Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

From “The New Market Wizards” by Jack Schwager, in an interview with Mark Ritchie:

How do you decide when a position is too large?

I have a rule that whenever I’m still thinking about my position when I lay my head on my pillow at night, I begin liquidation the next morning. I’m hesitant to say this because it could be misconstrued: You know that I’m a praying person. If I find myself praying about a position at any time, I liquidate it immediately. That’s a sure sign of disaster. God is not a market manipulator. I knew a trader once who thought he was. He went broke - the trader, I mean.

Headlines like this one just make me gag: “Playboy model beats top mutual funds in Q2″. Ok, fine. So you’re running your little trading contest amongst some Playboy models, and this girl is doing pretty well with a couple of her picks (but not all…). Fine. But to compare the leader of some funny money trading contest to the universe of mutual fund managers is ridiculous.

Now I’m not one to defend mutual fund managers to a great degree, but c’mon, let’s get real.

First, don’t tell me that someone trading a paper account in a contest, with nothing to lose, isn’t going to take about a million times more risk than they would with their own real money. For heaven’s sake, people who trade stocks but still have jobs are likely to take on more risk than those who trade for a living. Secondly, I’d like to think that most mutual fund managers must also be in the position of taking on much less risk with their clients’ money than some Playboy model in a trading contest. And third: how many mutual funds can get by with only holding five stocks?

These contests are a joke, and they prove absolutely nothing about a trader’s/investor’s ability to make money, especially over the long haul. And they reflect no responsibility at all for controlling risk, which must be at the heart of any successful investment discipline.

Or more appropriately, the B.S. that typically flows from Wall Street:

…B.S. is nowhere more pervasive than on Wall Street, where it’s the official language. Want proof? The most obvious is the fact that Wall Street analysts scream “buy” about 95% of the time. They’re born B.S.ers! Wall Street is relentlessly bullish in both the bull and bear phases of bull/bear cycles. Wall Street is addicted to B.S., its official language.

Paul Farrell chooses a few samples of Wall Street B.S. from the book “Bull! 144 Stupid Statements from the Market’s Fallen Prophets.” Here a few of them, from some names you just might recognize:

December 1999: Joseph Battipaglia, market analyst
“Some fear a burst Internet bubble, but our analysis shows that Internet companies account for only 7% of the overall Nasdaq market cap but carry expected long-term growth rates twice those of other rapidly growing segments within tech.” (The Internet Index lost two-thirds in the next six months.)

February 2000: Larry Kudlow, CNBC commentator
“This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy.” (He’s still an economist, hosting his own show.)

September 2000: Jim Cramer, CNBC commentator
“SUNW probably has the best near-term outlook of any company I know.” (Within four months Sun Microsystems went from $60 to $30, down to $10 in a year, below $3 in two years.)

January 2001: Suze Orman, financial guru
“In the low 60s here, I think the QQQ, they’re a buy. They may go down, but if you dollar-cost average, where you put money every single month into them, I think, in the long run, it’s the way to play the Nasdaq.” (The QQQ fell 60% further.)

March 2001: Maria Bartiromo, CNBC anchor
“The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.” (Yes, she’s serious.)

April 2001: Abby Joseph Cohen, Goldman Sachs
“The time to be nervous was a year ago. The S&P then was overvalued, it’s now undervalued.” (Unfortunately, the markets continued down for another 18 months).

The bottom line? You can’t afford to listen to these people. No one knows where the market is going to go, or what it’s going to do. The market is the ultimate indicator. Let it be your guide.