Keeping Investors Scared Witless

Investors, as usual, are bombarded with reasons to sell stocks.  This means that they are Scared Witless (TM OldProf).  Let’s take a deeper look.

Short-Term Advice

There has been (yet another) sighting of the Hindenburg Omen.  I pointed out the flaws of this approach in 2010.  Those seeking a higher authority might check out Barry Ritholtz:

Hindenburg Omen?  Put a Fork in It.

Why do People Fear the Hindenburg Omen?

Despite the facts, CNBC keeps pitching this story with multiple interviews of Tom McClellan.  I tweeted a reasonable question, asking them to provide some review of his infamous and misleading “1929 chart.”  Will we get an answer?  It is time for some accountability from the featured guests.

Long-term Advice

There is no limit to the efforts of those on a bearish mission.  Here is the chart getting wide circulation among those who want confirmation bias:



Meanwhile, the actual 20-year returns for ANY time period from 1930 to date are an annualized rate of 7.43% or higher.  What is the difference?  The popular chart adjusts for inflation.  Good idea.  That is what investors should do.

Why not make this clear?  Owning stocks is one of the best methods for protecting against inflation, especially in times of strong economic growth.  Does the author have some better investment idea for the next ten years?  A bond, perhaps?

A really serious study should examine inflation and interest rates at the starting and ending point of the period.

Bond Pundit Advice

Bill Gross is out with a new commentary.  It uses his analysis of Fed policy (which has been consistently wrong) to suggest that investors should take money off of the table.

Wow!  I would be more impressed if I could remember a time when Gross recommended owning risk assets.  He did a great job of  beating other bond managers, but has stumbled in an era when bonds may have topped out.  Check out the comparison:

In 2010 Gross had the same advice about cutting back on risk assets.  This article reviews some of the top guru’s from that period, all advising caution and/or a bubble top circa 2009.  In late 2008 Bill Gross wrote that we were going to Dow 5000 unless we do everything right.  Since then he has continually complained about Fed policy, suggesting that we failed his test.  Meanwhile the market has reached new highs.

You cannot advise taking chips off the table unless you had some there to start with!

Current Market Worries

Frightened investors might gain perspective by going back to 2010, when a similar list of worries caused most to criticize my anti-Gross forecast:  The Dow would double rather than cut in half.  In other words, Dow 20K.

There is always a laundry list of worries.  Focusing on earnings and the odds of a recession provide a better foundation for the long-term investor.  This story is boring compared to the flashy crash predictions.  The repetition of these scare stories is shameless.  Should we not expect a little balance from major media sources?

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One comment

  • Ray Kaufmann December 7, 2014  

    I always wondered where Bill Gross invested all his income. Thankfully, I gave following Gross 15 years or so ago. I’ve always done well just investing and not trading. People over think reasons to invest or trade and let their emotions drive their decisions. Usually doesn’t work well from what I’m seen and experienced.