From today's Wall Street Journal
Ten Stock Market Myths That Just Won't Die
By BRETT ARENDS
The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.
The Dow plummeted nearly 800 points a few weeks ago -- and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.
These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.
At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.
1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"
2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.
3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.
The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.
4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.
5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.
6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.
Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.
7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.
If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.
But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
Monday, July 26, 2010
From today's Wall Street Journal
Sunday, July 25, 2010
Wednesday, July 21, 2010
Today #2 son took me to a place I have long wanted to visit: The Muhammad Ali Center. This multi-story museum is in downtown Louisville and overlooks the Ohio River.
My dad was a boxing fan so I watched a lot of fights on TV when I grew up. I was in grade school when Cassius Clay, as Ali was known, turned pro. My earliest memory of Ali is from before he was champ, a press conference where he and the fifty-year-old Archie Moore were promoting their upcoming fight - a fight that everyone knew, except for me, was less of a fight than a publicity stunt for Ali and just a paycheck for the once-great Moore.
I loved the brash, always confident, loud-mouthed Ali with his humorous poems declaring his greatness, the futility of trying to beat him, and what would happen to anyone who tried. No one ever acted like that in sports before. I was too young and naive to appreciate just how revolutionary it was that it was an African-American doing it.
Ali was fast, unusual for a heavyweight, and fun to watch fight. After he beat Liston to become world champ, just about all his fights seemed to be televised on ABC's Wide World of Sports. Ali fought everyone. There was no one who came close to him in the 1960's. I realize now that was why he was on TV so much: No big gates for a one-sided fight. He even traveled to Europe to try to make some money by fighting out-ranked boxers on their home turf.
I never understood his treatment, the hostility, the stripping him of his crown, when he made the courageous and principled decision to refuse induction into the military.
He was the greatest. I had no other sports heroes. I loved the Dodgers, but even their great players were not my heroes. Most kids want to grow up and do what their heroes did. Not me. God did not bless me with the the needed upper-body strength. Even at a young age I never had any illusions of someday being a boxer.
Ali has always been amazing and surprising. He is The Greatest.
Posted by RB at 6:36 PM
Tuesday, July 20, 2010
2) RB and his co-pilot.
3) Getting in was not easy for someone RB's size.
4) Baptist Hospital East on the approach to Bowman Field.
5) We didn't lose a single passenger, however both our passengers were married.
Adam asked me if I wanted to take her in for the landing. He did mention he needed some practice because he wanted to get the hang of landing a bit better, so I said he could take over.
How else is he going to learn?
I was probably at the controls for twenty to twenty-five minutes.
It was cool. Very cool. A real adrenaline rush.
Below is a 5 1/2 minute video Capt. Kenny took from the back seat of the Cessna. It is actually kind of boring to watch, deadly to listen to, but here are some highlights:
- 1:29 Louisville International Airport.
- 2:22 Churchill Downs, site of the Kentucky Derby.
- 4:45 Mrs. B. during one of her calmer moments.
- 5:13 University of Louisville.
- 5:21 Downtown Louisville.
Posted by RB at 10:32 PM
Sunday, July 18, 2010
#2 son and I were running errands when we stopped by Borders to see if they had any boxes for packing. He cleaned up with 20+ sturdy book boxes.
While waiting I noticed a very large and very nice coffee-table type book on China was on clearance. When I went to purchase it, I was offered a free Borders reward card. I said no thanks and then she mentioned that it came with $5 off my next purchase.
My quick-as-thunder mind kicked in and I asked, "You mean if I buy one of these first (pointing to some chocolates near the cash register) can I get a rewards card then use it to get $5 off the book today?" Her nod in the affirmative was notable for its absence of enthusiasm.
The book was practically a give away at $8.47 (including tax). I ended up paying a total of $3.69 for the book plus a Lindt chocolate was thrown into the deal.
Not bad: 56% off an already rock-bottom price including some very fine chocolate!
I couldn't wait to get back and tell Mrs. B. Needless to say, she was impressed with her man. Mrs. B. is a real coupon-clipping maven who makes any sales clerk regret showing up for work if she does not get the sale price plus multiple coupon discounts. No errors are allowed and it does not matter how long it takes, or how many people are involved, to straighten out a five-cent mistake.
With me, I'm being cheap. With her, it is a matter of principle.
Posted by RB at 6:00 PM
Saturday, July 17, 2010
Friday, July 16, 2010
The first of our Blewett ancestors in America was also named William (born 1706 in Cornwall County, England and died 1790 in Anson County, North Carolina):
William Blewett, Esq. was transported from England to the colonies when about ten years old for the trivial offense of cutting a riding switch off a nobleman's land. He was brought up in Philadelphia City in the tailor trade. From there removed to North Carolina on the Pee Dee River, which is on the line between Anson and Richmond Counties, when a young man. [He settled] on land granted to him by King George the Second and King George the Third of England. William Blewett was a Justice of the Peace for Anson County, NC in 1776. [source].
The latest Will arrived home with mom and dad this afternoon. All are doing well.
