Michael Batnick did a good job today of explaining how frequent drawdowns, corrections, gut checks, what have you, are in the marketplace. We can debate Fed policy all day long but I think we would all agree, QE and ZIRP certainly curtailed volatility in the market. It was a nice run. It’s over. Let’s move on.
That’s not to say the market is going to crash here. It could, it might not. I have no idea. Smart people can make clever arguments both directions and many have. There in lies the danger for the average investor. Perhaps we should all beware of “false idols”.
We know the big names that like to make their market forecasts sound as gloomy as possible. I don’t need to run down the laundry list of guys and gals that have made horrendous calls over the year that still somehow seem to find a forum on financial news and other outlets.
One of the latest “predictions” is a 75% correction from current highs that would take the market BELOW the 2009 lows. I don’t know, I”m not a master technician but I feel like there could be some strong support at the March lows of 2009. Maybe we’ll find out, who knows, but I’m a buyer at S&P 700, I promise you that much.
These “forecasts” usually include the following phrases: “if”, “could”, “possible”, “eventually”. This is a good way to forecast because you can point to something you “said” needed to happen first that didn’t which negated your bearish few. It’s a somewhat pathetic attempt to save face later when most savvy folks know that you’re merely an attention seeking charlatan. But there is a rub.
Every now and then one of these forecasts plays out. The weatherman who finally predicted the rain after 6 days of sunny skies will be hailed as a hero for having the courage to step out from the norm and suggest stocks are or were at a given time…a risky investment.
This person or people will be hailed, their newsletter will gain subscribers and revenue will sore all the way to about 1/3 of the gains that the forecaster might have had from merely dollar cost averaging into an index fund over the same time of aforementioned forecast. They will also appear on television and in blogs for years following even after the market recovers having never “rung the bell at the bottom”. (No one does that either)
An average person will see this person on television, quoted in the newspaper, interviewed on the radio and think, “Surely, this person has credibility, why else would they be on TV?” There in lies the danger for some, they are easily persuaded.
Yesterday afternoon one of my college roommate called me. As it often does, the conversation turned to the market. Many friends and family members do bend my ear on occasion on stocks or their investments if for no other reason then they know I follow the news flow of the market on a daily business.
At the end of the 25-minute conversation we hung up. He is likely buying a stock today we discussed based solely on what I said despite sharing these thoughts with me. “Those aren’t the stocks I usually like to buy and that area isn’t one I know much about but you seem to be saying buy at almost any price. I‘ll buy.”
I found this a little disconcerting. For a moment I thought about our conversation. Have I missed my chance to be a great broker, cold calling people and pushing stock for commission? Was my analysis of this stock to my well being because I already own it? Was it fair? Should I call him back and tell him to make sure he did his own work on it and reiterate that I thought the stock could easily fall another 10%?
Sometimes I wonder if people that appear on financial TV or peddle there wares on Twitter have these same internal conversations. The fact is I am no more intelligent than my roommate. I have just chosen to apply my intellect to an area that he has not shown as much interest in to date.
When I worked in professional sports I would often be asked, “What is it like to be around so and so everyday? What’s he like?” My response to this was and usually is that it’s entirely possible that playing that particular sport may be the ONLY thing in life that person is better than you and me at. That makes them much more approachable.
Anyway, these people you see and read, they may not know more than you just because they have an audience. Almost 5,000 people follow me on Twitter. Some might think I must have a certain acumen in investing to garner a following and therefore my thoughts should have more credence then say, your next door neighbor. They shouldn’t.
If you were to ask me about a particular stock, and I don’t own it or never have, it’s not only possible but extremely likely that you know the stock better then me. I might share my thoughts on it but that shouldn’t throw you off your thesis of what could be an amazing opportunity.
Someone I respect the other day asked me what my agenda was on Twitter. They said I seem to like to pick fights. I’d say I like to make counter points to arguments I don’t agree with but I can be combative, there’s no point in disputing that.
I have no newsletter, I have no subscription services, I’m not selling ad space on this blog. I gain very little from writing these posts other then having a creative outlet. I don’t understand why I would have an agenda. I didn’t think it was against the rules to have a counter point to a piece of advice or tweet that I don’t agree with.
I’ve challenged pundits using their own tweets against them or by reminding them what they said previously. This has been met at times with “You have too much time on your hands, man” Well, if you just go to the search box and type in a symbol and the handle of the person you are speaking to, this sort of information can be unearthed in a matter of moments.
If it’s on a stock I own or am interested owning, I usually file that information away in my memory bank and the Internet makes it fairly easy to find later. Gee, sorry you were wrong. I just don't understand how people can be so sure of something using the same method they had previously which had turned out to be wrong. “Blank stock looks like death right here guys.” Um, it rallied 10% the last time you said that, is it possible you should analyze your process on that particular stock before letting everyone else in on it? I suppose we only mock “It’s different this time” when digesting Macro arguments. OK.
The truth is the only guaranteed money in the market is selling research, subscriptions.or collecting ad revenue. “I don’t know” or calm, nondescript statements do not drive revenues folks.
The point is that there are many people out there that may know more about investing than you but no one knows your risk tolerance or goals as well as you do. Just keep that in mind the next time you hear the sky is falling. As long as your roof is strong, you’ll probably be okay.
Good luck out there.