INSIGHTS

They Put The Goo In “Market Guru”If you are getting the impression that we are not too impressed with market prognosticators, you would be correct. We continually remind you of this fact because of our belief that market forecasters inflict meaningful damage to investors’ performance results. For example, as was pointed out in a blog entry* on The New York Times website earlier this year, three different “famous” market gurus have come out with three really, really different forecasts.* NYT.com – 1/12/11 Bucks blog: The Danger of Stock Market Forecasts by Carl RichardsRobert Prechter, a devotee of the Elliot Wave Theory, made some very accurate calls two or three decades ago. In July 2010, when the Dow Jones Industrial Average was 9,600, he predicted that over the next 5 or 6 years the Dow would plunge below 1000. Nine months later the Dow is over 12,300, which is a lot closer to its all time high than it is 1,000.Robert Shiller of Yale has put his S...

The Sky Seldom Falls"I've been through some terrible things in my life, some of which actually happened."- Mark Twain"How much pain they have cost us, the evils which have never happened."- Thomas Jefferson"But what torments of grief you endured from the evil which never arrived."- Ralph Waldo EmersonAs the three smart guys above say in varying shades of tasteful English, we tend to worry about a bunch of stuff that never actually happens. Y2K, Bird Flu, and Killer Bees would probably fit in this category. We may laugh about them now, but I assure you that the first time you heard about them, there were probably no chuckles. In fact, most likely just the opposite reaction occurred. The human psyche will often travel to the farthest, and often scariest, realms when trying to figure out how to prepare for a potentially negative event. That's just how most of us are built.Unfortunately, that's often not the best way to behave in the investment wor...

The View From The Bottom Of The PondPerceptions often differ depending on your vantage point. When we watch a duck in water, it typically appears to be gently gliding along, barely making a ripple on the surface. But that calm, serene assessment would change greatly if you were lying on your back on the bottom of the pond. In that case, you would see the rapid, almost frantic pace of webbed feet churning beneath the reflective water's surface. Simply put, there's a lot going on under there that most of us don't see from our perspective.Asset class investing isn't much different. Some view this type of investing as akin to watching paint dry. No excitement. No trading. Occasional rebalancing. Where is the dramatic, frenetic pace that many expect, especially after watching talking heads advising buys, sells, holds, run for your lives, etc.? Actually, there is indeed a lot going on, even when you own a seemingly inert asset class mutual fund. As an example, let's take ...

A Fool and His Money Are Soon Parted (Hers Too)We're not quietly intimating that investors who buy stocks based on research reports are foolish. Rather, we are emphatically shouting it from the rooftops. You may remember that after the high tech stock craze of the late 1990's, and their subsequent huge crash in the early 2000's, the SEC handed out some huge fines and reached settlement with ten Wall Street firms. These firms agreed that they would separate their investment banking business from their research departments.Why the separation? The SEC noticed that when a public company hired a Wall Street firm to raise capital, that firm's research department just happened to overwhelmingly recommend that their retail customers buy that stock. It gets worse. Evidence then came to light that a certain firm's research staff actually made in-house jokes about how poor the buy-rated company's financials really were. This finally got the SEC into gear. That's when W...

Picking WinnersWhen your TV shows a skier shooting a rifle, and there are no police involved, you know it is once again time for the Winter Olympics. Team USA performed remarkably well this year. Few expected that. Attempting to predict just which athletes would win their events proved difficult, if not impossible. Some examples:Bode MillerIn 2002's Olympics, Miller won 2 Silver medals in alpine skiing. In 2005, he won the overall World Cup title, the first American to do that in decades. He was the Gold medal favorite in the 2006 Olympics. What happened? Nothing. He didn't place in any of the 5 races he entered. He did, apparently, enjoy the Olympic nightlife, and appeared unfazed when media criticized him for his unprofessional behavior. In 2007, Miller quit the US Team, and slowly sank in both fame and wins until 2009 when he completed his worst season on record, with no wins on the World Cup circuit. He was quoted: "The fire goes out after a while," and hinted at ...

