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Markets continue to confound doomsayers

By From page B7 | January 05, 2014

Once again, the markets have confounded the doomsayers. If you had a dollar for every time in the past 30 years that we heard the Dow would run into resistance at – take your pick – 1,000, 5,000, 10,000, 15,000, you’d have enough to buy a hamburger.

Those who give heavy weight to various numerical levels on the Dow Industrials or individual stocks are known as technical analysts. They don’t care about earnings, or even what business the company is in; they just follow price movements. Because technical analysts base their observations on charts, they are also known – surprise – as chartists. These chartists have no relation to the religious or political factions of the early 19th century in Great Britain, but their beliefs are equally mysterious.

Those who scan the financial news to see who says what about the market’s future are either looking for guidance or consider themselves contrarians. A contrarian, as the name suggests, does not want to go with the crowd, and there’s a fundamental reason for that. If investment sentiment, for example, is extremely positive, that would suggest that much of the available money is already in the market. If that is the case, who is left to invest?

The best course, therefore, might be to go against the market by “shorting” stocks or buying put options, which become more valuable as stocks or indexes fall.

You might ask if there are any “techniques” that will help you to beat the averages – consistently. The answer is no, if we are talking about the long run. My favorite adage about the so-called long run was that voiced by world-famous economist John Maynard Keynes, who said, morbidly, that “in the long run, we are all dead.” I first read that aphorism when I was a new broker 40 years ago, and I thought it was very clever. Now that I’m starting my eighth decade, I’m not so sure it’s so clever.

Sometimes you’ll see, or hear, the investment advice to buy good quality stocks and just hold them. But it seems to me that the term “good quality” refers to a company that performs well over many years. But, since, as they say in mutual fund sales pieces, past performance is no guarantee of future returns, what are you supposed to do, watch a stock for 10 years before you decide to invest?

There’s another possibility: follow a market forecaster with a good record. Unfortunately, that doesn’t work consistently.

If you’ve been in the market for a while, you might remember Joe Granville, who became a legend in the prediction business in the late 1970s. He even appeared on TV dressed as Moses, claiming he would lead investors to the “promised land.” Old Joe kind of fizzled out when he didn’t believe that the bull market that began in 1982 was for real. His followers would have missed the best bull market in history.

This is all by way of saying that there’s no fail-safe methodology that works in the stock market. Or, for any other market, for that matter.

I recall, many years ago, that an investor who shall remain nameless was holding some Xerox stock, then selling at $168 a share. I strongly suggested that she sell it, which she did – reluctantly. A couple of years later Xerox had dropped to $8 a share.

So I got one right in 44 years.

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

Bud Stevenson

Bud Stevenson


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