“Past Performance is No Indication of Future Results”. Its a statement attached to every financial salespitch ever offered. So why is it no one believes it ?
Turn on CNBC, Fox Business, Bloomberg, and every other comment from the “experts” mouths are “historically when the Dow ….fill in the blank….” or “for the last X years, every time the market did X, then Y has happened within Z months”
Folks, it is different this time. Until this past year, at no other time in the history of the US Markets has there been Investment Banks investing for their own accounts to the tune of 30 or more to 1 leverage.
At no other time in the history of the Markets are there 17k mutual funds and more than 10k hedge funds. All competing with each other for the right to make a ton of money off of your money.
At no other time in the history of this country did savings fall as far below zero pct of income
At no other time in the history of this country were net effective interest rates as far below zero
At no other time in the history of our markets have the words “blue chip” completely lost their meaning.
At no other time in the history of our markets has the money of consumers been so portable and movable between hedge funds and mutual funds. Which means that at no other time have mutual funds and hedge funds been so susceptible to redemption runs.
At no other time have consumers been so in the dark about what is happening with our funds. At least George Bailey could see the line at the bank and know what was happening. We as consumers have zero transparency as to whether or not there is a run on our funds, so we run to take out our money first, just in case. The result is a virtual run on the fund where we hold our money, except that no one knows about it but the fund itself, and they aren’t going to say a word for fear of making it worse.
At no other times have financial engineers and investors been so in the dark about how bad the runs on funds have been, so we sit on the sidelines, dribbling in cash, not wanting hedge and mutual funds to dump their shares into our bids.
At no other time have their been 3 financial news networks and thousands of websites providing so much financial information and opinion. The sum of which has definitely lead us into a situation of “Paralysis by Bullshitalysis”. Everyone is afraid to buy. Everyone is afraid to sell or short. Sales forced by de-leveraging is the catalyst for the market. However, there are so few buyers, the de-leveraging sales are taking forever.
Who knows what the new normal is. No one has any idea what is going to happen in this market. NO ONE. Personally, I am completely hedged. I bought puts, sold them. Sold Puts, bought them back, then decided to hedge every long dollar and then some with big puts on the market. This allowed me to be protected on the down side, and tip toe on the long side. As stocks go down, my hedge allows me to buy more of the stocks I like. If the market takes off on the up side, hopefully my longs will more than cover the cost of my puts. If the market does nothing. I’m stuck right where I am, with my puts losing time value every day.
Maybe it will work, maybe it won’t. What I do know is this, everyone is a genius in a bullmarket. The last 5 years, that wasn’t a stock market. THIS is a stockmarket. This time it is different. This may just be the new normal.
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The key to any situation in the market is not to just have an opinion but to have an educated opinionas much as I hate to say this I have had to adapt to current market conditions and gone back to day trading. The volatility in the market lends itself well to this type of trading. The daily swings have been incredible as such jumping in and out after identifying a trade worked well. Buying the pull backs on an up day and shorting the down stocks after a rally, or converely shorting those weak stocks that rally on down days. Remember th is, Trading is not investing!
Comment by oceanhawk1 -
Pingback: He’s right. | The Moving Finger Writes:
And for those of you who follow Jim Cramer’s crazy market tips. When are you going to learn active investing is the wrong way to invest.
Check out his profound mistakes in this video:
http://www.youtube.com/watch?v=_nkZ3eHeXlc
Are you still going to wait for a prophet to come around and give you the answers. Quit believing. It’s impossible. Index your money, save yourself the trouble.
Comment by Ted -
Dont think its different this time. Look at history, for an indication of what happened to people the last people said that.
https://admin.acrobat.com/_a772887163/isitdifferentthistimeuspublic/
DFA!!! dfaus.com—educate yourself
Comment by Ted -
Pingback: Inquisix - Selling by Referrals » Blog Archive » Do the Hustle and Thrive
Pertaining to GE I just read an interesting article in Forbes questioning how they continue to deserve a AAA credit rating. Also their borrowing costs have sky rocketed and in the article they compared those borrowing costs to that of a B- rated company. This would cause GE to put up more than 13.5 Billion in collateral. All this from a “blue chip”!
Comment by Dave -
Even with the disclaimer about past performance, I think most people
do look at past performance for some indications and a comfort level.
I bought stock in a company that is one of the three that has never
lost money on the stock market. For my first venture into the market
I wanted a higher comfort level while I learn and get some experience.
