73 | Bad Words

A "bull market" is when stock prices rise by 20% after two declines of 20% each.

It's only identified after the fact.

Let me repeat - it's only identified after the fact.

On June 8, 2023, the Wall Street Journal informed us of the following, "S&P 500 Enters New Bull Market".

The market is up 20% since October 2022 and in June 2023 the Wall Street Journal says we're "entering a bull market".

What a joke.

If you've been waiting for the "start-of-the-bull-market" headline you've already missed out on a 20% rebound.

What's brutal is that the headlines of the past six months have been all doom and gloom - inflation, interest rates, debt ceiling, layoffs, etc. and yet a "bull market" has happened right in front of our eyes. The same way it always happens.

My guess is that a lot of people feel more comfortable investing after reading a headline like that, but they've missed out on a good chunk of the return that's already been made.

A beautiful example of financial terminology only adding to the confusion of personal finance.

This is bad enough, but here is where it's going to get tricky.

A "recession" is a period of temporary economic decline during which GDP falls in two consecutive quarters.

It's only identified after the fact.

There's a decent chance that the past 6 months will be declared a "recession" once the bean counters get around to closing the books.

It's not a signal of bad news. It's just confirmation that all the doom and gloom that you just lived and felt is in fact what the numbers say too.

It's a little like playing a basketball game without a scoreboard. If the other team full court pressed you into turnovers, got all the offensive rebounds, and made half of their 3s, the scoreboard isn't really necessary and can only confirm what you have already felt and experienced.

The existence of the scoreboard doesn't change what happened on the court and it certainly doesn't tell us anything about the outcome of the next game.

Just like the scoreboard, declaring a "recession" doesn't change the experience of the past 6 months and it doesn't tell us anything about the next 6 months either.

Be careful of finance words - they're rarely as helpful or informative as they seem.