is recent, only coined in 2013, and so-called due to the “mythical” growth these companies enjoy.
Zombie stocks are unfortunately growing in the market due to the pandemic economy. These companies are unable to pay their debts, but still bring in enough revenue to fund operational costs.
Assets are things you purchase to make money or sell at a later date. Examples include stocks, bonds, funds, or commodities, to name a few.
An asset bubble forms when the price of assets exceed its underlying value. When an asset bubble bursts, it can devastate the market and even lead to a full-blown recession, as did the housing bubble collapse in 2008 (and the dot-com crash in 2001).
Essential Analysis Terminology
Even if you’re not ready to analyze a company’s financial situation on your own, these terms are handy to have in your back pocket.
Earnings Per Share (EPS) is an indicator of a company’s profitability. To calculate EPS, you divide the company’s profit by the number of shares outstanding (the number of shares owned by investors)
The moving average is a technical indicator that updates a stock’s average price over a set period of time. It’s common to see moving averages across 50, 100, and 200-day increments.
Operating income is a company’s profit after deducting expenses, wages, depreciation, and the cost of goods sold. Investors can use operating income to evaluate a company’s financial standing.
Valuation is a method of calculating how much a company or stock is worth in theory and is not tied to the actual share price. A company’s valuation can indicate if a stock is over- or undervalued.
Bull and Bear Markets
There are several market trends investors should be aware of. Two of the most prominent are bear markets and bull markets.
A bear market is when investor pessimism, growing unemployment, or economic recession spurs falling stock prices. Bear markets are marked by low demand and high supply.
A person who is bearish believes that the value of a security or the market will begin or continue to fall. If the investor owns the securities in question, they are considered short on the market.
A bear hug occurs when one company offers to buy out the shares of another for much more than the company is worth. This is sometimes viewed as a hostile takeover strategy, as the offer is often unsolicited by the target company – but if the target company says no, it risks a lawsuit from the shareholders for turning down a lucrative opportunity.
On the other hand, we have a bull market, also known as a bull run. This is any market in which prices maintain an upward trend. Bull markets are marked by their strong demand and weak supply, which can further push share prices up as investors seek to acquire more equities.
A bullish investor believes that a security or market will continue to rise in value. If the investor owns the security in question, they’re considered to be long on the market.
The image below is a snapshot of the S&P 500’s performance from January to August of 2020. As you can see, the market dove from a bull market into bear territory between February and March, before charging back into a bull run come April.
Other Market Trends to Know
There are a few other market trends of which beginning investors should be aware.
A choppy market occurs when securities move swiftly and erratically within a short margin. These typically produce neither long-term gains nor losses.
A correction happens when an index falls between 10-20%. This can be a brief dip or a prolonged downtrend. Corrections are so named because the fall often “corrects” prices against longer-term trends.
Dead cat bounces occur when stocks drop substantially and experience a moderate bounce up soon thereafter.
A rally is when the market experiences a rapid increase in value. Depending on the state of the market, a rally can either be a bull rally or a bear rally.
V-rallies occur when the market bounces back immediately after a large sell-off. Also known as the rubber band effect, modern v-rallies are largely the result of computerized trading programs.
Essential Economic Terms
In our last section, we’ll discuss three essential economic terms you may encounter in your investment adventures.
Dovish vs Hawkish
The Federal Reserve, or “the Fed,” is the central banking system of the United States. It’s responsible for conducting monetary policy, regulating financial institutions, and promoting financial stability.
Sometimes, this means adjusting the interest rates to stimulate the economy in the right direction.
When the Fed is concerned about deflation, weak growth, and high unemployment, they may lower interest rates to encourage lending and spending. This is known as being dovish.
On the other hand, when the Fed is focused on guarding against inflation, they may consider raising interest rates instead. This makes them hawkish.
When the economy experiences a sharp decline followed by a quick, strong recovery, economists and investors say that it has undergone a V-shaped recovery. This comes from the shape the data points paint on a graph.
The recession of 1953 is a prime example of a V-shaped recovery model. The graph below shows the percent change of GDP from 1952 to 1954. (GDP is often considered an indicator of an economy’s overall health).
The Bottom Line?
These concepts are just the tip of the iceberg. And while this may not give you a Master’s in finance, it lays a good foundation for financial literacy. Plus, when you read the news, lurk FinTwit or find yourself on /r/WallStreetBets, you won’t wind up looking like this guy.
The second part of Visual Capitalist’s five-part series, this infographic dives into the mind of Warren Buffett. Known on the streets as the Oracle of Omaha, Buffett is one of the most famous, well-respected value investors of our time. Some argue his style cannot be replicated, despite him operating by a formula, so to speak. But If there’s one takeaway we should all apply, it is his self-discipline and resistance to act on impulse.