I am sorry to be the one to point you to this, if you haven’t already seen it. And I hasten to add that, as smart as Bill Gross is, he’s not infallible. And your stocks, if you pick individual stocks, may be the undervalued ones that do just fine, even if he’s right. I’m certainly not selling all my stocks.
Still, you could have done worse than to click the Bill Gross link I offered last year.
And where I thought Dow 36,000 was just a lunatic book title, I see nothing at all lunatic in ‘Dow 5000,’ the title of Bill Gross’s September Outlook.
Bill Gross is so smart! I got to interview him for a PBS series years ago, and he just blew me away. Here’s what I wrote about him in this space on December 11, 1997:
Bill Gross manages $90 billion or so in bonds, which has to be really boring until you realize that he somehow manages to squeeze an extra 1% return out of his portfolio year after year-an extra $900 million. But the image that impressed me even more, as we looked from his Laguna Beach living room out over the Pacific, was of a 53-year-old man determined to live to 100, getting it into his mind to run from Carmel to the Golden Gate Bridge-five back-to-back marathons over five successive days. On the last day of this run, his kidney ruptured. Blood was running down his leg. But he hadn’t reached the bridge, so he kept running. Only when he finished did he allow the ambulance to whisk him away.
Smart, tenacious people with blood running down their legs can be wrong. But not just because we hope they are. He writes:
My message is as follows: stocks stink and will continue to do so until they’re priced appropriately, probably somewhere around Dow 5,000, S&P 650, or NASDAQ God knows where. Now I guess I’m on somewhat of a rant here but come on people get a hold of yourselves. Earnings have been phonied up for years and the market still sells at high multiples of phony earnings. Dividends and dividend increases have been miserly to say the least for several decades now and you’ve been hoodwinked into believing the CORPORATION should hold on to them for you so that they can convert them into capital gains and save you taxes. Companies have been diluting your equity via stock options claiming that management needs incentives of millions of dollars just to get up in the morning and come in to work. Then they pick you off by trading on insider information, selling shares before the bad news hits and you have a chance to get out. If you try to get a hot IPO you find all the shares are taken – by Bernie Ebbers. Come on stockholders of America, are you naïve, stupid, masochistic, or better yet, in this for the ‘long run?’ Ah, that’s it, you own stocks for the ‘long run.’ We bond managers may have had a few good relative years but who can deny Stocks for the Long Run? Not Jeremy Siegel, not Peter Lynch, maybe not even Bill Gross if you stretch the time period long enough – 20, 30, 40 years. But short of that, stocks can be, and often have been poor investments. The return on them depends significantly on their beginning valuation and right now valuation remains poor. Dow 5,000 is more reasonable. Let’s see why . . . [it’s the first link on the Pimco home page]
CHEER UP – THERE’S ALWAYS SOMETHING GOOD ON TV
At least, with TiVo there is.
Michael Adberg: “I was surprised that your reader seemed to have a broken Series 2 unit – we’ve only seen one of those so far and it was a bad hard drive, not a modem. But for those older units with bad modems, we now have a way to replace a bad modem with an external modem. It’s here. This is an easy way to get it working again without having to send your TiVo anywhere. You also get a much hardier modem in the process and are much less likely to ever have a modem problem again.”
☞ It ain’t cheap, but it sounds as if it could be the simplest solution if cost is not your first priority. (I know: bite my tongue.) And now back to our regularly scheduled, depressing programming . . .
SO – SHOULD I SELL?
I don’t know. But the Bill Gross piece is, I guess, the more or less perfect lead-in to Dick Davis’s pre-ante-penultimate item, #32:
Item 32: When To Sell
The most difficult of market skills is knowing when to sell. There is no definitive answer, no formula that applies in all situations. Some investors believe good quality stocks should be held indefinitely and eventually passed on to heirs. Their rationale: “No one can time the market; there’ll be ups and downs but the long term trend will be up.” It’s a painless approach, no monitoring and no decision making. Others believe every stock, regardless of quality, is a sale at some point. Their reasoning: “No one can sell at the high but the stock’s price/earnings multiple history will indicate a reasonable price range to sell. Why ride a stock up and then down and then wait, sometimes for years, until it recovers to new highs?” A case can be made for either position. In my view, the temperament of the stockholder is the crucial factor. Which situation can you handle better? A repeated cycle of seeing a stock rise, seeing the gain erased and then waiting for it to rise to new heights again? OR seeing a stock rise, selling it at a profit and then seeing it go up, perhaps substantially, after you sell it? You can buy a stock at 40 and sell it at 48, comforted by the old saying, “you never go wrong taking a profit,” especially in trading range or narrow moving markets. But for some, the comfort quickly disappears, if the stock continues to climb to 100. Some of us by disposition, can have closure and not look back; others hang on emotionally. “Know thyself” is the key. One caveat: in deciding if and when to sell, keep in mind that once a trend is firmly established, the odds favor that trend continuing.
The trend these days in not up. To keep from going nuts with this stuff, I try always to look at “value,” hard though that is to establish.
If a stock seems to be undervalued, regardless of where the broad market is, or is trending, I like to hold it. I will often foolishly buy more as it sinks further.
If a stock seems to be overvalued, regardless of the trend of the broad market, I will often foolishly hold on, to avoid the taxes. But in my saner moments – even knowing an irrational market could take it higher (or that it might go higher for reasons the market “understands” and I don’t) – I sell. In late 1999 and early 2000, my saner moments were all too few and far between.
Have a great weekend.
Quote of the Day
Guys, just remember: if you get real lucky, if you make a lot of money, if you go out and buy a lot of stuff, it's gonna break. You got your biggest, fanciest mansion in the world. It has air conditioning. It has a pool. Just think of all the pumps that are going to go out. Or go to a yacht basin any place in the world. Nobody is smiling and I'll tell you why: something broke that morning. The generator's out, the microwave oven doesn't work, the cook's gay. Things just don't mean happiness.~Ross Perot to Harvard B-School students, quoted in Forbes
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