Smart beta…black swans…private equity. If you follow financial media, you have probably encountered colorful adages that money managers and analysts use to discuss the stock market and investment portfolios. This jargon helps distill complicated market dynamics into convenient sound bites for small investors…but it also can be intimidating and confusing, and that can lead to investing mistakes that cost you money.
To help you, here’s a Bottom Line Personal primer on six common Wall Street catchphrases…what they mean in plain English…and how understanding them can help you make better decisions as an investor—from investing expert Justin Carbonneau, host of the investing podcast Excess Returns.
Smart Beta
What it means: An investment strategy using a rules-based approach to construct a portfolio that can outperform traditional index funds. With traditional funds, such as those that track the S&P 500 index, the larger a company’s market capitalization (total dollar value of its stock shares), the greater its weighting in the fund.
Advocates of smart beta think that blindly overemphasizing the biggest companies is not a smart strategy. Instead, smart-beta funds tweak traditional indexing by selecting and weighting stocks using factors other than market capitalization. Examples…
Valuation—stocks that are considered undervalued based on metrics such as price-to-earnings ratio (P/E) or a composite of valuation ratios.
Low volatility—stocks with lower price fluctuations than the overall market.
Momentum—stocks with recent fast-rising share prices.
Why smart beta matters now: There are more than 1,000 smart-beta exchange-traded funds (ETFs) trading in the US. Are they just smart Wall Street marketing…or do they actually work? Smart beta can outperform in the short term, depending on market conditions. Last year, the Invesco S&P 500 Momentum ETF (SPMO) returned 46% versus 25% for the S&P 500 in a powerful bull market. But it’s hard to gauge long-term performance of smart-beta funds because they haven’t been around for decades. One obvious drawback: Smart-beta funds usually charge much higher fees than traditional index funds, which eats into investors’ returns.
Blue-Chip Stocks
What it means: The term “blue chip” came from poker games where blue chips denoted high-value bets. Blue-chip stocks typically are large, well-known companies with exceptional financial consistency and stability. Examples: Warren Buffett’s company Berkshire Hathaway…Apple (APPL)…Coca-Cola (KO)… Exxon Mobil (XOM)… JP Morgan Chase & Co. (JPM)…Johnson & Johnson (JNJ)…and Microsoft (MSFT)
Blue chips aren’t the most exciting or fastest-growing stocks, but they’re good bets for conservative long-term investors. Characteristics of these companies: Strong balance sheets and robust cash flows that enable the businesses to weather economic downturns…stable and predictable earnings over long periods…dominance in their industries due to strong brand recognition and sustainable competitive advantages.
Why blue chips matter now: In turbulent markets and uncertain economic periods like early 2025, blue-chip stocks usually outperform the broad market because investors value dependability and gravitate toward them.
Don’t Fight the Fed
What the term means: Align your investment strategies with the actions of the US Central Bank, also known as the Federal Reserve. The Fed is a powerful institution with a dual mandate to promote maximum employment while ensuring moderate inflation. Its control over monetary policy influences US dollar-denominated assets and the overall direction of the stock market.
How it works: The Fed’s main policy tool is setting the federal funds rate, which dictates short-term interest rates. Short-term interest rates impact everything from credit cards, mortgages and commercial loans—lower rates make borrowing money more attractive—to the outlook for consumer spending and economic growth. The impact of all this filters down to stock prices.
Many other factors affect stock market performance, such as White House executive orders, geopolitics and investor sentiment. But historical data since Congress created the Federal Reserve more than a century ago show that 12 months after interest rates peak and the Fed starts cutting rates, both stocks and bonds have always delivered positive returns.
Why it matters now: The Federal Reserve began its interest rate–cutting cycle back in September 2024. Because rate cuts are stimulative for the economy, “Don’t Fight the Fed” suggests a tailwind will lift the stock market if interest rates continue to go lower.
