Bird Guts as Reliable as Pundits

This morning I watched the Dow-Jones Average, as it sort of almost went positive. I wish I had copied the little headlines I saw. I don’t recall the exact words, but the basic message was something like “Dow Breaks Out as Rally Continues! Obama to Appear at Press Conference, Turn Evian into Wine!”

Can I tell you something about financial gurus? Almost none of them know anything. They make money when the market is strong, and they lose money when it’s weak. Listen, anyone can swim downstream. If you want to know who has a brain, find out who can make money in a prolonged bear market. I don’t know of anyone who fits that description. They exist, but I can’t think of any, offhand. A lot of people have gotten very wealthy by buying blue chips and forgetting they owned them, but I don’t think that makes them experts.

Here’s another fact for you. Many of the talking heads you see on cable have a gigantic interest in seeing the market do well. Many of the heads live off commissions and fees, and when people think the market is dead, they stop trading, and the heads don’t make as much money. So generally, you should weight their predictions heavily toward the negative. They usually overestimate the strength of the market, and they do it because confident investors and traders make them money. Want to find out how the housing market is doing? Ask a mortgage broker. “THERE HAS NEVER BEEN A BETTER TIME TO BUY! Excuse me while I sell some more blood so I can get some McNuggets.” Same thing.

Back when I was in law school, I traded. I don’t really know anything about finance, but I know what momentum looks like, so I made money easily. I went an entire year with only one negative trade, and it was a small one. People don’t believe me when I say that, but it’s the gospel truth. I remember the stock. Microsoft. I lost about $600. I also sold out before the tech crash, with a juicy profit that paid a big chunk of my law school tuition (all three years’ worth). People don’t believe that, either. Because it makes them feel stupid. Sorry; some people avoid getting burned in tulip-bulb crazes. That’s just how it is. The fact that I was one of them in 1998 or whatever the year was doesn’t make me a bad person. If you thought Dell was going to 5,000, maybe you need to go back and retake third-grade math.

I knew a law student who said he was going to start a fund. He may have done it. I can’t remember. He was making money hand over fist. He had a Quotrek with him all the time. He had investors who wanted to let him handle their money. Guess what he’s doing now? Practicing law. The tech crash separated the wheat from the chaff, and he was chaff.

When stocks went bad, I didn’t know what to do, so I didn’t invest. Maybe that will make you feel better, if you think I’m claiming I’m a financial genius. I was smart enough to know when it was easy to make money, but when it got hard, I was as lost as anyone.

The investment gurus are the same way, to a much greater extent than you would think possible. There are professional fund managers who end years with net losses. How is that possible, for someone who claims to be a guru? It shouldn’t be. If they actually knew half of what we think they know, they should make money every year. There are people who do, even if they’re not famous.

It appears that Bernie Madoff was so inept, he couldn’t make money in a bull market. That’s incredible. Things went well prior to the 2007 bust, yet Madoff was not able to make money. He decided a Ponzi scheme was the way to go. And he was one of the most respected investors in history. He would literally have been better off putting the money in CDs.

Tim Geithner. He was supposed to be the savior. Or rather, the undersavior. Didn’t pay his taxes, but that was okay, because he was somebody’s Wonder Boy. He claimed he was too dumb to understand the tax code–that is actually the excuse he gave Congress–but we just KNEW he was smart enough to fix the economy. Never had a private sector job. Never proved that he knew anything, except how to steer a government desk. Was in charge of New York’s Federal Reserve Bank while Wall Street (which is in New York, hello?) imploded, and did nothing about it. But he looked smart sitting around at hearings, and his name sounded sort of Jewish, so presumably, he knew all about money! I really believe that was what people thought a couple of months ago. People are just that crazy. After all, they buy BMWs because they think the Nazis were smart. That is absolutely true.

Geithner has turned out to be the biggest disappointment since Ishtar. No one seems to understand how he suddenly got so stupid. The better question is, why did we think he was a brain in the first place? If he was smart, wouldn’t he have done something helpful while he was running the New York Fed? Why didn’t we try to hire Jack Welch or Warren Buffett? How about Jim Rogers? Don’t tell me we couldn’t afford them. Look what Geithner has cost us. A salary of a billion a year would have been a bargain.

If you ever expect to make money in stocks, you have to learn how to pick stocks for yourself, and you have to have a set of buying and selling rules, and you have to follow them. For example, when your stock drops 8%, you sell. That’s Peter Lynch’s rule. You don’t wait around, pretending the money is still in there somewhere, compressed like a spring, waiting to bounce back to its correct size. It’s gone, baby. It no longer exists. Your stock’s past value has no relationship whatsoever to its future value. Find another stock which is more likely to do well. Don’t sit on a stock that has dropped 50% because you still have faith in the story that caused you to buy it. Make a set of target buy and sell prices, and stick to them. Otherwise, you’re just playing the ponies.

Don’t pay attention to the crowing Cramers and the tendentious Wall Street bookies who depend on account churning to keep them in Ferraris. Use your common sense. If you don’t have common sense, don’t play the market. Get a savings account. Buy a house you really intend to live in, so you can ride out the hard times. Winning is a good thing, but not losing is much more important.

Geithner knows absolutely nothing. Obama is hopelessly incompetent. We have not found our deus ex machina yet, and anyone who says things are shaping up is making a wild guess that goes against all the evidence.

HA! I see the market went positive again while I typed this. Guess what it means when the market seems weak part of the day and strong the other part of the day? It usually means it’s WEAK.