By Peter Mastrantuono
Wall Street was founded in 1792 with the signing of the Buttonwood Agreement, under the shade, as legend would have it, of a buttonwood tree outside of 68 Wall Street. One of the more colorful aspects of Wall Street’s over 200-plus year history is the accumulated trading wisdom reflected in its familiar and ever relevant aphorisms.
Greed is Shortsighted
No matter what Gordon Gekko may say, greed is not a good strategy or emotion for investors. Attesting to the importance of keeping one’s greed in check are three well-known Wall Street sayings:
No one ever went broke taking a profit.
Pigs get fat, hogs get slaughtered.
Bulls make money, bears make money, but pigs get slaughtered.
Trading Strategies that (Sometimes) Work
While we tend to anthromorphize the market (“the market is nervous” or “the market was disappointed”), the fact is that the market doesn’t think or feel anything. It is merely the collective reflection of many individuals buying and selling for their own reasons—reasons that are more often than not opaque to market observers and commentators.
Recognizing this, several Wall Street adages speak to basic principles that historically appear to work, such as:
Don’t fight the tape.
This piece of wisdom suggests that an individual’s opinion of the market is less useful than what the collective voice is saying. For instance, an individual may have many good reasons to believe that the market will rise (or fall) but if the market is moving in the opposite direction, it would behoove that individual not to fight that trend. In fact, investors may be better off riding that trend to profits.
Of course, there is the cautionary counterpoint that warns “The trend is your friend, until it isn’t.”
Then there is the well-known maxim “Sell in May and go away.” According to research by Fidelity, an asset manager, since 1945 the S&P 500 has had an average cumulative return of nearly 2% from May through October, while the six-month period from November to April has seen an average return of 6.7%. Other research suggests that this predictive pattern is only statistically relevant in year three of a presidential cycle.
Perhaps the best advice for investors as it relates to trading strategies is this:
Portfolios are like a bar of soap, the more you handle it, the smaller it gets.
A Word to the Wise
There are a number of other aphorisms that bear remembering as investors grapple with the market’s manic-depressive personality (oops, did the author just anthromorphize the market?).
“Markets climb a wall of worry.” Early bull markets are always accompanied by worries that ultimately prove inconsequential to the longer-term direction higher, but costly to investors who allow such worries to keep them on the sidelines.
“Markets take the stairs up and the elevator down.” Investors saw this recently and most spectacularly in March and April of this year. After a long climb higher, markets dropped precipitously as pandemic fears swept the market. History is replete with such examples, like the 1987 crash and the dotcom bust.
Of course, relying on pithy Wall Street sayings, whatever kernel of wisdom they may contain, is no way to manage a portfolio. For that, investors may want the help of a financial advisor whose advice and wisdom is a product of years of practical experience.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.