Comment by Dana -
Pingback: Talkings | Entries | The New Normal?
It’s interesting how they casually mention “Past Performance is No Indication of Future Results” but they also have technical analysts on the shows. The problem with much of the media is that they have hours to fill and entertainment sells, not sound but boring financial advice.
Comment by John -
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I agree with the sentence mentioned, “Everybody is a genius in a bull
market.” I believe those that feel that the market can go up forever
are hiding in the pits now.
Cheers
Vincent
Personal Development Blogger
Comment by Vincent -
I’m partial to Baron Rothschild’s advice myself: “I buy ’em when
they’re going up and sell ’em when they’re going down.”
Comment by Michael L Beatini -
The fall months are notoriously difficult for the stock market. Now it gets a little bit more interesting.
Barry Ritholtz has a nice recap on Oct 2008.
http://bigpicture.typepad.com/comments/2008/11/just-how-bad-wa.html
The Financial Times was also interesting.
October a cruel month for markets
By Michael Mackenzie, Nicole Bullock and Deborah Brewster in New York
Financial Times
Published: October 31 2008 18:44 | Last updated: October 31 2008 21:43
http://www.ft.com/cms/s/0/f7032cf0-a77a-11dd-865e-000077b07658.html?nclick_check=1
Excerpt:
October has confirmed its reputation as one of the most punishing months for investors, with stocks suffering their worst monthly losses in 21 years in the US and their weakest ever in Japan.
Comment by nathan -
The next couple of months will separate the men from the boys as the
market flips and flops and tries to find its new normal. I think this
new era is a great opportunity for the smart and the brave.
Comment by Ron -
I put a large percentage of my net worth into 6 stocks on Oct. 10.
The gloom and doom media is usually wrong. They made it sound like
the world was ending. Nearly everyone was so scared. I love it. This
is the greatest stock market opportunity in my lifetime. I was too
young to buy in December 1974. I re-read accounts of the mood in 1974.
Blue chip stocks were trading at 8 times earnings and had dividend
yields of 7 and 8 per cent. I saw the same thing on Oct. 10. So I
loaded the wagon. If I wasn’t going to buy now. When the heck was I
going to buy something?
Comment by Kurt -
Pingback: Martin Frönmark » Blog Archive » Have we reached “Paralysis by Bullshitalysis”?
The Government’s involvement makes me very uncomfortable but the idea
of this current drama being the new normal is intriguing. Perhaps it
is good to shake things up and move to a new playing field. That will
bring new opportunities and new players to the field.
Comment by Danica -
Hi Mark,
This is a long shot here – I mean like Half Court Shot…backwards – but what the heck. I am huge basketball fan. I love the game and think it’s amazing what you’ve done with the Mavericks – and everything else you’ve achieved so far in your career.
Brief Intro: I’m flying into Dallas from Atlanta this Monday, November 3rd for my third and final installment of a sales training program I was selected for (staying at the Magnolia Hotel). I work at the CBS affiliate television station in Atlanta selling TV space. We’re owned by Meredith Corporation, so companies like Belo and Post-Newsweek and other major media companies have brought together 25 “Account Executives” from all over the country to grow and learn all about the biz!
Well, November the third just so happens to by my Birthday (yah!) and just think it would be one of the best experiences to celebrate turning a quarter of a century old watching the game I love, at a totally new venue, Mavs Vs Cavs, Dirk Vs Bron Bron UP CLOSE – it would be Amazing!!
I know their are still a few tickets available, but you wouldn’t happen to know anyone with some really good seats, do you? 🙂 This might be more like a full court shot without arms, ha, but hey, you never know unless you ask! Whataya say!
Go Mavs! ….unless they’re playing the hawks, ha Thanks Mark
todd.isaacs@cbs46.com
404-983-3001 Cell
Comment by Todd Isaacs -
Hi Mark,
I’m a Chinese girl who just come to New York to study. I’ve been a fan of Mavs for 7 years.
I would like to see mavs guys in Nov. 16th when you’re here to play with Knicks.
I’ve already bought the ticket but I still wanna see the team practicing before the game.
Would you pls tell me where can I get such a schedule? Thanks a lot!
