Applebees??! I guess I had that coming ...
Oodles of places to eat here, but I usually bring from home.
Only really good place in town is Tong's -- a thai place ...
timpicks.homestead.com
>>Historically, This Is What Will Happen
Finally, we come to the use of percentages and/or averages to justify the market's direction. "You know, 72% of the time when X has happened in the past, the market has gone up." Or, "Over the last 80 years the market has averaged a 10% gain in the following year after X occurs." So what? What about all the other conditions, were they all the same? There is no control group. In most cases, we have no idea whether those results are because of causation or just random chance. Flip a coin ten times and you could very easily get heads seven out of ten times. Even nine or ten out of ten is possible. Does that mean the coin is more likely to come up heads next time? Or does it even mean that particular coin is more likely to come up heads than other coins? Not at all. It's highly unlikely that every single event is going to come out exactly 50-50. The minute the results are 60-40 or 70-30 some prognosticator wants to offer it up as proof of something. Even a 100% past correlation is not necessarily proof of anything.
Most market events are mutually exclusive and thus there really is meaning to the phrase, "past performance is no guarantee of future results." As Motley Fool has recently discovered, back-testing and optimizing from past years proves nothing.
The Super Bowl indicator, the Presidential election year rally, and the summer rally are just a few of these so-called "indicators" that didn't happen to come up heads this time around. Most likely, they're not indicators at all, they're only related by chance. Some things are true, but irrelevant.
It's tantamount to saying that because you ate a piece of toast in the morning and then got in a car crash in the afternoon, we can conclude that toast causes car crashes. What about all the other factors? We could then do a historical study of past car accident victims and come up with concrete evidence showing that nearly 100% of those who have been in car crashes have eaten toast in their lives. It's proof, I tell ya! Stop eating toast! Do it for the children!!
Playing the odds is a good idea. But we want to be sure we really are playing the odds and not just playing a correlated set of data that may have nothing to do with the odds. If you are playing blackjack, it doesn't matter what happened to you the last time you were in Las Vegas and held a total of 16. What matters are the hand that the dealer currently holds and the cards that are still in the deck this time around. That's what will determine the current odds.
Stick To The Fundamentals
We should stick to the fundamentals like earnings, cash flows, balance sheets, risk-free rates of interest, reasonable growth rates, etc., to determine value. Investing, as new investors are discovering, is extremely difficult. Among the legitimate indicators, psychology is only one factor of probably hundreds that play a role in market valuation. The Fed, personal and corporate debt levels, savings rates, currency rates, etc., all play a part. And it is extremely difficult to determine causation when there are oodles of factors. That's not to say we should ignore past tendencies altogether. Just don't depend on them as gospel. When comparing the present day with historical tendencies, it's nearly impossible to determine if all other important factors were similar.
So we shouldn't go for these "one indicator" methods that are bandied about by the TV commentators -- the same guys who will never admit to being wrong on anything. They are good "on camera" people. They speak with such authority, charisma, and seeming omniscience that it's easy for even market veterans to get swept up in their line of bull.
Their last "one indicator" method was, and I'm quoting, "Over the past 50 years, the Standard & Poor's 500 index has climbed 2.7% a month on average in the three months after the first interest rate cut by the Fed."
That's nice. But investing just isn't that easy.
If, as John Templeton has said, this was the biggest financial insanity in the history of the world, then we should also keep in mind that this may be a precedent setting event rather than a precedent following one.
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