Just Watch

The good times — at least for those who are fortunate enough to own stocks — may be coming to an end.

It’s been quite a ride since the Great Recession/Financial Crisis of 2008. But the sky isn’t the limit. It never was.

I wonder who was buying stocks at the all-time highs last year. I suppose it was people who think you can’t lose money in the stock market if you’re willing to buy and hold. I suppose it was people who weren’t familiar with these charts: Continue reading

The World Has Both Bulls and Bears. Always Has. Always Will.

It looks like one of the longest bull markets in U.S. history has come to an end. A bull market is when stock prices are rising. Obviously, people love bull markets. It makes them richer. What could be better?

But it looks like we’ve entered a bear market. People hate bear markets. They lose money. Lots of money. At least on paper. A bear market is generally defined as one that experiences at least a 20 percent decline in stock prices. Some see larger losses — even up to 80 percent of the market’s value, which can be devastating to both individual and institutional investors alike.

There is no way of knowing how bad this bear market might turn out to be — until it’s over; until we can see it in the rearview mirror. Which makes investing hard.

In hindsight, it’s easy to see a bear coming. They’re preceded by abnormally high stock values. Often, they’re preceded by bubbles. That’s what happened with this last bull market. Valuations got ridiculous.

So why didn’t people sell? Why did they hold on to their stocks until the bear arrived and took his bite out of their portfolios? I’ll come back to that in a minute. Continue reading

But At Least the Trump Family Is Getting Rich

Surely the president must be spazzing out over this, given how fond he is of telling everyone how much better he is than any of our prior presidents.

P.S. Normally, I don’t think a president has much of an impact on the stock market, given that no president controls economic forces or cycles. But this one most surely has had an impact, including a contribution to the current decline.

Watching Bad People Hang Themselves with Their Own Words Is Oddly Satisfying

In case you haven’t been paying attention:

  • small cap stocks are now lower than they were when Trump got elected; and
  • the Dow Jones Industrial Average is where it was in September 2017 (and if you bought its stocks at the peak, you would have lost lots of $$$).

According to my calculations, Messrs. Mnuchin and Trump, your grade is a D at best.

Lesson in all of this, Vera: be careful what you say. As Mr. Mnuchin and his boss have proved (time and time again), even smart people say some pretty dumb things. You can do better.

If You See the Stock Market as a Sign of Presidential Success, Then at Least See Clearly

Lest I mislead you, I do not subscribe to the belief that a president should be judged by the stock market. Or that either Mr. Obama or Mr. Trump was the principal driver in the rise of the stock market during their terms. But some people do, especially, it seems, the Trump acolytes who want others to believe Mr. Trump is a good president as proven by rising stock values. The graph undercuts such silly ideas, although, to be honest, I don’t expect facts to have any bearing on the foolish beliefs some of my fellow Americans tout. We are, after all, living in the post-truth era. It’s the narrative that counts. Facts be damned.

Still Have a Hard Time Believing How Susceptible People Are to This Con Artist

In 2016, Donald Trump said the bull market (i.e., stock market) was a bubble manipulated by low interest rates. Yesterday, he said the bull market is legitimate and the Federal Reserve is crazy.

By now it should be obvious to even the out-to-lunch crowd that this guy will say anything that he thinks serves HIS purpose at the moment (since, as is abundantly clear, the ONLY thing the man cares about is himself). There are no underlying principles or integrity. He is a con artist to the core.

And yet people fall for it. I get it — somewhat. Con artists have the uncanny ability to get people to fall for the absurd.

That said, it’s still hard to accept the reality of human nature. It’s hard to accept how easily manipulated we are.

Which brings me to skepticism, Vera. It’s a trait worth nurturing. The world is full of people who are just waiting to take advantage of you. Some are politicians. Many are not. Some are business people, lawyers, accountants and doctors. Some are people who run so-called nonprofits. Hell, some are even your neighbors, acquaintances and fellow churchgoers.

Be on guard. Lest you start believing that opinions and lies are facts and truth.

Why Check the DJIA When All You Have To Do Is Follow His Tweets?

