TIDINGS from my junk mail, 2:
A number of years ago I played with technical analysis of the commodities markets. Never got very far, except to assure myself that I couldn't create any indicators or systems in which I had enough confidence to risk real money. But for a while I had a subscription to a magazine called Technical Analysis of Stocks and Commodities. I dropped it long ago, but once a year about this time they send me a freebie issue with a 'please re-subscribe, we miss you' plea. The issue that arrived today has an article about Warren Buffet, and his precepts.
If you know anything about stock market investing theory, this is sort of like The Nation writing an article in praise of Ayn Rand. 'Technical analysis', which is what the mag is about, is the polar opposite to the 'value investing' that Buffet made his billions on. Warren Buffet, if you didn't know, is one of the most famous, and successful stock market investors of all time.
I guess technical approaches to the market haven't done well over the last year, if a mag about TA is pushing Buffet. Value investors like Buffet do well over the long terms, and weather down markets nicely, but tend to get left behind in roaring bull markets. Buffet got left behind badly in the 90's bubble, but he's had the last laugh over the past year or two, when value players like him have suddenly been doing much better.
They say that no 'one rings a bell' when the market hits a top and it's time to get out. The same is true of market bottoms. 'Timing' the market, picking the right points to pull your money out (because you think the market is about to fall) or put it back in (because you think it is about to rise) is notoriously difficult, even for professional money managers, and probably impossible for casual investors.
Sometimes, though, at least in retrospect, there are signs that the market has gone as far in one direction as it is going to, and can't rise, or fall, any further. The Time magazine cover with a charging bull on it (or a bear in down markets) is a classic. Once even the staff of Time knows we're in a bull market, the bull market is almost over, and it's time for anyone with any market savvy to get out. They say that John Rockefeller used his shoeshine boy as such a 'contrary indicator': when the shoeshine boy started giving Rockefeller market tips, Rockefeller knew it was time for him to get out. Peter Lynch, the legendary stock-picker of the Fidelity Magellan fund, once said that he began to get worried that the market was nearing a top when cab drivers started giving him stock tips, and really started to worry when the stocks they recommended actually went up.
During the last nasty market downturn before the one we're in now, the one in 1990 just before the start of the Gulf War, I remember seeing in ads in Barrons for the 'Scottish Widows and Orphans' fund, supposedly created to service the investing needs of those unfortunates. "Invest with the Scottish Widows!" said the headline. Boy, you couldn't be more conservative than investing like a Scottish widow, could you? What did such an ad mean? That investors were hurt, scared, gun-shy, looking for security rather than performance. During that time, the bears ruled Wall Street. One wildly successful bear hedge fund bought its own private jet, and named it 'Bear Air'.
All of which meant, the market was about to shoot skyward. When everybody is bearish, the bear funds are making out like bandits and a fund that advertises itself to invest in a manner appropriate for Scottish widows, for god's sake, things have gotten as bearish as they're going to, all the risk has been wrung out of the market, and the prudent money can start coming back in, and wait for the inevitable bull market to come.
And come it did, with a vengeance. Of course, this is obvious with hindsight, as most things are. No, I wasn't smart enough to figure this out at the time.
But I wonder. The stock market has sucked badly for the last two years. The TA guys and momentum players (a semi-TA kind of stock analysis) who made fortunes in the Roaring 90's, over the past 18 months have had their clocks cleaned by the value investors like Buffet. Is an article in praise of Buffet and value investing in a magazine whose sole purpose it is to to push the exact opposite approach a contrary indicator? Does this mean that the value players' day is done, at least for the time being, and another roaring bull market is just around the corner? I wonder.
ma(tu) [Hep: ma(tsu)]
meaning: wait, wait for
Matte kudasai == please wait
Nanpun matta?== how many minutes (did you) wait?