Posted by RB at 5:10 PM
Thursday, July 15, 2010
At the moment of this posting, three generations of Blewett guys are hanging out together in a room at Louisville Kentucky's Baptist Hospital East. The youngest, #1 grandson (#2 grandchild), was born here at 9:59 p.m. on Wednesday 14 July. He came in at, or rather came out at, 8 lb. 3.7 oz. and 21.5 inches.
Posted by RB at 8:47 PM
Saturday, July 10, 2010
Has this ever happened to you?
This is especially cool if you've been there. Otherwise watch it and save a trip:
An obnoxious, but honest, commercial....
LINK: If God Had Texted the 10 commandments.
A pictorial critical review of the book Twilight:
Posted by RB at 4:54 AM
Friday, July 9, 2010
RB hasn't posted much on the trip to China.
However, for the past week Mrs. B has.
So why shouldn't RB free ride?
Excuse me. This is not free-riding. RB is merely a techno-savvy aggregator.
[Mrs. B thinks the above sign was designed especially for RB.]
2) The Forbidden City
3) Jingshan Park
4) The Great Wall
5) Summer Palace
6) Beijing Olympic Site
7) Temple of Heaven
Posted by RB at 11:19 AM
Thursday, July 8, 2010
Manute Bol's Radical Christianity
By JON A. SHIELDS
As any churchgoer who tuned in to watch the recent NBA finals contest between the Lakers and Celtics already knows, the term redemption is probably now heard more often in NBA sports broadcasts than in homilies. A Google search under "redemption" and "NBA" generates approximately 2 million hits—more hits than "redemption" and "Christianity." The term can also be found in more than 2,600 stories on ESPN.com.
What does redemption mean in the world of professional basketball and sports more broadly? It involves making up for—or, yes, "atoning"—for a poor performance. When the Lakers beat Boston, for instance, Bill Plaschke of the Los Angeles Times called the victory "redemption for the Celtics' 2008 Finals beating."
More often, though, sports journalists use the term to praise the individual performances of NBA superstars. Thus, the Associated Press reported that Kobe Bryant "found redemption" after he won a title in 2009 without the aid of his nemesis and former teammate Shaquille O'Neal.
Manute Bol, who died last week at the age of 47, is one player who never achieved redemption in the eyes of sports journalists. His life embodied an older, Christian conception of redemption that has been badly obscured by its current usage.
Bol, a Christian Sudanese immigrant, believed his life was a gift from God to be used in the service of others. As he put it to Sports Illustrated in 2004: "God guided me to America and gave me a good job. But he also gave me a heart so I would look back."
He was not blessed, however, with great athletic gifts. As a center for the Washington Bullets, Bol was more spectacle than superstar. At 7 feet, 7 inches tall and 225 pounds, he was both the tallest and thinnest player in the league. He averaged a mere 2.6 points per game over the course of his career, though he was a successful shot blocker given that he towered over most NBA players.
Bol reportedly gave most of his fortune, estimated at $6 million, to aid Sudanese refugees. As one twitter feed aptly put it: "Most NBA cats go broke on cars, jewelry & groupies. Manute Bol went broke building hospitals."
When his fortune dried up, Bol raised more money for charity by doing what most athletes would find humiliating: He turned himself into a humorous spectacle. Bol was hired, for example, as a horse jockey, hockey player and celebrity boxer. Some Americans simply found amusement in the absurdity of him on a horse or skates. And who could deny the comic potential of Bol boxing William "the Refrigerator" Perry, the 335-pound former defensive linemen of the Chicago Bears?
Bol agreed to be a clown. But he was not willing to be mocked for his own personal gain as so many reality-television stars are. Bol let himself be ridiculed on behalf of suffering strangers in the Sudan; he was a fool for Christ.
During his final years, Bol suffered more than mere mockery in the service of others. While he was doing relief work in the Sudan, he contracted a painful skin disease that ultimately contributed to his death.
Bol's life and death throws into sharp relief the trivialized manner in which sports journalists employ the concept of redemption. In the world of sports media players are redeemed when they overcome some prior "humiliation" by playing well. Redemption then is deeply connected to personal gain and celebrity. It leads to fatter contracts, shoe endorsements, and adoring women.
Yet as Bol reminds us, the Christian understanding of redemption has always involved lowering and humbling oneself. It leads to suffering and even death.
It is of little surprise, then, that the sort of radical Christianity exemplified by Bol is rarely understood by sports journalists. For all its interest in the intimate details of players' lives, the media has long been tone deaf to the way devout Christianity profoundly shapes some of them.
Obituary titles for Bol, for example, described him as a humanitarian rather than a Christian. The remarkable charity and personal character of other NBA players, including David Robinson, A. C. Green and Dwight Howard, are almost never explicitly connected to their own intense Christian faith. They are simply good guys.
Christian basketball players hope that their "little lights" shine in a league marked by rapacious consumption and marital infidelity. They could shine even brighter if sports journalists acknowledged that such players seek atonement and redemption in a far more profound way than mere athletic success.
Jon A. Shields is assistant professor of government at Claremont McKenna College.
Posted by RB at 12:53 PM