Pete the Planner: Financial jargon making you dizzy? Here’s some help

My introduction to jargon included a corky flapper and a ballcock. My family was in the plumbing business, and these were just terms of the trade.

Outside of the trade, however, not too many people know what these two mysterious terms even mean. I’m sure every industry has esoteric nomenclature. And you had better believe the financial industry is no exception.

By understanding this weird terminology, you’ll be able to improve your overall investment knowledge and financial comprehension. You'll hear these terms thrown around newscasts and financial shows, and in about four minutes, you'll know exactly what they mean.

-- Bull market: An extended period of time in which the stock market rises or is expected to rise. Bulls are investors or analysts who feel optimistic about the stock market and are likely to act on that optimism by investing money. There’s various theories on the origin of this term, but one theory suggests it’s a description of how a bull attacks. A bull attacks someone or something by driving its horns in an upward direction. It’s the upward motion which describes an increasing market. We happen to be in a bull market right now, which began in March of 2009.

-- Bear market: Just as a bull forces its horns up into the air during an attack, a bear swipes its claws down. Thus describing the motion of a declining market. A bear market is a declining market, and bears are market pessimists. Bears generally don’t buy into a falling market, and sometimes even try to profit from a falling market through techniques such as short-selling and various options strategies.

-- Correction: Much like when medical tests come back positive, it’s a negative event. The stock market will always come into balance, which means if it’s too high, because people are overvaluing stocks, it will correct. Correct as in go down. Yes, a correction is a crash of sorts. For what it’s worth, a recession is a form of a correction as well. I’ve even heard economists say a recession isn’t a problem, it’s the solution. Trite, but relatively accurate.

-- Oversold: When something is sold so much that it price falls below its true value, then it’s said to be oversold. Oversold is a good thing, because prices are then likely to turn around and head up.

-- Overbought: When something is bought so much that it price rises above its true value, then it’s said to be overbought. Overbought is a bad thing, because prices are likely to turn around and head down.

-- Dead cat bounce: When the market is falling over time (bear market), it will occasionally quickly rise in value, even though the market isn’t necessarily healthy or in balance yet. This rise is often called a dead cat bounce. If you drop a dead cat from a high enough distance, it will bounce, but it’s still dead. Investors often are fooled by a dead cat bounce because they believe the market is in balance and ready to rise again. But it’s not. It just bounced. And it’s still dead.

-- Keep dry powder: Investors are often told to prepare themselves for opportunity by keeping dry powder. In this instance, the dry powder is cash. If you believe the market is going to fall or a specific investment opportunity is going to show itself, then you need cash in order to take advantage of that opportunity. If all your money is tied up in investments during a bear market, then you won’t be able to buy quality investments at low prices without locking in losses by selling your other investments to free up cash. Keeping dry powder allows you leave your investments alone.

Oh, and a corky flapper is a part for a toilet and a ballcock is a valve.

Have a question for Pete the Planner? Email him at pete@petetheplanner.com or visit www.petetheplanner.com.

Pete the Planner

Tune in to Pete the Planner, who is also Fox 59’s personal finance expert, at 8:15 a.m. Wednesdays.