Because I spent, oh, about a half an hour of my time on the subject, I'm going to recycle here an e-mail I recently wrote. I'm generally a believer that more is better, and that while quality is subjective, quantity is objective. In this spirit, I'll never hesitate to lard up my blog with random bloviating taken from any context that can be wrenched into this form.
Quality is fine and a wonderful thing, and useful when assessing an Italian restaurant or a painting. But the true measure of net worth is a number thing and nothing but, just as the true measures of bodily strength and horsepower and a daisy cutter's destructive impact on some Islamic fanatics can all be captured in a number. Maybe the true worth of a blog, in fact, is not the quality of the posts, but how many of them there are. If only I could get my archives to work, I could really gild the lily, since I have an evidently limitless capacity for jabbering away. (Somewhere in here, there's a Borges short story; or at least a good puzzle: if 500 bloggers post continually, how long will it take before two of them post exactly the same thing, in the same words.)
The e-mail in question revolved around this Bob Brinker chap, who is, I suppose, a commentator on the stock market. He has a radio show; some think he is a "guru." He's got the requisite
eponymous website, wherein he invites those who surf by to partake of his market wisdom. Mostly fee-based stuff, and there's nothing wrong with that; at least his site does not launch Night of the Popups. My love of fees, however, is in direct proportion to my ability to charge them, so my enthusiasm for his site is tempered by my reluctance to credit my Visa. Brinker's site does have a "sound money" audio freebie, but my surge protector, like my credit, has inherent limits -- only so many outlets -- so my computer's multimedia potential has not been fully realized. My speakers aren't up, and there's nothing more worthless than an audio file without speakers. I realize I'm missing out on the whole broadband experience, which makes me something between a Luddite and a neophyte, I suppose: too plugged in to be the former, too old to be the latter.
Back to Bob Brinker, and he's calling for a "secular" bear market. I suppose that, first off, I should be pleased that he's calling it a "secular" market instead of a "religious" one. Actually, this is a usage -- "secular" to describe long-term trends in securities markets -- that seems to have acquired a lot of ... er,
currency, over the past few years in the biz press. (It was a secular bull market a couple of years ago, that was going to go on and on and on and on ... ) One of the uses of this word is to describe a thing occurring once in an age or a century, or to describe a period of time lasting ages or centuries. Or to characterize, at least, a long interval of time: longer than, say, a year or two, which is as far into the future as anyone can reasonably, accurately, and responsibly predict the future course of the stock market.
Brinker is calling for a "secular bear market" lasting 10 years or so; I guess that 2002 is Year Three, which means we have to hump it for seven more years of this stuff. Question is, why should anyone heed this call any more than, say, Miss Cleo calling for a spiritual antelope of a market? Bob Brinker: I thought at first he was the guy with the white hair who hosted the "Price is Right" who hugs the fat contestants and then beds down the blondes who model the camping equipment dressed in the height of Brownie short-shorts fashion. No, this is Bob Brinker, market guru, who evidently "called" the bear market back in January of 2000.
What was that call? That month, he advised his listeners to reduce their exposure to stocks to 60% of their total portfolio. I'm not sure what percentage he had advised investors to have in stocks prior to that; it would be helpful to know if he had been advising investors to be fully invested, or to be 65% percent invested. If the latter, going from 65% to 60% is not exactly the kind of market call that would register on the Richter scale, at least in my opinion. It's always been a big deal in the biz biz when, for instance, Abby Cohen, one of the heavy hitters of the Street, advises a "rebalancing" of a portfolio. That rebalancing is never anything I'd consider to be real dramatic; she'll go from 65% to 60% in stocks, for instance. But, boy, does that make the Street sit up like it's just heard a banshee in its collective ear. Clocks stops, tides fail, earth stands still, and a few pacemakers are strained. Not to bash Abby, who's as legit as they come and always worth listening to, but these numbers don't exactly rivet my attention, when the Nasdaq market loses 70% of its value in 18 months (from March of 2000 to September of 2001). In that context, an asset reallocation from 68% to 65% is something less than a tectonic shift on the order of the Loma Preita earthquake; it's more like dust motes stirred up by the slamming of a phone on the receiver after your broker tells you to sell a stock at an 80% loss which he had recommended six months ago.
All this is not to say that Mr. Brinker does not know his stuff. No doubt he does. Evidently, he's very good at describing the nuances of the market to the individual investor, and anyone who can, and is willing to, provide the average Joe or Josephina copies of the keys to the gates of investing is performing a public service. With the duplicity and conflicts of interest of so many brokerage firms open to such display now, it's more than ever important for an investor to make his or her own decisions, and not to rely on Henry Blodgett and company. That means they have to learn something about what they're doing and, to the extent Mr. Brinker is willing to teach, he does a valuable and good thing. Whether that translates into taking his advice, and especially hewing to it all the time, is another thing entirely.
