Our own Whitney Tilson came out and made a bold prediction that a rebound in 2003 is unlikely due to significant continuing financial weakness among corporations, high individual debt levels, and other conspirational factors that between them make the Soprano family seem positively gruntled by comparison.
One thing to keep in mind here: Whitney Tilson is guessing.
I mean no disrespect by saying this. In fact, given the recent skyrocketing among technology stocks, and the factors cited and their importance to the economy, I don't doubt for a second that Whitney has a good chance of being right about 2003: It's not going to be a great year for owning many common stocks.
But there's something you ought to know. Whitney, economists, the bozos who parade across CNBC, the analysts, the newsletter hawkers who say, "Are you ready for the rally?" -- anyone who prognosticates how the market is going to do -- is just guessing. They don't know. Doesn't mean they're using bad data, but they don't know.
And yet we're going to snap out of the bear market at some point, and the person who happens to have called it correctly at that point will be anointed as the next coming of Elaine Garzarelli. Remember her? She is the analyst who had about 14 minutes too much fame for predicting the big drop in 1987. She hasn't been right on so much as how many minutes it takes to make a five-minute egg since.
I say all of this not to create despair. I create enough despair every time I walk into an all-you-can-eat buffet, or each time I write that the Nasdaq's going to go to 500 (more on this later). I say this because you need to understand that the people out there who look at the overall ebbs and flows of the market may seem smarter than you. Heck, they may even be smarter than you. But they're guessing -- and the information they use doesn't change this fact. If they weren't guessing, then we wouldn't be stuck with the old adage of a group of five economists having eight opinions about the economy.
I said "old adage," not "really perceptive adage."
Peter Lynch once said that, if you are spending 13 minutes a year thinking about macroeconomic trends, you've more than likely wasted 12 minutes. I think this overstates the case a little bit, but it does describe a wonderful little piece of human folly: When times are bad, we have very little ability to see how things will ever get better. When they are good, we are unable to foresee the pivot point for things getting bad.
I was looking back over some old articles today, and I came across this little nugget of wisdom from early 2000 regarding Lucent (NYSE: LU) and the telecom industry:
For these new-age networks, service providers are spending big bucks, as in hundreds of billions of dollars annually. Lucent itself estimates this convergence market to be an $815 billion opportunity by 2003.
What bozo actually believed in early 2000 that telecom equipment spending would reach $815 billion? Well, Lucent's strategists believed it. But the author(s) of this piece, while they questioned Lucent's ability to compete, did not question the market potential, a figure that seems stark-raving ridiculous now in an age when even the telecom companies with cash are being afforded junk ratings. One of those authors was me.
Just as the seeds of the bear market were sown waaaaay before the collapse of the stock market starting in March 2000, the elements of an eventual recovery will fall into place well before the recovery manifests itself. When people talk about the old 17-year bull market, never forget the fact that this bull began one day when the bear prowled unchallenged. What happened that particular day in 1983 to turn things around? Most likely, nothing. That day, Dan Rather came on and said, "Today, the Dow went up 2," or whatever, and it was about as noteworthy as the weather report for the day. No one said, "Today, the great bull market started." They didn't notice that for years.
This is important, because you as an investor need to recognize what you can control and what you cannot. You cannot control the markets. You can't even predict them. Don't worry, no one else can, either. As such, you can't control what kind of market you are investing in. People keep saying that they don't want to invest while the market's so bad. As far as I'm concerned, that's the perfect time to invest. You want to buy things when they are cheap, right?
Thus comes the conundrum. I'm the same guy who wrote a few weeks back that I thought the Nasdaq Composite ought to be at about 500, for the reason that I think that the majority of the tech sector is still wildly optimistic. Telecommunications remains a horror show, and the PC makers, which still drive much of the tech sector, are seeing sales that are nothing short of horrible. We can see exactly what factors can conspire to keep spending in this sector low; we cannot see what will lift it up. As such, stocks that are priced as if the pick up has already happened, while they could do fine, may not be the way to bet. That's the Nasdaq, and even though it's made up of several thousand companies, it is still most definitively wagged by the technology dog. Please note that there most certainly are inexpensive technology companies. Quality Systems (Nasdaq: QSII) comes to mind.
What about the rest of the market? Well, I'm really not sure on a broader sense. But I'm sure that those who are sure are fooling someone. As an investor you have the power to tune them out, you also have the power to take advantage of the greatest wealth creation machine of all time -- the U.S. stock market. I don't deal in trends except for this one: The long-term trend of the stock market is up, because it tracks the growth of the U.S. economy. The economy might not grow in 2003, but unless you need your money back in 2003, that's not really all that relevant, now, is it?
You have before you the largest menu in the world: a list of 10,000 companies to choose from and to invest in. Regardless of what is supposed to happen in the short term, investors who focus on finding companies that beat their cost of capital, that offer growth, that offer superior economics can find such at a reasonable price. Or, if you're not convinced of your ability to do this, there's always the index fund route -- letting the smorgasbord of companies do their work for you.
But this much should be certain: It may be fun to guess where the market's going. It's a heck of a lot more fun to find a stock that gives you some reasonable certitude as to what direction it's going, eventually.
Bill Mann, TMFOtter on the Fool Discussion Boards
Bill Mann wants nothing more than a bottle of Ardbeg for Christmas. He is managing editor of The Motley Fool Select, where you can find his best Foolish stock ideas you won't find anywhere else. The Motley Fool has a disclosure policy.
The Rule Maker Portfolio has had a cumulative investment of $44,000. As of December 10, 2002, its current value of all cash and equities is $30,932.38. This equals an internal rate of return of -11.1% since the launch of the portfolio in February 1998.