This is hilarious.

When the Dow Jones average was inflating, our dear president, the Tweeter-In-Chief, was constantly taking credit for the stock market, boastfully tweeting away as if imbeciles were on the other end (true, there were some). But then the market topped and entered correction territory. All of a sudden it was as if there wasn’t such a thing as a stock market.

Believing in the Impossible

I’m intrigued by people’s ability to believe in the impossible. And I take it as a warning to myself, for if others can believe in the impossible, then there’s every reason to think I can too. Which gives me pause.

In my lifetime, I suppose there have been many examples of this phenomenon playing out in real life. But lately my focus is the investment world. That’s where I spend a considerable amount of time and energy.

In the late 1990s, people who bought stocks believed in the impossible. They drove prices up to astronomical levels — far behind anything that could be supported by reasonable assumptions or objective data. I remember at the time thinking, this is crazy. Yet it continued, far longer than some people thought possible. Until it stopped. And the inevitable bursting of the bubble.

Some stocks still aren’t back to their highs from that era, eighteen years later. And quite a few companies that were highly valued in 2000 aren’t even in existence today. A lot of money was lost. Many household balance sheets and retirements were gutted.

Less than ten years later, we saw it unfold again. It was hard to believe. Hadn’t we learned anything? Apparently not.

Real estate values went through the roof. People were getting mortgages far beyond their ability to repay. Speculators were flipping properties like pancakes. Until it stopped. Until the bubble burst.

Bankruptcies ensued. Evictions spiked. Many homeowners and investors lost a lot of money. Some homeowners are still underwater (i.e., no equity in their homes). Banks had to be rescued.

And now, a decade later, we’re at it again, only this time it’s broader. It’s not only real estate. Or stocks.

We’re already seeing the worm turn in commercial real estate in certain areas and, to a lesser extent, residential real estate in certain markets. I suspect we’ll see much broader reversals before it’s all said and done.

In the stock market, some equities are priced at levels that could never be justified by expected returns. It’s only a matter of time before the correction wipes out massive amounts of paper gains, except, for some, they aren’t merely paper gains.

Many people have borrowed money to buy stocks. They’ll be on the hook for those debts irrespective of what the market does.

Others bought into the market late, paying high prices that they may not see again for a very long time, if ever. Paper losses have a way of becoming real losses.

Meanwhile, the latest fad, crypto currencies, quickly morphed into the mania phase last year. It’s hard to know exactly how this will play out, but it’s easy to see that quite a few people will lose a lot of money — mainly, people who believe in the impossible.

Belief in the impossible isn’t restricted to investment decisions of course. It plays out in every area of life, from health and work to politics and religion.

I suppose it’s sometimes easier to believe in the impossible than to face the reality. At the very least, it can sometimes put off the day of reckoning. It also can interject excitement into otherwise mundane and boring lives.

Some people say it’s good we have the capacity to believe in the impossible. The hope of miracles is beneficial, they say. I’m not so sure. It seems to leave a lot of carnage in its wake.

I like to delve into the reasons for our motivations. What causes us to believe in the impossible? What’s our motivations? What propels us to take risks that, from an objective standpoint, seem ridiculous?

More importantly, how and when am I susceptible to the same motivations? How can I avoid falling prey to the forces that prop up the world of make-believe?

From an investment standpoint, how can I profit from the mistakes of others? There are always two sides to every transaction. How can I ensure I’m on the right side of the trade?

There’s a lot to consider. The answers aren’t always easy to spot. Yet the temptations are always alluring, especially when the masses follow.

It’s in our nature to find security in the herd. Being strong enough to leave the herd when the herd has gone mad isn’t as easy as it sounds.

Yet that’s what we have to do at certain times, Vera. We have to be strong enough, and smart enough, to recognize the madness. To remain grounded in reality and not allow ourselves to be swept up by the false promises of the impossible. To be able to distinguish between hard challenges and the unobtainable. To be able to tell the difference between the impossible and the unknown.

The differences aren’t always apparent. And therein lies the challenge.