Over many years I’ve often been asked to meet with groups (accounting associations or investment advisors with auditoriums full of their clients) in order to help calm them during periods of malaise in financial markets. A tug of war is always at play between sentiment (the human factor) and economic reality (the numbers), and every so often anxiety wins and market values plunge, creating buy opportunities. Euphoria can have the opposite effect, taking values far in excess of what the economic reality can justify. Markets are a reflection of the combined bipolar disorders of all investors, and these mood swings are the bread and butter of professional money managers.
The following is an excerpt from my book – not meant as a promotion but as an example of how this pattern repeats itself. I wrote this last summer and you’ll find a remarkable similarity in the mood today. It’s almost as if we’re just suffering a relapse. If I’m right (go to my Home page to scroll through earlier posts) then we’ll wake up very soon and wonder why we let our emotions get the better of us yet again.
“The maverick investor knows history may indeed repeat itself, but seldom does it happen immediately. Economists, investment strategists, and investment analysts have a bad habit of forecasting what has just happened—at least until things have changed, and even then, they are slow to adjust their forecasts. I know it sounds preposterous, but I base my conclusion on reading loads of crap over several decades. It was my job. These nefarious predictions always manage to find their way into the financial press and business television, and they only serve to corrupt the decisions of both innocent novice investors and professional money managers alike. I picked two headlines published on June 30, 2010, to illustrate my point.
In one newspaper, under the title “Economic crisis,” I found the headline: “World recovery under threat as growth slows, stimulus wanes.” On the same day in another newspaper, under the title “Recovery angst” was the similarly ominous caption: “Economic trouble is all investors see.”
If you are spooked by such nonsense and inclined to adopt a wait-and-see approach before investing any of your money at all in financial markets, then give your head a shake. These headlines are gold! The maverick in you should begin to wonder: If the press is even partially representative of what economists and strategists are recommending, and if investors all share the same sentiments, then what happens when there’s some good news? Everyone is sitting idly on the sidelines and still hasn’t bought into the market, or they sold everything they held all the way down at the market bottom. An improvement in virtually anything ranging from consumer buying, corporate profitability, or, God willing, a boost in global growth will create a buying binge.
The maverick investor will want to be invested before the herd moves from bearish to bullish. Buy when things seem bleak, and on the flipside, be ready to sell when everything seems rosy. Always be thinking ahead. Hockey legend Wayne Gretzky was the undisputed maverick on skates. He would not skate to where the puck had been, or even where it was. Gretzky built a spectacular career by determining where the puck was going to be.”
Watch the video – it pays to be where the puck is going to be rather than just follow it along…