Comment by Kunyu Zhao -
Mark, the sad thing is that many Americans have no idea that they have options outside the stock market for their tax deferred investing. As a self-employed entrepreneur, I’ve enjoyed some tremendous gains by investing my IRA funds completely outside of the stock market. Yes, it’s legal, in fact the amount you can invest in a Self Directed IRA or Solo 401k is unlimited, with very few restrictions. If you meet the requirements established by the IRS (self employment is one such criteria), you can invest in real estate, restaurants, technology companies, just about everythign but coins and stamps. You control your own investments or hire an expert to do it for you. I use Jeff Nabers in Denver. He is one of the nation’s leading experts on self-directed investing, and his blog is worth a read: http://jeffnabersblog.com
Comment by Self Directed Investor -
Interesting thought about the “new normal.” I hope everything settles
down after the election and the new President has good advisers to
help him set better policy. I blame Bush for most of this drama.
But even with a new President I do think the next 4-5 months will
be a roller coaster ride.
Comment by Adam -
You are clearly wrong here Mark (so smart in other areas – don’t get caught with your pants down in an area that is not your bread and butter). Things look different but read history, these cycles have happened time and time again (in the US and other countries, dating back hundreds of years):
“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes” -Jesse Livermore
“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical formations and patterns recur on a constant basis” -Jesse Livermore
You are making the one big mistake most people make – human error, thinking you know best.
Comment by Chris Perruna -
Pingback: links for 2008-10-29 | BKM Blog
We just started a separate savings account a month or so ago to begin investing with. Imagine our surprise when the market plummeted and then yesterday came back up in such a surge it was, quite honestly, even more distressing than the crash. If it was a crash. I’m still unsure.
So many opinions are available on what happened, what will happen, and how things should happen that a new investor (like me!) can get lost pretty easily.
I figure it this way – common sense will eventually rule the day. If a company is selling for a pittance right now, it will either go out of business (aka go to $0 never to return) or it will stay in business and eventually go back up.
Maybe I’m in a different position because I’m investing for college and retirement (we’re a solid 15 years away from college) and we can look at the long term. I mean, the stock market *could* stay around 9,000 forever…but it probably won’t.
The odds are good that over the long term the market will go back up. It seems to me the only real variable is how much time an investor has to wait for that to happen.
Or…maybe I’m totally wrong. It’s entirely possible.
Comment by jennydecki -
Mark,
( First time blogger here.) I have to say I was very impressed with your comments concerning the market. This is different this time. But this can also be a golden age for investing, in my opinion anyway. With over 28 triple digit movements in the DOW during the last 31 days, this volatility has brought great opportunities for the day trade investor.
I participated in a Stock Market Game here at work which lasted from April ‘08 to Sept ‘08 and during that time I increased my portfolio 69%. I did it through day trading rather than traditional buy and hold and rarely held an order overnight. I was happy getting a 1% return per day and found that this strategy was far more productive than my coworkers 401k’s during the same period ( or any period ). I love the volatility of the market. I think it’s great for the day trader. (note to readers, day trading is only for those that are knowledgeable about day trading. Do not attempt without real training. And I don’t mean some get-rich-quick-in-the-market webinar/seminar. For new comers to day trading, learn about SEC Day Trading Flags and what it means to you. So many people are caught off-guard by this simply because they didn’t know it existed in the first place.)
For those that are buy and hold, I think we are going to have incredible investment opportunities from all this. So let’s get ready to rock America….
Comment by DMS -
Never buy stock without put option or atleast selling some out/in money call options
You may not make lots of money when stock goes up like crazy but you surely will not loose everything
Comment by Yogesh -
Mark, you are an idiot…it is never different. I was a nasdaq trader
during the 2000 market top, and for 4 months, all I processed was buy
tickets from clueless sheep thinking the market was going up forever and tech was a sure thing…because thas time was different. Now is the complete opposite, everybody is a seller and
totally negative! you are all fuckin sheep! Get long because the
odds of the sky falling are much worse than a rally into a new bull
market…It is ALWAYS darkest before dawn.Does anyone plan on eating
roadkill for dinner? Killing your own dinner anyone? Don’t be a
sheep and let the negative media guide your opinions! get long!
The market anticipates the future, ALWAYS
Comment by chris r -
Mark is correct, something has changed.
The world moves faster than it ever has.
The media hasn’t caught on to this fact yet.
My thinking is the quicker assets can be moved the more agile an economy can be. You do well, rewards and money will come quickly. You screw up, funds will dry up quickly.
I’m not seeing this as a bad thing.
