Last week’s post about how Someone Has To Be Buying For The Stock Market To Go Down was pretty popular so I thought I would follow up on that theme.

Bill Cosby hosted a show called Kids Say The Darndest Things which was partly a resurrected version of Art Linkletter’s House Party from 20 years earlier. Part of the attraction was that most of the things the kids said were funny because they were trying to communicate with imprecise language. The financial media can be guilty of similar imprecision (as can I).

Here are two good examples of things you might hear or see on the radio or television:

“Wall Street was in a selling mood as stocks moved down today.”

Since there must be someone willing to buy the stocks that get sold, this doesn’t make much sense. What mood were the buyers in? Really all you can say is that the transactions that took place between the buyers and sellers priced stocks lower than the previous trading day.

In fact, since they are normally referring to the performance of market-cap weighted indexes (like the S&P 500 and the TSX) it’s possible that the market as a whole actually moved higher as the main indexes are only representative of a sub-section of the overall markets. For example, the S&P 500 covers only about 500 stocks (it varies a bit) in the US market, but there are well over 10 times as many stocks in the US.

“Stock XYZ is quickly going up today.”

Misleading. You can only say where a stock HAS gone. If a reporter indicates a stock IS moving one way or the other, they shouldn’t be wasting their time telling you about it and should be busy placing their order. But since they aren’t placing their orders, perhaps you should think twice about doing the same based on their comments.

Related posts:

1. Active Management and Financial Advice
2. Cap-Weighting Magnifies Your Exposure to Pricing Errors In The Wrong Ways
3. New RAFI Long/Short ETF