As we begin the new year, we always review the prior year on Wall Street. The clear winner once again was big US companies for the 5th year in a row. Less than 10 companies are dictating the S&P 500 returns which has been the case for a while now and it continues to concern us. What is the old cliché? Trees don’t grow to the sky or in other word there are natural limits on growth and improvement.
During the review we realized how many acronyms get used on Wall Street and how guilty we are of using them. So, we decided to review a few of them in plain English. Acronyms are designed to trick the mind and make you more comfortable with risk you don’t understand.
One acronym we like is ETF = Exchange Traded Fund, this one is used a lot these days. Basically, it is basket of stocks or bonds packaged with a theme and trades on the markets throughout the day based on the stocks in the ETF. For example, the Dow Jones Industrial Index ETF (Symbol DIA) holds the 30 stocks from the Dow Index. The S&P 500 Index ETF (Symbol SPY) holds 500 stocks from the S&P Index. There are many low cost and effective ETF’s available.
Some of the more deceiving and risky ones…
HLT = Highly Leveraged Transaction
PIPE = Private Investment in Public Equities
CLO = Collateralized Loan Obligation
SPAC = Special Purchase Acquisition Company (this one has been in the headlines a lot recently)
TAN = Tax Anticipation Note
Acronyms are used by Wall Street to package and sell investments and make them seem less risky.
One of our primary jobs as an Investment Advisor is to sort through them and ABC (Always Be Cautious)!
We hope 2022 is off to safe and healthy start for you.
The Creekside Team,
Andy, Teresa and Mike