Comment by Joe Bigbucks -
“Paralysis by Bullshitalysis” is going up on the wall today. Classic 🙂 .
Comment by Motheo -
What I do know is this, everyone is a genius in a bullmarket. The last 5 years, that wasn’t a stock market. THIS is a stockmarket. This time it is different. This may just be the new normal.
You hit the nail on the head. I have been saying this all along and no one gets it.
Comment by fortune8 -
Mark,
Do you feel like there is another alternative? Maybe a market with different values? I understand the system is so large and complex, but if there’s ever a time to start osmething new, why not now? Why don’t we conform to this new “web 2.0” business model that seems to be the future of businesss. M
I don’t have any suggestions, but I would like to hear what you think.
Try to think ideally, but rationally.. where this is the future, but if we started NOW….
If you were to build a plan, what would the blueprints look like?
Comment by Chris -
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yup, good thoughts mark. forced selling and de-leveraging rules the market at the moment. strong action today, but volatility will continue
i’ve been tracking many hedge funds on blog throughout all this, including their portfolio holdings (long ones at least), and their performance, which is what determines the severity of redemptions they will see. here’s some relevant posts:
http://www.marketfolly.com/2008/10/hedge-fund-withdrawals-continue-citadel.html
http://www.marketfolly.com/2008/10/affluential-hedge-funds-suffer-in.html
http://www.marketfolly.com/2008/10/let-bloodbath-begin-hedge-fund.html
Comment by market folly -
Mark, you say nobody knows how the stock market is going to perform.
However, back in August 2007, a well-known stock market pundit went on an on-camera tirade about how people are going to lose their jobs and how the FED “nows nothing”.
That same commentator also went on air in the begining of October 2008, to instruct investors to “SELL EVERYTHING”. This was just prior to the market crashing almost 20%
That man was Jim Cramer. And guess what?…He was right.
Comment by Jack -
This bailout is such a joke. PNC Financial Services Group recieved $7.7 billion in taxpayer bailout money and announced they were buying National City Corp for $5.58 billion. The gov’t says no problem because if we tell the banks how to use the money they give them, banks might not participate. So in essence, we’re going to pay for further consolidation of the banking industry to the tune of about 300 billion worth in the next couple of weeks.
The selling of this plan was to “thaw out frozen credit markets” to use the White House slogan for the campaign. Instead banks are looking for takeover deals as soon as they get the injections they asked for.
Comment by Michael -
It is always different this time. When a pundit says “historically X has happened”, you can never trust that.
It is never different this time. When a pundit says “this time X won’t happen”, you can never trust that.
Fundamentally, investments involve uncertainty – that’s why they pay returns. Invoking history, either positively or negatively, can’t remove uncertainty.
Comment by Ben Supnik -
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Hey nice post Mark. I agree noone can predict the market’s future. I tend to think though it I would be not smart to not either plan to invest or invest while the market is currently down. Especially since many value stocks such as Google, Apple, GE, and others are close if not lower than their historical IPO prices. So i figure we (investors) shouldn’t be as weary about the market as it seems. But it does look bad for people older nearing retirement, since it seems they will walk away from their jobs (for many years) with an immediate 30-40% loss in their 401Ks, pensions, etc.
Comment by Brian Jackson -
Here are a couple of other things to throw in the mix as the market searches for stability and equillibrium
-Factor in a different ideaology of spreading the wealth from a potentially new political leader
-Government intervention in a capitalistic market creates a confusion of value as value is artificially inflated.
If people do not like the “new” market, it is ok to pull out their money. They can sit and wait on the sidelines until they feel it is safe to play again.
Comment by EG -
It’s always “different this time”. Go read historical accounts of other periods in time where there was heightened economic uncertainty and you’ll see that they are filled with similar comments regarding how the “world has changed forever” and “this may be the new normal”. Clearly some of the structural issues regarding mutual funds, hedge funds, etc. are causing significant dislocations between stock prices and underlying business values. Buying high quality businesses at distressed prices is how true investors achieve outsized rewards over 5+ year time horizons. Distressed prices only come about during periods of heightened economic uncertainty. And this time around, highly leveraged participants are having an exaggerated affect on prices as they unwind their positions. Take a look around at some high quality businesses that are in sound financial condition, have stong durable competitive advantages and shareholder friendly management (yes, there actually are some). It would be extremely difficult to replicate these businesses for what they are currently priced at by the market. Money is made in the markets by investing in periods like these, you just don’t know it at the time. If you can’t figure it out for yourself because you either don’t have time or don’t know enough, hire a manager with a significant portion of his/her net worth invested right along side yours and make sure the fee is not 2% and 20%.
