Every so often I try to attack the piles that sit atop other piles, and discover something fun.
Here’s a fax I’m yet to deal with that someone sent me on August 4th . . . 1993. It’s a copy of a Forbes article entitled Bearish on America (July 19, 1993). The large-type summary above the title reads: “Are you willing to invest a good part of your money in countries like India and China? If you’re not, says Barton Biggs, you will have to settle for a lousy return on your investments over the next half-dozen years at least.”
The next half-dozen years . . . hmmm, well, that would bring us up approximately to the present.
As Morgan Stanley’s chief investment officer, Biggs was recommending in July 1993 that clients cut their exposure to U.S. equities to just 18% of all their assets.
- He thought the U.S. stock market had gotten way ahead of itself, with the Dow at 3500
- He thought that opportunities were better abroad.
- And, finally, Forbes reported, “[he didn’t] take seriously the Administration’s assertion that its tax increases and so-called spending cuts will shrink the federal budget deficit by anything like the half-trillion dollars Clinton claims. Once the markets understand that the deficit is going to be staggeringly high, [they will all come tumbling down].”
Nor was he alone in doubting the Clinton/Gore economic plan – not a single Republican voted for the budget. But in hindsight, the last half-dozen years have not been bad at all.
A year later, James Davidson — a newsletter writer who is so much smarter than almost anyone else, and who is so much better plugged into the truth, and so disdainful of those who disagree with him — headlined the July 20, 1994, issue of Strategic Investment, his newsletter: “IT’S OVER.”
“Strategic Investment has repeatedly warned that the dangers of deeper depression remain,” concluded the piece. ” . . . It was fun while it lasted, but anything that can’t go on forever will come to an end. The plunging bond market and plunging dollar tell us it is over.”
Of course, it’s dangerous to laugh at these things. It’s just when you do that you’re the one who’s made to look silly with hindsight. (“The day after Tobias mocked Davidson’s long-wrong dire predictions, the stock market collapsed, deflating consumer confidence and leading to the worst recession in living memory. It was not until the summer of 2011 that a recovery really took hold, pulled out of despair by the Scandinavians, whose Nokia and Ericsson behemoths had become the engines of global growth.”)
And I do worry about the stock market, or at least some parts of it.
Yes, Yahoo is down from 500 to 360 in the last six trading days — a 28% drop. But is that the bottom? That could be as deep into the bargain basement as it will ever sink. But I will hold onto my reckless short a bit longer. (REPEAT: DO NOT TRY THIS AT HOME.) Because according to the Market Cap Scale you can access from the menu bar at the top or bottom of this page, Yahoo is still valued at more than the New York Times Company, a powerful brand respected around the world.
Plus Apple! (which is also a pretty hot, and solidly profitable, brand these days).
Plus FedEx! (which will deliver many of the e-commerce Internet shipments).
Plus General Motors! (which for all its problems did manage to earn a $6 billion profit last year and pay out about $1 billion in dividends, or about five times as much in dividends as Yahoo had in sales).
Put YHOO on the left side of the scale (by clicking the “Add” button and following the instructions) . . . and put NYT, AAPL, FDX and GM on the right side (by clicking the check boxes to the left of their names) and . . . when you click “weigh,” the scale goes THUNK! As YHOO hits the ground, leaving the other four lightweights, combined, suspended in mid-air.
My friend Joe Cherner is even more skeptical than I am. He writes: “Computer manufacturers are in the best position to be portal owners. Eventually, when you buy a computer, you will plug in the electrical cord and the phone cord. There will be a button on the keyboard marked Internet. When you press it, you will go to a portal (via free Internet access). The company that sells the computer will decide which portal you go to. Yahoo would be dead.”
I’m not sure he’s right. I think Yahoo will find a way to prosper. But that doesn’t make it worth as much as Apple, the New York Times, FedEx and General Motors, combined.
But I have digressed! Did you notice that? One minute I’m talking about Barton Biggs and the next I’m weighing stock symbols on a virtual scale. Soon I will be talking about hit TV dramas.
I did have a point, and that point is this: It is SO hard to call the market.
Barton Biggs is a very smart, wise man. He was so wrong. My friend Joe and I are not total idiots, but we have lost more than a dime or two with our laser-like intellects.
So you? Should you beat yourself up for buying too early or selling too soon? No. Should you trade actively in order to beat the market? No. Active trading will eat you alive in transaction costs and taxes.
Should you play this game at all?
Well, not if you can’t afford the fun. For game-playing I recommend computer Scrabble. And on Wednesday nights at 9pm on NBC: “The West Wing.” Do not miss it.
But for your money, I would eschew the Investment Casino, exciting though it certainly has been of late.
I would put into stocks only money you truly won’t need to touch for many years. And that money, unless you have an exceptional talent for this, I would put into two or three no-load, low-expense, low-tax index funds.
Especially for younger readers, the best approach is to invest $250 a month or $2,500 – whatever you can comfortably afford – and just keep doing it, through ups and downs, all your working life. The hard part is making the money, investing it methodically, and having the discipline not to “play” with it.
Discipline is hard, but not as hard as beating the market.
Quote of the Day
In 1800, 75% of [an American's] working man's expenditures went for food alone. By 1850, that had dropped to 50%. Today it is a little more than 11%.~The Wall Street Journal, September 20, 1996
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