I am clearly not wired like a large cohort of investors who clearly have some sway in the markets.
As the popularity of CNBC and thestreet.com attests, for some, the stock market is a form of sport. Actually, better than sports, since in every contest someone wins and someone loses, but over long periods of time, stocks appreciate.
Yet I am dumbfounded at the way the public at large sees equities as safe. As we have pointed out, citing Amar Bhide, equities are a very ambiguous promise: you get dividends if the company shows a profit and management decides to pay some of it out, and you have a vote on certain corporate matters. Both these rights are subject to dilution. I take some comfort from the fact that star investor Peter Lynch once said something along the lines of, “When equities are regarded as safe is when they are most risky, and when they are seen as speculative is when they are the best buy.”
Since I’ve had to analyze deals and companies (starting in the days when spreadsheets were done by hand and you had to read annual reports and extract data from the financials and footnotes, rather than consult pre-calculated ratios prepared on God knows what basis from various services). I regard it as serious work to really understand a company and view markets as frequently irrational. I find the retail investing subculture a bit perplexing. Yes, there are clearly some people who do do the heavy lifting to make informed stock picks, others who use index funds, but there is a large camp that does neither.
And that isn’t to say they aren’t intelligent, but they operate on assumptions that are different than mine. So I wonder whether my reaction is prejudiced, even though my training says not. Or am I merely an old fart and things really are different this time?
Case in point: a buddy who likes the ponies (even calls stocks “the ponies”), bought his first stock at the age of 11, has good insights by virtue of a day job that gives him lots of useful fundamental and company-specific information, and has done pretty well over time (although not so well in this bearish market) regularly argues with me to tell me that my generally dour views are all wet. America is adaptable, we’ll get through this as we have past crises, and there are always good stocks even in bad markets.
He sent me this message today, an exchange with his broker, who he considers to be pretty astute. I’ve reversed the usual forwarded e-mail format; these messages are in chronological order:
Should we dollar average the citi? is it time to start rebuilding or should we wait for the next consumer shoe to drop which will be the credit cards and the 2nd mortgages.
Looks like any weakness now should be bought – Yield curve is positively sloped and that is what I was waiting for . Should see Dow 13500 + …. S&P looks better . Anything though that is done should be done on a
dollar cost average basis….the time has come for me to be a bit more bullish.
You tell me….