Macro Economics
Evangelism and the Stock Market

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By washcomp
October 21, 2009

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On occasion, I am called upon to speak to a crowd. During high school, I was lucky to have a gifted public speaking teacher (Mrs. O'Gorman, a Greek if anyone is interested). She truly did a fabulous job of teaching the theory and practice of various methods of this craft. In true form, when I started speaking to crowds, I completely ignored her training. It is indeed a sobering effect on the speaker to see 300 people start to doze during what you had thought was a speech crammed with vitally useful information. After a few experiences like this, in the middle of a presentation (coincidently as a "warm up" to Bill Gates in the 1980's). I threw all my notes into the air above the podium and started interacting with the crowd - saving the day ?. Anyhow, since then I have consciously tried to follow Mrs. O'Gorman's advice. To augment this, on occasion, I have listened to speeches by some of the effective speakers of the past (including, I'm embarrassed to admit, Adolf Hitler - though I don't understand German), as well as modern tele-evangelists to see if they have some "secret sauce" of eye contact, body language, pitch and cadence of voice or stage presence that makes them effective (without paying much attention to the content). It is my opinion that anyone can become at least adequate at any task (be it speaking, painting, cooking, gardening or whatever) by studying technique.

Anyhow, there are a few items which stand out:

1) Anything repeated often enough will eventually be considered as true
2) If you can get the audience to yell "yes" a couple of times, they will tend to agree with anything you say
3) If you are perceived to be sincere, you will be perceived as telling the truth
4) Using "we" instead of "I" will ("us" instead of "me") will tend to get people to agree with you

The list goes on and on.

I'm not here to instruct in the techniques of oration, but rather to point out a parallel which affects our behavior in the markets
We, on METAR, have trained ourselves to dig for information which most people never get to see (or if they do, don't evaluate from as many perspectives as are commonly found here). That being said, we also realize that there are levels of information (and timing of information) which are held by others to which we don't have access. Information is power in the sense that it will give an indication in how to act. The molding of that information (by the media, the analysts and even by our circle of acquaintances) will likely influence our actions.

There have been a couple of threads concerning "beating expectations" vs. fundamental health and growth potential of companies. While my views are probably well know on this debate, I'm not here to take sides. Rather I want to point out the importance of filtering out rhetoric in order to make an appropriate judgment call. One of the parallel threads has turned to discuss Apple (a fine company). It has been touted on potential growth as well as it being "less bad" than other companies. Both are likely true. Again, without taking sides, when evaluating ANY company for the long term, a dispassionate view should be taken about their prospects. Cisco has be indicated as the "anti-Apple". A fine company with good technology, who knows how to implement a sales/marketing strategy, high margins, etc. whose stock has not performed well over the past decade. Again, I'm not comparing these two for their ability to perform over either the short or the long term, but rather because of the difference in perception in the eyes of the market. Apple is "sexy" and Cisco has been disappointing. Compare the number of references to each on the various blogs and it's probably ten to one in favor of Apple.

When choosing an investment vehicle, an understanding of the underlying value will work out better. Buying that value at a discount will, over time make you money (all other things being equal). When trading, hype is far more important as the "crowd mentality" will more likely work to your advantage. Just be aware of the true value of your choices as at some point things will tend to revert to this line. Our equity market has many fine companies. These companies will generate profits way into the future. That said, many, in the absence of a significant economic turnaround will not generate the growth of returns which is indicated by their current costs. While some of the dividend streams pay more than cash returns, the portion of the company that you own when purchasing a share of stock, under other circumstances would not be worth the premium. With a long enough time horizon, everything will likely turn out fine. Over the short term, it is safe to predict that the market will not go up forever. Traders have an edge at this point as their short term outlook can concentrate on current "sentiment", rather than the ultimate returns over a one year time horizon.

I am not trying to give investment advice, but rather to encourage using common sense. If you have the fortitude (or time horizon) to ride the market's ups and downs, then everything will ultimately be fine. If not, carefully evaluate your holdings and make sure you understand why each one exists in your portfolio. Re-read the abbreviated list of "public speaking" tips listed above and decide whether you have been unduly influenced in you viewpoint of the market.