Rudy,
Obviously, I should have pointed out that this was a 100 yard dash not the Daytona 500! ;^)
Ian/
ob joke: Dorfman's column...
Boston, March 1 (Bloomberg) -- They say the truth is often spoken in jest. If that's
the case, I want to look at the message underlying some jokes that are part of
Wall Street lore.
``October. This is one of the peculiarly dangerous months to speculate in stocks.
The others are July, January, September, April, November, May, March, June,
December, August and February.''
Mark Twain said this, and he would know since he lost a fortune in the stock
market.
There actually is some difference among the months, however. According to Ned
Davis Research, December has historically been the best month for stocks, with
the Dow Jones Industrial Average gaining an average of 18.4 percent a year. July
is second best, with gains at a 16.4 percent annualized clip.
September is the worst month, with annualized losses averaging 11.9 percent.
February and May also show losses on average.
The numbers are based on roughly 100 years of history, through October 2000. If
you look at more recent numbers, beginning with 1982, January is the best month
for stocks, followed by December. September remains the worst.
``What's the difference between being early and being wrong? There isn't any.''
(Anonymous).
As an investor who looks for cheap stocks and is often too early, I resent this
joke. Still, there's a lot of truth in it. If you bought International Business Machines
Corp. near $40 a share in late 1985, you more than tripled your money by the end
of 2001. But you had to wait 11 years to get even. Most investors would have
given up before the stock ignited.
``Buy a company any fool can manage because, eventually, one will.''
Credit mutual fund manager Peter Lynch with this line. I had to disagree with the
person who made Fidelity's Magellan Fund a household name, but I don't think
any company is fool-proof. I prefer another of Lynch's sayings (see next entry).
``If you spend 13 minutes a year on economics, you've wasted 10 minutes.''
This, too, comes from the lips of Peter Lynch, and it contains a great deal of
wisdom. It's better to spend most of your time trying to invest in good businesses
at reasonable prices, rather than trying to psych out whether the economy -- or
the market -- is going up or down.
``Buy some good stock and hold it until it goes up, then sell it. If it don't go up,
don't buy it.''
As most people know, humorist Will Rogers said this. As most people don't
know, he said it two days after the stock-market crash of 1929. What amazes me
is how many people believe a related theory -- that if a stock goes down, it wasn't
a good stock to begin with.
``How many stockbrokers does it take to change a light bulb? Two. One to take
out the bulb and drop it, the other to try and sell it before it crashes.''
Well, brokers often do act quickly, if not wisely. This reminds me of another light
bulb joke. How many efficient-market theorists does it take to change a light
bulb? Answer: None. If the bulb needed to be changed, it would already have been
done.
The efficient-market theory states that all known information is automatically and
almost instantly factored into stock prices. So, the theory says, investment
success is mainly a matter of luck.
``Saint Peter admits a New York stockbroker to heaven and gives him a silken
robe and golden staff. Next comes a minister, who is given only a cotton robe and
wooden staff. The minister demands to know why the broker got better treatment.
```We judge by results,' Saint Peter says. `While you preached, people slept. His
clients prayed.'''
I readily agree that brokers can be hazardous to your wealth. I'm not sure
analysts are much better. This brings us to the next joke.
``A broker and an analyst go to the racetrack together. Despite the analyst's
skepticism, the broker insists that he has a winning system. Sure enough, horse
number 9 wins.
```How did you do that?' the analyst demands. `I have two children, five and three,'
says the broker. `I added their ages.'
```But five and three makes eight, not nine,' the analyst exclaims.
```You're so theoretical,' the broker replies. `I just demonstrated to you that my
system works.'''
The anecdote conveys an inherent distrust for systems. I distrust all systems yet
am fascinated by them nevertheless. Many are quirky; some are even useful.
``Wall Street is a street that runs between a river and a graveyard.''
That's literally true. You can walk the length of Wall Street from the East River to
the Trinity Church graveyard in about 10 minutes. And no doubt the Street has
been the ruin of many an innocent lad. Still, it has also enriched thousands of
everyday people, with an average annual return on U.S. stocks of about 10
percent a year over the decades.
``Where are the customers' yachts?''
This was the famous outcry of a naive visitor to New York City's financial district
upon being shown the yachts of leading tycoons and stockbrokers.
I had a replay of the conversation some 60 years later while visiting Andrew
Melnick, then director of research for Merrill Lynch & Co. As we looked down at
the harbor near the World Financial Center, Melnick pointed out some yachts
owned by Merrill executives and others.
Of course, I couldn't resist. ``Andy,'' I said, ``Where are the customers' yachts?''
Ever quick, Melnick pointed to a passing ferry. ``That,'' he said, ``is the customers'
yacht.'' |