Comment by Jay -
I think for the most part people want to believe that it is true. Or they believe it, but they don’t believe it applies to them. We all have stories of friends who have “lost it all” on the market, but since they lived to tell the story, it must not have been that bad. Bottom line is that people want to be rich. They watch the business news channels, invest in 401Ks, read billionaire’s blogs, because they think that some of it will rub off on them. Many are hard-workers and diligent, law abiding citizens but the “Quest to be Rich” is the underlying theme and motivation for their actions.
The thing about this “correction” is that hopefully we won’t have to do go through this again 5/10/20 years from now. This will be our “Great Depression.” This will be something that we can talk to our kids about and use as an example of greed and power run amok. There is an upside to every downside, so if Americans learn to save money during this time and Board of Directors return to acting like a true regulator of the companies they serve, then this, for the most part, is our silver lining.
Comment by econ365 -
I’m right there with you Mark. Still lot’s of people redeeming from
funds before we get an automatic tax hike on capital gains for the
next 8 years (at least).
Good luck.
Comment by Devon -
The problem with Buffet is that he’s now an icon and he has to say such things. Sure P/E ratios are getting better, but we’re about to face a huge liquidity crunch. The last thing you want to have is your money tied up somewhere. I think you should really read again what Mark is saying here. It’s just too different. The only sane motto for the next twelve months is “cash and fetal”.
Comment by David B. -
Hey Mark great blog
As a 20yr old with a about 15K (canadian yikes) would you say that
investing in Canadian REITs would be wise longterm?
I;ve been following 3 recently, (CWT.UN, REI.UN)etc
and they all seem to be really cheap. (Again only 15K to play with)
Considering the tennants that occupy are mainly Wal-Mart/Supermarkets..
One would have to hope that they’d be the last to default on leases.
your thoughts..
Comment by Adam S -
I’m so glad I took notice of this post. You just made me realize how unnecessary it is
to wake up at 6:00 AM every morning to watch Bloomberg, They base everything on historical
performance. I agree 100% with you, Mark. This is the new normal. Well done!
Laurie Siegel
New York City
Comment by Laurie Siegel -
“Folks, it is different this time.” That’s what people were saying about housing prices going up until recently. I’m just saying!
Comment by DWAnderson -
I am not scared. I am pissed off….why did i not work harder to make more in the past 10 yrs. Oh well, time to hunker down and work harder.
Comment by chris -
Pingback: The New Normal « billallred.net
There is no doubt a lot of history being made this year shoudl be interesting to see where all teh money went!
Comment by Cheryl -
this stock market and economy is becoming a killer. i picked a
difficult time to start my new biz: makaibikes.com, but we all
just need to work harder, work smarket, and help each other
Comment by Todd -
Nothing looks attractive enough to buy without hedging? Look harder for better bargains and then you can drop some of the hedging.
Comment by Mario -
you mean brokers are going to have to earn a living in this market?
Comment by Brian Kirk -
Buffett has lived through the depression (his father was a broker, and he worked at
the brokerage as a boy), and the 1970s, both eras with much worse economise
than now. And his advice is it’s a good time to buy. He’ll tell you that no one
knows what will happen tomorrow or next week or next year in the market, but anyone
who buys an index today is almost a lock to have very strong returns over th
next decade.
The price you pay determines your returns. For example, paying nearly 20x earnings for
a mature business like GE doesn’t bode well for your future returns or give you much
of a margin of safety. But those paying 9x earnings for GE today can have very
good expectations over the long term.
Comment by Randy Hill -
Hey Mark, One other thing. At no other time in the history of this country has so much money been paid to CEO’s of failed institutions and not have to be held ACCOUNTABLE for one red cent. Thanks for the thoughts.
Comment by Frankie from Lawnside -
good post mark. this is the article i would like to read in the NYTimes
John Bogle said the best advice he got from anyone is “Nobody
knows nothin’.” Good point about the blue chips- I have been long GE
for over 2 years with a cost basis of 37- that “solid” stock is now in
the teens and it will be a long time before GE sees 40. so where do
we go from here? regardless of market direction, you’ll be alright;
but I just might be screwed.
Comment by Adam -