I'll give credit to Brinker for "calling" the market top in January 2000 -- although I'll bet he wasn't at the time calling it a "market top," but probably something like a "prudent reallocation of assets away from a market we think has become slightly overvalued." Still, in saying that, Brinker comes out smelling like the proverbial rose. And perhaps it's unfair to hold him to the standard that he needed to say at that time, this is a bubble and get out now. Few, if any, did, and the legit people in the business all admit they were burned in one way or another, because they all were. If they had been any kind of significant skepticism about the market bubble, it wouldn't have bubbled up to the levels it did in the first place. Only in retrospect does it seem obvious that the index was at an unsustainable level, just like only in retrospect is it obvious that barbaric religious lunatics would want to use planes as weapons of mass destruction against innocents in skyscrapers. In the winter of 1999-2000, when everyone was worried about what would happen when the clocks turned that left-most digit from "1" to "2", every disaster, it seems, was being predicted, except the two which eventually happened: the stock market collapse and September 11th (and, please, I'm not equating the two here, I'm just making a point). In other words, there were very few people then calling for Nasdaq to be brutalized by a 70% decline; if all the people who claim now to have seen that kind of collapse coming had acted accordingly, then the Nasdaq would never have gone much above 3000, much less topped out at 5000.
So Brinker was better than most. When we gauge the effectiveness of services in our culture, however, "better than most," when the "most" are atrocious, hasn't, historically, cut it. In the 1970s, when the American auto industry was, by most accounts I've read, punching out absolutely wretched stuff, does anyone commend to fond memory now the odd 1970s car that might not have been as bad as the others, for any reasons other than sentiment or esthetics?
I would credit Brinker's call a bit more if I knew more about its specifics; a quick "Google" search of newsgroups such as misc.invest.stocks, however, didn't turn any up. Since January of 2000, in fact, some stock sectors -- health manitenance organizations, consumer nondurables, some industrials, precious metals -- have done quite well. It's the technology and telecommunications sectors, and to a lesser extent, all big captialization names -- in other words, the companies held by the vast majority of retirement plans in this country and which make up (or at least made up) the "stock market" in the public's mind -- that have been eviscerated. The relative weighting of these companies on specific indicies has directly influenced these indicies relative performance; the Russell 2000 index made up of companies with small captializations, or market values of five billion dollars or less, has done far better than the aforementioned Nasdaq composite index.
For a fair analysis of Brinker, his admittedly prescient January of 2000 market call should be placed in the context of other market-timing calls he's made since. One was to buy the Nasdaq (in the form of the so-called "triple QQQs", basically a stock that trades the Nasdaq index) in the autumn of 2000. At the time, the Nasdaq was struggling to hold around 3500 (I can't believe I just typed that: "struggling to hold 3500"). Then there was the election, and the ongoing Florida drama (which, at the time, seemed like the event, or at least the controversy, of a lifetime; have times ever changed). The Nasdaq couldn't handle the Saga of the Chads, however, and it plunged through the 3000 level (I'm not sure of the exact number) that had represented the bottom of the April of 2000 selloff, when the tech/telecom investment bubble first burst. I'm not sure where Brinker's call came, but if he suggested buying the triple-Qs after that support level of 3000 had been broken, then that's a clear violation of any rule of technical analysis known, and it would have been almost irresponsible of him to recommend buying the Qs, to an audience that by definition is probably not that sophisticated about investing and probably does not trade. Perhaps that's being too hard on him, and I'm not sure exactly when he made that call, anyway, so I shouldn't reach such a conclusion. But from what I've read on Google -- not the final word, I know -- whatever Brinker might have saved his listeners by getting them out in part earlier in the year, he lost a lot of that when he made that autumn call. How so? The percentage loss on the Nasdaq between March of 2000 and November of 2000 (from 5100 to 3400, approximately) was
33 percent (actually, very close to the 31.8% figure beloved by practitioners of the Fibinacci method). A similar point loss has occurred between then and now (the Nasdaq is, as of this writing, about 1700); that is a 50% loss, however. I'd be interested to hear whether Brinker was one of those pitching the "new tech" names in the fall of 2000 -- the JDSUs and CIENAs and AMCCs -- when they were all priced to the stratosphere and when so many of the commentariat were pitching them like the real estate salesmen were pitching Florida in Mamet's "Glengarry Glen Ross."
I haven't heard Brinker's show, but "financial genius" is a term I'd be hesistant to employ when describing him. These media financial touts get one call right, and their suddenly the Oracle of Omaha (Warren "nu'cler" Buffett) if not of Delphi. What is often obscured by the dust raised when these panegyrics get tossed around is that expert's subsequent performance. Joseph Granville is a classic example; he said in 1981 that the stock market was historically undervalued and that it represented a great opportunity. He was right. Since then, however, he's made one bad call after another.
