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Bearish advice worth consideration

By From page C1 | June 29, 2014

The market – which means the Dow Jones Industrials – has been near record territory for the past few weeks.

Why is it, dear reader, that the higher the market goes the more the “experts,” and I use the term loosely, feel obligated to warn investors of impending doom? Or at least what they call a “correction”? It’s not that this won’t happen, but it still bugs me that market seers, whether in newspapers, on television or in expensive newsletters, speak or write as if they really know the future.

Years ago there was a comic strip called “There Oughta Be A Law.” The cartoonist was a fellow named Jimmy Hatlo, and he would base his comics on readers’ suggestions.

Well, if Jimmy were alive today, I would send him this idea: “Jimmy, there oughta be a law that if you’re getting paid to predict the market you have to tell everyone how accurate your forecasts have been for the past five years.”

That’s not to say that there aren’t financial, economic or market analysts who really know what they’re talking about. At the top of the list might be Yale University economist Robert Shiller. You might recognize Shiller; he won the Nobel Prize in 2013 for his analysis of asset prices. Many investors, not only in the stock market but also in real estate, gold, currencies and almost any asset market, pay attention to what the Yale professor has to say.

So, having said that you can’t put your faith in any forecast, let’s see what Shiller has to say about the market.

He has a column in Forbes headed “Tell Us Everything,” and the first question was, “With the Standard and Poor’s touching new highs, are concerns about the next big market drop well-founded?” Mr. Shiller’s response: “We should already be worried about a steep decline . . . . So it might be time to tilt one’s investments away from the U.S. Don’t get greedy.”

Should Shiller’s advice be followed? If we own stocks, should we sell them? My experience has been that when we are exposed to bearish advice, especially from a respected source, our first instinct is to follow it. But, what often happens is that we rationalize why the advice is wrong, or just as frequently say to ourselves, “Well, let’s wait a few days and see what happens.” Then if the market starts to fall, and I’ve seen this dozens of times, we think, “Gosh, I should have sold last week when my stocks were higher; I’m not going to sell now.”

Maybe it’s time to share my favorite rule, which might come in handy any day now. I’ve learned this rule the hard way, so here it goes: “There are no investing rules that you can consistently rely on, so you’re on your own.” What about the time-honored advice from Will Rogers? “You should only buy stocks that go up; if they don’t go up, don’t buy them.”

Can’t beat that, can you?

Bud Stevenson, a retired stockbroker, lives in Fairfield. Reach him at [email protected]

Bud Stevenson

Bud Stevenson


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