Market Lore

Working on a trading floor can be a lot of fun, not least because traders, marketers, researchers (economists, strategists, whatever) can have, shall we say, somewhat quirky personalities.  Even in today’s politically correct HR-monitored environment, there is a constant flow of profanity-laced ’stream of consciousness-type’ patter.  Cliches are legion, with many floor denizens relfexively repeating their favorite Simpsons or South Park quotes.  Or Animal House.  Or Risky Business, or Wall Street – I once walked past a filing cabinet on which some of short-term financing guys had placed the remains of a couple of boxes of Italian Pastry.  I said, to nobody in particular, “Leave the gun.  Take the Cannoli.”  They laughed way too loudly, and told me I was about the 50th person to say that.  Here, in no particular order, are some of my favorites:

Expected Returns

Quick: what return should a stock market investor expect?  If you own an IRA or 401K, you probably invest in stocks through mutual funds.  We do this so that our money has a chance to “work for us” and grow into a larger sum in the future.  Investing in bonds or CD’s, we earn a stated rate of interest.  This is relatively low risk and low paying.  Stocks, however, are sexy.  In contrast to bonds, there is an expectation of high returns.  The higher the returns, the more our money compounds and we end up with a much larger nest egg.
 
But what rate of return should we expect from our stock investments?  When you fiddle with one of the many online retirement calculators, you usually have to enter an expected rate of return, so what do you use?  Wait, didn’t that fund manager on CNBC claim 16% average returns?  Didn’t that stock broker quote a statistic in the 13% range?