As I contemplate more than forty years in the blood-spattered arena that we call a purse, I realize that the game has never been more in my favor. Charlatans and buffoons have rigged a once healthy market. It is a market where stupidity is unleashed. It is a most curious saga. I've seen it all. I was there at the creation. The prevailing stupidities of the current stock market are:
1] Any stock that drops 10% must be sold immediately as it goes to zero.
2] all stocks are generic clones of each other and will therefore move up and down together.
3] excessive and dangerous use of vague and generalized data on the market and the economy rather than precise and precise data on individual companies.
4] the growing belief that stocks are empty boxes with no intrinsic value and that therefore stock analysis is worthless.
5] dangerous excessive dependence on means and clues that distort the truth.
When I broke into the stock market over four decades ago, it was a beast very different from what it is today. At that time, the stock market was dominated by convinced long-term investors. Investors understood that they were buying a business and not a lottery ticket. These investors never thought they were supposed to track their actions on a daily basis. The idea that a 5% or 10% drop in a stock they believed was a cause of panic would have been viewed by them as an absurd proposition. Indeed, it is quite possible that they do not even know that their stock has dropped by 10% or even 15%. I doubt that most of them have even watched the share price more than once every six months.
At that time, most newspapers did not even broadcast the stock tables and there were certainly no financial channels on TV. Historically, great importance has been placed on the analysis and research of individual stocks, since your success or failure depended on your ability to select winning stocks. invest. Macroeconomic factors such as guessing the economy or guessing whether the stock market was going up or down were considered a dupe game.
During my decades of career as an investor, I have owned around 750 stocks. Guessing what the market was going to do or what the economy was going to do or what was supposed to happen in China or Europe never made me any money. What made me earn money was being right on the individual actions that I had researched, understood and believed in. Consider CNBC, everyone's default financial data source. For the most part, what you see is a bacchanal of riddles. Guess the economy. Guess the purse. Guess China and Europe. Over any extended period, their assumptions are no better than a draw. Except for the fifties, individual actions are rarely mentioned and when they are mentioned, the only thing you hear is vague generalities. You rarely hear hard factual data about individual actions that a serious student of the game would consider important.
The implication is that all stocks are clones of each other embedded in a mass of concrete and therefore must all move up and down together. In 2010, the S&P 500, the benchmark stock market index, was up 12.8%. The top performer in the index in 2010 was Cummings, which rose 105.8%. The Office Depot, the worst performing security in the index, lost 23.4%. Is there anything more stupid than the now widespread belief that if the stock market is up 12.8%, is that all the investors have won? What is more important to be right on the stock market or to be right on individual stocks?
All of the art of stock market investing was concerned with finding out what the intrinsic value of a stock was. This process, called "price discovery", was seen as the primary function of the stock and commodity markets. By analyzing the stocks that investors as a group bought and sold, the market "discovered" the intrinsic value of the stocks. Until about twenty years ago, no one doubted that stocks have intrinsic value. The question was to find out what this intrinsic value was. Today, growing armies of alleged investors believe that stocks are empty boxes with no intrinsic value. If stocks have no intrinsic value, stock analysis is worthless. It therefore follows that what is of paramount importance is not to analyze stocks but to analyze the actions of buyers and sellers who are now considered as "Price dictators" and not as "price discoverers". In other words, ruining yourself with the herd is the supreme virtue.
If today you gave a tramp who knew nothing about the $ 50,000 stock market and turned on the television at CNBC and told him to start trading, it would operate at a level equal to that of most investors today. ; hui. After all, what should he know? The short answer is nothing. The only thing he has to do is become a trend hunter and a scramble with the herd. Buy without thinking about everything that goes up and sell without thinking about what is going on and he will do it instinctively. There is no need for training. The astute reader has already understood the consequences. An ever-widening gap between intrinsic value and stock prices, as fewer and fewer investors are trying at all to determine the intrinsic value of stocks.
At no time in the history of the stock market has it been so dangerous to rely on averages and indices to guide investment decisions. Very few investors know how convoluted and questionable the formulation of these averages is. I commented on the S&P 500 which was up 12.8% in 2010. A year in which the best performing stocks in the index rose 105.8% and the worst performers fell 23.4%.
Or take a look at the famous NASDAQ 100. In 2010, this 100 market capitalization weighted index ranked Apple first with a weighting of 19.7%. Number two Google had a weight of 4.7%. The top two stocks made up 24.4% of the index, while the bottom fifty made up almost nothing. The only reason they were in the index is to deceive the ignorant.
The averages are liars. Once the investor realizes it, he has a powerful weapon in endless battle for superior performance. In such a world, the elite core of investors who still research and analyze individual stocks is living in a golden age. It is only necessary to hide in the weeds with our big power investor rifles and chase big game as they rush past us in one of their stupid scrambles.