Streetwise for Friday, March 17, 2017
There was once, in the dear dead days beyond recall, an out of town visitor who was being shown the wonders of the New York financial district. Upon arrival at the Battery, his guide pointed out some handsome ships riding at anchor. The guide said, “Look, those are the bankers and brokers yachts.”
“Where are the customers’ yachts,” asked the naive visitor?
The plain truth of the matter is that most people who casually invest in stocks do not have yachts, or even rowboats for that matter. And one reason is that their attention is too easily shifted away from what should be their main objective, finding bargains among quality stocks that can be held for years.
Individual stocks go through cycles of strength and weakness. Sometimes these fluctuations will coincide with overall market trends. At other times, there will be absolutely no correlation.
Yet, whenever the financial markets undergo a degree of volatility, investors often find themselves faced with a dilemma. The dilemma is whether to hold the stocks in which they have profits; or sell and maybe invest in market laggards; or perhaps move to the sidelines to await further developments?
As Fred Schwed, Jr., pointed out in his book, “Where are the Customers’ Yachts,” published in 1940, investors have an unfortunate habit of asking about the financial future. He wrote that if you do someone the honor of asking a difficult question, you may be assured that you will receive back a detailed answer. Unfortunately, it will rarely be the most difficult answer of all, ìI don’t know.î
While there is no ready-made solution to this age-old problem, it never hurts to take some profits, particularly if you have identified alternative investments. However, keep in mind that leading issues will often continue to outperform market laggards. Moreover, a sell decision followed by a buy decision means two opportunities for error, not just one.
Schwed said there was no denying that the more financial predictions prognosticators make, regardless of how ridiculous, the more business they are likely to do with the resultant increase in commissions or fees, not to mention the increased notoriety. Nothing has changed.
Schwed’s book shows that as far back as 1940, the foretelling of price moves had become key to Wall Street’s business. And it still is. So, Schwed’s advice is that when you hear market predictions you might want to ask yourself the following: Are they good; are they slightly good; are they any damn good at all; how do they compare with tomorrow’s weather forecast; how do they compare with tipster horse-race services?
In his book, “Investment for Appreciation,” published in 1936, L.L.B. Angas wrote about prognosticators, pointing out that their theories, particularly about chart forecasting, ìAre true part of the time and none of them all of the time. They are, therefore, dangerous, though occasionally useful.î
The same could be said of the practice of flipping a coin to determine whether one should buy or sell ñ all except the word “useful,” which does not seem to be admissible in either case.
Remember Kermit Long’s story of the two men who were walking along a crowded sidewalk in a down-town business area. Suddenly one exclaimed, listen to the lovely sound of that cricket. But the other commented that he did not hear anything. He asked his companion how he could detect the sound of a cricket amid the din of people and traffic.
The first man, who was a zoologist, had trained himself to listen to the voice of nature. But he didn’t explain. He simply took a coin out of his pocket and dropped it to the sidewalk, whereupon a dozen people began to look around. “We hear,” he said, “what we listen for.”
Are you listening for the right sounds? The Street’s wiliest can make even the hardiest investor’s eyes glass over. But all you are hearing are the coins falling. Listen for the cricket and the cricket is a company’s fundamentals.
Always remember Wall Street is a street with a river at one end and a graveyard at the other. What is left out is that there is a kindergarten in the middle.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.