Brinker, after all, is first and foremost a market
commentator. That's what pays the freight. I'm sure he invests and does well. He probably wouldn't have gotten his perch in the commentariat if he hadn't had some kind of track record. But these guys are in the business of making dramatic, which usually means contrarian, calls. There's nothing wrong with being a market contrarian; in fact, that's a sound investment strategy to be employed. Whenever everyone's ecstatic, you sell; when the blood's on the streets, you buy. That's generally hard for human beings to do, however, since we are instinctively creatures who find security in the herd. To be a contrarian on a consistent basis takes a lot of discipline psychologically, and psychological discipline is the hardest of all to instill. And if you are not a contrarian on a disciplined, consistent basis, then you're probably better off just rolling the dice.
The market commentariat has been exploding in membership over the past few years, and will probably continue to do so, since more and more people (and especially in the light of the Merrill Lynch scandal) are going to be tempted to invest for themselves (that is, if they invest at all; plenty have left the stock market, never to return, and that's a shame). A whole herd is out there, waiting to be led, and the market commentariat sees a lot of opportunity. How to get noticed? Make the dramatic calls, say the melodramatic things, use terms like "secular bear" and scare the hell out of everyone.
One of the best investors out there, I believe, is Bill Miller. He oversees a couple of Legg Mason mutual funds. His returns have beaten the S&P 500 average every year for the past
12 years. That's simply phenomenal, and no accident. No lucky throws of the dice there. That's particularly impressive in that his record has been established during a period that encompassed every kind and extremity of market environment: grinding bears, strong bulls, bubbles, markets going nowhere, markets going haywire. There's a guy I'll call a genius; to have a record like that, he must have mastered both the psychological and fundamental aspects of the market. Miller's not always appearing on television or radio, however. Why? Because while Brinker and James Cramer and all these other "geniuses" are popping up all over the media, Miller is putting in serious time analyzing companies, analyzing markets, analyzing psychology, and making his clients money, not making himself a reputation. Evidently, he's buying technology and telecom right now: AOL, for instace, which if you listen to most people is going the way of Westinghouse. Meanwhile, the Janus funds, which were buying AOL in the 50s, are selling it now down here at 19.
Brinker might, like Cramer does, provide a good service, in that he explains the nuances of the market, and I suppose he's pretty good at that. Assuming he's ethical as well, that makes him probably superior to 75% of the commentariat. That doesn't mean he's right all the time, however. He could be right about being in a "secular" bear market, although again I'd like to know exactly what he means by that. Does he mean that the major averages are going to continue to go down over the next decade? Or just that the Nasdaq
will not get back to 5000 in the next 10 years? Or something in between? He could very well be right that Nasdaq will not get back to 5000 in the next 10 years. But -- and, again, I emphasize, in the absence of any external event like a catastrophic terrorist attack of Buffett's nightmares -- there is just no fundamental economic evidence to suggest that the stock market is going to
continue to tank for the next 10 years; in fact, there is a preponderance of evidence suggesting otherwise. The economy is strong and getting stronger, inflation is, in the short term at least, a nonissue, the cost of money is historically low, productivity continues to increase (and act as a brake on inflation), and the technological revolution that everyone seems to have forgotten about (which prompted, in a way, the bubble in the first place) is still going on. Against this background, we're well into our third down calendar year in the stock market, which hasn't occurred since the Great Depression. Even the most pessimistic bear would not even try to compare the fundamental economic conditions of today to those prevailing duirng 1929-31.
Brinker doesn't really have much of an idea where the market will be going in 10 years. Obviously I don't. For that matter, Bill Miller doesn't, either. No one can predict things 10 years out. Too many variables, and too much time for any one variable to launch a chain of events that no one can possibly foresee with any degree of accuracy. Does anyone know what the status of the war will be in 2012? Will there even BE a Wall Street or a New York City in 2012? Assuming the Apocolypse doesn't happen, what will interest rates be in 2012? What will the growth rate of GDP be? What will inflation be? What will the dollar's relative strength
verses the Euro be? No one knows the answers for these in 2003, much less 2012. To try to predict where they will be 10 years from now, or what might happen over the next 10 years, is throwing the dice.
And the dice are loaded, but not for bear. In the absence of any real facts, when you throw the dice, the best thing to do is use history as a guide. And history suggests that the stock market goes up, and that you're better off having your money in the stock market than anywhere else (that is, if you believe that more-is-better when it comes to money, which is what captialism is all about, anyway), since it is the asset class that has consistently outperformed all others: precious metals, bonds, cash, real estate, the mattress. This is a generality, of course, but when you're going out 10 years into the future, generalities are -- and I'll say this in keeping with Sunday's merciful end of the X-Files (a show that should have ended five years ago) -- the truth that is out there.