It's All In Your HeadYou may have heard the story about a set of identical twin sons (David and Donald) who were born to very horrible parents. The alcoholic father was physically and mentally abusive to his family, and due to criminal acts, was sent to prison for life when the boys were six. Their mother was a heavy drug addict, and died when the boys were nine. The brothers were then separated and sent to different facilities, where they stayed until the age of majority. They never reconnected with each other. When the brothers were thirty, a researcher located both and interviewed them.Donald was in prison as a result of various crimes. He was an alcoholic, a drug abuser and had the AIDS virus. He was a loner and had never held a steady job. When asked why he turned out the way he did, he responded that "with a childhood like mine, how could I have turned out any other way?"David was a manager in a small consulting company. When he told the researcher about his early c...

Oprah’s IronyEven subterranean rock-dwellers know who Oprah is. She’s a talk show host of the highest rated program of its kind, a publisher and literary critic, an actress, and a TV and film producer. She has made the world’s most powerful celebrity lists several times, and both CNN and Time have called her arguably the most influential woman in the world. In 1991, at age 41, she became the only African American on the Forbes 400 World’s Richest People list, with a net worth of $340 million. In the last two decades, her wealth has only increased. She became the first African American billionaire and was ranked as the richest African American of the 20th century. Her annual income has been above $250 million in each of the last 2 years.The power flowing from her fame and wealth has allowed Oprah to have free reign over her creative and charitable desires. She not only gives away freebees to disturbingly appreciative members of her talk show audience, but Forbes ...

Ding, Dong, the Wicked Witch is DeadIf you were a child the first time you saw The Wizard of Oz, chances are you covered youreyes at least once during the movie. That ugly, green-skinned witch or those creepy flyingmonkeys were most likely the culprits. Adults viewing the film for the first time probably didnot cover their eyes. After all, they knew that the green skin was makeup and the monkeyswere little people dressed in costumes.That's not to say that adults never get scared when watching movies. Immediately afterwatching Alfred Hitchcock's bloody bathroom scene in Psycho, there were most likelythousands of women (and a few men) who thought twice about taking a shower when homealone. Or how about hitting the surf the same day you saw Jaws? Or thinking about satanicfears after viewing the head spinning, bile-spewing, possessed little girl in The Exorcist?Unfortunately, the fears felt from these movies are based on some reality. Knife wieldingpsychopaths do exist, some shark ...

A GlimmerAfter a miserable February and early March, wherein the markets made a sixth new low since itpeaked in October 2007, something interesting happened. The market actually went up. In fact, intwelve trading days, it moved more than 20%. That is the S&P 500's greatest bounce in the shortesttime since 1938. Should we be excited, or leery, or just continue to hide under the bed? Perhaps abit of all three. During the last three weeks of March, there were also a few surprising news itemsthat got the market's attention. Among them were:• Citigroup announces profit for the first two months of 2009.• New and existing housing numbers positive for February.• Retail sales and personal consumption reports suggest growth in 1st quarter '09.• Rapid liquidation of February's business inventories reported.Clearly, there was other economic news that was not so cheery, but the markets showed someoptimism with a quick upward response. So, ...

Is It Soup Yet?Have we bottomed? Is the worst over? Has the bull market started yet? No matter how you say it,many investors are thinking, or at least hoping, that the market will go no lower than it did in midNovember. The above chart shows the S&P 500 Index from its high in October 2007 until the end of2008. We can see that there have been five distinct "bottoms" or new lows, since peaking in late2007. Notice that some of the bottoms are literally single day events, while others are double ortriple bottoms that take several weeks or months to occur. With each new low, the market hasbounced back up, with gains of 10-20% or more, only to come down and make a new low.The point of this graph is not to bring back miserable memories. Rather, it is to show the difficulty in"calling" market bottoms. We may not know for several more months whether the November 2008low is in fact the bottom or not. If it turns out that November was the low, then chances are, by thetime ...