I have this to say about the current investing climate, only slightly tongue-in-cheek.
“Nobody Knows Nothing”
I say this because history proves it, over and over. For example, last week I pulled from my desk drawer a copy of the Wall Street Journal from Wednesday, May 23, 2007.
It was not a particularly notable day. The bull market was in force, and the Dow was hitting new highs … even though gasoline prices were at record levels. But here at Cabot we had been noting a growing divergence in the market; both the NYSE Advance-Decline Line and the Nasdaq had failed to confirm the Dow’s high. Also, we detected a high level of optimism among both investors and the general media. So I saved The Wall Street Journal, in part because of the lead article that announced, “Why Market Optimists Say This Bull Has Legs.”
The subhead of the article followed with, “They See Decade of Gain Fed by Global Growth; Skeptics Cite Big Doubts.”
On the bullish side were Vernon Smith, a Nobel Laureate economist at George Mason University, Louise Yamada, a longtime Wall Street market analyst previously with Smith Barney and independent since 2005, and Fritz Meyer, Senior Market Strategist at Invesco AIM Investments.
So I reread the article and what did I find? Fundamental talk about global growth, low interest rates and a technology revolution that would boost productivity. Ms. Yamada even had the courage to utter the phrase that makes an experienced investor quail, ” … it really is different this time.”
Also given ink were the detractors, who claimed that reversion to the mean was inevitable, that low interest rates couldn’t last, and that the weak dollar and above-average P/E ratios would eventually pull the market down.
But here’s what I found interesting (in hindsight): Not once in the entire article did anyone mention credit!!!
Today, we know from our rearview mirror that credit was the culprit of a decline that has crushed the global financial system. But just 17 months ago, a reporter looking for reasons the bull might not last found no one mentioning credit!
Which means what? That trouble usually comes from where you least expect it. I’ve seen it time and time again, which is why I tend NOT to worry about the things other people are worried about.
And there’s a corollary, which is this: Good things often come from where they’re least expected. Today, the only good that most Americans expect is an end to the longest-running presidential election campaign in history. They certainly don’t expect any good economic news; in fact, when it does arrive they hardly recognize it!
We’ve now got exactly what we were wishing for a year ago–plunging gasoline prices and a strong dollar–yet no one’s cheery. Everyone’s still looking in the rearview mirror at the cliff they just drove off and wondering when the asteroid will come along to finish them off.
My suggestion is this: Stop worrying about the asteroid. You should now be looking for the stocks that will lead the next bull market upward.