Michael Joy: ‘I’ve been reading and hearing the talking financial heads say things like “the market needs investors to give up on stocks before it will rebound” and other such bon mots. What on earth do they mean? Seems counter-intuitive.’

☞ It’s an age-old cycle. A market peaks when everyone is bullish, excited, euphoric, the economic news is great – because ‘there’s no one left to buy.’ I mean, it’s such a no-brainer! Stocks clearly outperform safer investments if you’re patient, and gee, if you can borrow against your house at 4% after tax and compound it in the market at, say, even as modest a goal as 10%, how can you lose? So everyone’s in the market, everyone’s psyched and expecting it to go higher . . . and that’s the top. Seems counter-intuitive, doesn’t it?

(I’m exaggerating when I say ‘everybody,’ but you know what I mean.)

Well, the other side of it is that once the market starts to go down, people go from euphoric to long-term bullish and then to, well, hopeful that the worst has past . . . to hanging on until their stocks come back to what they paid – they’re determined not to sell at a loss – to disillusioned (why didn’t they tell us it could be this bad?!) . . . to completely disillusioned and disgusted or panicked – and finally they get out while they still have something left. At this point, everyone hates the stock market, and the only stories you hear are filled with woe and gloom (‘look at Japan – after 11 years, it was down 70%!’).

And that’s the bottom. There’s no one left to sell. The people left holding stocks are so stubborn, they will not sell. And some others who did sell, and have some cash as a result, venture back.

At the top, nobody cares about rational valuations. Everyone’s making money, and you feel like a chump being left out. The last ones in are buying in total disregard of rational value.

At the bottom, nobody cares about rational valuations. ‘If I never see another stock again it will be too soon! Feh! Feh!’ The last ones to sell are selling in total disregard of rational value. (For a year or two around 1974, practically every story I wrote concluded, ‘It the world doesn’t end – and it usually doesn’t – stocks are a raging buy. And if the world does end, what difference will it make?’)

Is it always this simple and clear? (Or ever?) No. Nor, as the saying goes, do they ‘ring a bell’ at the top or the bottom. But this is the gist of how great swings in the market usually work. And there’s a pretty good case to be made that we haven’t reached the irrational disgust stage. With luck, and with lower interest rates, and with all that 401(k) money flowing in – and with our ‘sole superpower’ status and the stunning pace of technological change (with its concomitant productivity gains) – we may not have to. But we may. So, as always, never keep money in the stock market that you will really need in the near or even the intermediate future. The Dow three years from now could certainly be 40% lower than it is today. I am not predicting that it will be, but it certainly could be.

OK: Tommorow We’ll Cover Selling Puts. Today, we have to solve Friday’s puzzle.

In the equation SEND + MORE = MONEY, as you will recall, each letter stands for a digit. No two letters stand for the same digit. What digit does each letter stand for?

Hats off to the many of you who sent in the correct answer: SEND + MORE = MONEY translates into 9567 + 1085 = 10652.

I would definitely stop reading here and go about your business. If you got it right, you need read no further. If you had the good sense not to try, don’t spoil it now. And if you tried but got it wrong, this will only annoy you.

Still, for the record, here’s one way to figure it out:

We know M can’t be more than 1 because even 9,999 and 9,999 = less than 20,0000. So MONEY must be a five-digit number beginning with 1 (no five-digit numbers start with 0).


That tells us that S = 8 or 9, because there would be no other way to get these two four-digit numbers to add to a five-digit number (even 7,999 and 1,999 wouldn’t make it).


M = 1
S = 8 or 9

That makes O, in a sort of visual pun, equal 0. It can’t equal 1 (already taken) or higher than 1 (there’s no way that even 1999 + 9999 could equal 12,000 or more).


S = 8 or 9
M = 1
O = 0

And S has to be 9, because the highest MORE could be is 1098, and how could you get SEND + 1098 to equal at least 10,234 if S were less than 9?

So now we have

+ 10RE

Since 9 + 1 already give us the first two digits — 10,NEY – we can simplify what’s left as:



Now, it would appear that E, sitting above 0, equals N. But that’s not possible because E and N have to represent different digits, so E must have had to ‘carry the one’ — meaning that N = E +1. E and N must be a pair like 2,3 or 3,4 or 4,5.

It would also appear that R, sitting beneath N and adding to E, must be ‘negative one,’ since E is one LESS than N. But negative numbers aren’t possible in a simple addition like this, so it must be must be 9, except that, oops, 9 is already taken, so it must be 8 with a ‘carry the one’ picked up from D+E.

So now we have


We know all ENDY must all be between 2-7, as the other digits are now taken.

So E,N are a series, like 2,3, or 3,4, or … well, at most 6,7.

And D + E must add up to at least 10, to result in a carry to the next column. They can’t add to only 10 or 11, since that would require the letter Y to be a 1 or 0, both of which are taken. So it must add up to equal 12 or more.

Okay, with the numbers 2,3,4,5,6, and 7 available, you can either D or E is gonna have to be 7, because the next highest two numbers are 6 and 5, and they only add up to 11. So which letter is 7: D or E?

Well, it can’t be E because we already know N is one larger than E and that would make N be 8, but 8 is already taken. So D equals 7.


With D 7, E has to be 5 or 6, or else D+Y won’t get you above to 12 or more. But E can’t be 6, since that would make N 7 – and 7 is already taken. So E has to be 5, and thus N must be 6.


And that makes Y = 2.

9567 + 1085 = 10652

It is just conceivable – I am not predicting this – that this numerical equation will one day translate into DOW + S&P = NIKKEI. It’s quite close (9505 + 1140 = 13,405). But that’s a much tougher puzzle


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