What do Halloween and Investing have in common?

By LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management AdvisorSM, Accredited Investment Fiduciary® , Published Author |

So what do Halloween and investing have in common?  Is it the fear of the unknown?  Scary times?  Afraid you’ll be haunted by your next investment move?  Maybe for some people.  For me, there are a number of interesting financial related terms that are Halloween-ish.  Have you heard of any of these?

Spiders.  A spider is the pronunciation for SPDR, an ETF, or exchange traded fund, and is one of many ETF’s which track the S&P 500.  The acronym stands for S&P Depository Receipts .

Voodoo Accounting.  This is an unethical practice by a company’s managers or accountants to manipulate bookkeeping thereby artificially inflating the reported profits of the business.  This can be done by concealing expenses or by falsely enhancing revenues.  For example, in a given quarter the profit of a company was reported to be $2 million but the company’s bookkeepers failed to include a $500,000 technology expense and a $250,000 electrical repair bill.  Inevitably, auditors will find the discrepancy and it will have to be corrected on the company’s financial statements.  The true profit of $1.25 million is revealed; the $750,000 disappeared like “voodoo magic”.

Zombie Banks.  Like the living-dead zombies, zombie banks continue to operate even though their net worth is less than zero.  They can do this by feeding off the implicit support of government credit.  Edward Kane first used this term in 1987 to illustrate the dangers of allowing a large number of Savings and Loan institutions to operate despite their insolvency.  In horror movies, the dead zombies crawl out of their graves and survive by feeding off the living.  As long as they can consume human flesh, they go on as living-dead.  Zombie banks rely on new deposits from customers to continue to operate despite their financial insolvency.  Without the new deposits, they would not be able to meet their financial obligations.  Why do depositors put their money in these institutions?  Ultimately, they have the promise of the government through FDIC insurance should the banks go out of business.  Therefore, zombie banks survive as the living-dead.

Corporate Cannibalism.  The gruesome act of one human eating another human’s flesh is cannibalism.  In the business world, companies are ever looking to expand their market share.  The competitiveness of other innovative companies can make it difficult to keep market share, let alone expand it.  Corporate cannibalism is when a company introduces a new product line that actually competes with one of their own existing product lines in order to gain market share.  The technology industry is famous for this.  For example, a mobile device from XYZ tech company may be the current hot seller in the marketplace and XYZ company will introduce a newer, faster, sleeker, better mobile device which they know will hurt the sales of their existing hot seller.  They do this anyway to stay ahead of the competition.  XYZ would rather kill the sales of their own current hot seller in order to gain market share by being the first out of the gate to introduce a newer, faster, sleeker better device.  Thus, they are cannibalizing their own hot product sales by introducing the new merchandise.

Phantom Stocks.  A phantom is an illusion of something that does not really exist.  My first memories of phantoms are from episodes of Scooby Doo, where a ship appears in the foggy distance of the sea or creatures seemingly lurk in far away spaces, but then it turns out that the scary figure really is just an illusion.  Phantom stocks are not as scary as that.  As the name would suggest, a phantom stock is one that does not really exist.  Companies will create these imaginary stocks of their own corporation as an incentive to reward management.  The phantom stock will follow the price of the real stock, without the company having to give up a real equity stake in their corporation, as they would if they awarded real stock via their outstanding shares.  It’s actually pretty creative on the part of the company.

Ghosting.  A ghost is generally believed to be a soul that has departed the body but is still bound to earth, invisible to mortal beings.  Ghosting in the stock market is where two market makers work in collaboration with each other to manipulate or control the price of a stock.  This is an illegal practice, as they are supposed to remain independent and therefore in competition with one another.  Like a ghost though, the practice becomes invisible to other investors or regulators making it difficult to spot or overcome.

Dead Cat Bounce.  This is a slang wall street term that was derived from the notion that even a dead cat will bounce if it falls from a great height; it is used by traders and investors when a market is on a steady decline, then makes a rebound, but that rebound is ultimately short lived.  A dead cat bounce is identified in hind sight, because after the brief rally, the market continues its downward trend. 

Death Cross.  A death cross is a technical indicator identified with charting when a short term price trend, or moving average, in a stock or an index moves below the longer term trend.   The lines on the chart create an X, or a death cross.  Usually, this technical indicator signals to the analyst that the price is headed further downward and may take some time to recover.  Depending on his or her position, this gauge helps the analyst determine his or her next move.

It would seem that trick- or- treat could easily be coined in the investment world.  My advice to you would be to watch out for tricksters as they are the ones that offer the illusion of the greatest treats. 


LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or louann.schulfer@lpl.comwww.SchulferAndAssociates.com, louannschulfer.com or louann.biz

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