A Catchy Slogan

Every good rally needs a catchy slogan to suck in the masses. The slogan for this rally is, "If you put your money in the bank you get 0%". The beauty of such a slogan is that it can't be argued with because it is true. It also allows one to pay any price for a stock. The statement is true whether the Dow is at 10,000 or 20,000.

During the housing bubble the slogan was "They aren't making anymore land" or "real estate always goes up in the long run". During the Internet bubble it was "the Internet is the future". All those statements were and are true and allowed investors to pay any price for an investment. However, that did not stop people from losing fortunes. The fact that the Internet was the future did not stop the Nasdaq from falling from 5,000 to 2,300 a decade later. They certainly aren't making anymore land and I am certain real estate will be higher 100 years from now. However, those that invested two years ago are likely sitting on large losses.

Interest rates are indeed 0% but that does not mean stocks must go up. Interest rates were 0% between September 08' and March 09', yet investors had no problem selling. Now that stocks are 70% higher, the slogan gives people the intellectual excuse to follow their primal instinct of chasing the herd.

Warren Buffet said that in the short run the market is a voting machine and in the long run is a weighing machine. I am not knocking the slogan, as a catchy slogan is more powerful than the fundamentals in short run. But recognize the argument for what it is.

2 comments:

Anonymous said...

Here's my slogan: "investors got let off too easily due to this rally, but eventually they will get the spanking they deserve". Regardless of what PEs and book value and the other metrics say, we all know deep down that bailing out Wall Street at the expense of Main Street was terribly wrong. Justice demands that punishment. Since the bigshots always get off, that means the average investors will have to be the fall guys. What I don't know is this. Will we suffer through a Japan type deflation, accompanied by another stock market crash, before inflation eventually catches fire, or not? Eventual inflation is a certainty. But just because Japan suffered deflation and a stock market crash after their bubble bursting doesn't mean we have to. Stocks could easily keep going up for years until the inflation strikes.

I've been following you for a while, and you give interesting insights, but I lack the temperament for day-trading. Long-term trading is my thing. Right now, I'm looking for an exit from stocks (though I have to wait until March so as to get long-term capital gains treatment). Even if the market does keep going up, I'd rather give up the last few percent of gain in order to avoid losing a huge amount if and when the crash occurs. Which means I'll be stuck getting 0% until that crash. Just thinking out loud...

Anonymous said...

the only certainty is death and taxex, have you heard that slogan?