Private Equity
What the term means: Investments in companies that are not publicly traded. Example: Elon Musk’s company Tesla trades on the NASDAQ exchange, so anyone can buy or sell ownership stakes in the company by purchasing shares. But Musk’s aerospace company, SpaceX, is privately held and not available to retail investors.
Private equity has become trendy because it has the potential to be lucrative for early investors. Example: Open AI, the private company behind the artificial-intelligence chatbot ChatGPT, has seen its estimated valuation soar to $157 billion. Private equity also helps diversify a portfolio since you can get exposure to thousands of companies at different growth stages that don’t move in sync with publicly traded stocks.
Reality check: Private equity poses unique risks. If you own shares of a publicly traded company, it’s relatively easy to sell them. Private equity can lock up your money for years until you can realize a profit. Also, private-equity investments are open to only “accredited” investors. To qualify, investors need to have a minimum net worth of $1 million or a minimum annual household income of $300,000 for a married couple.
Why it matters now: Wall Street has introduced a handful of new private-equity–like ETFs for small investors. Packaging private assets remains difficult due to regulatory constraints. The Securities and Exchange Commission (SEC) still prohibits ETFs from keeping more than 15% of their portfolios in illiquid assets. Some of these new funds try to simulate private-equity holdings by owning stocks of publicly traded investment firms such as The Blackstone Group or KKR & Co., which invest in private companies themselves.
Safe-Haven Assets
What the term means: Investments that can reliably maintain or even increase their value during times of stock and bond market turmoil and economic uncertainty. The two best-known safe-haven assets are US Treasuries and gold. Each provides unique measures of safety depending on why investors are fleeing stocks and looking to protect capital.
US Treasuries are bonds issued by the US government. They come in maturities ranging from three months to 30 years. You are paid interest and promised the return of your principal when your Treasury bond matures. What makes Treasuries unique is that they’re backed by the full faith and credit of the federal government, which makes them a nearly risk-free option for bond investors even during recessions and bear markets. Important: US Treasuries guarantee absolute safety and return of your principal only if you hold them until maturity. Like any other bond, the value of a Treasury can fluctuate from day to day depending upon interest rates and supply and demand.
Gold has been used as a store of value for thousands of years because its price usually surges when geopolitical tensions escalate or financial markets are turbulent. The world’s limited supply of gold also can serve as a hedge against inflation, unlike paper currency which can be devalued by excessive printing
Why it matters now: Gold has been on a tear, rising more than 40%* in the past year as investors seek protection against a variety of uncertainties including stubbornly high inflation, the possibility of a global trade and tariff war, and instability in the Middle East and the Ukraine.
Short Squeeze
What the term means: Most small investors “go long” on stocks, buying them in the hopes they will appreciate in share price. But professional traders sometimes bet that a stock’s price will decline—it’s called “going short” or “shorting” a stock. Short sellers sell borrowed stock, hoping to buy the shares back at a cheaper price and lock in a profit.
A short squeeze occurs when a declining company that has attracted lots of short sellers shows signs of life and the stock price rises. Nervous short sellers buy the stock back at the higher price to cut their losses. That can quickly turn into a buying frenzy as other short sellers buy shares to exit their positions, which keeps pushing the price higher and higher. Example: In 2021, GameStop, the struggling videogame chain retail was one of the stock market’s most heavily shorted stocks by hedge funds. A group of amateur online investors decided to flip the script on aggressive hedge fund short sellers by purchasing GameStop stock, not because the company had a promising future but just to bid up its share price. The move turned the stock into a classic short squeeze. GameStop shares spiked more than 2,000% in a matter of weeks.
Why this matters now: In volatile markets, shorting can seem like an enticing way to make money. But in reality, it’s a wildly high-risk strategy. Reason: If you invest “long” in a stock, the most it can fall is 100%. But if you short a stock, the price can keep rising indefinitely, causing unending losses.
*As of June 9, 2025
