Five hundred posts here, since I last looked just one week ago. I thought, for sure, that the RE market had crashed. Or skyrocketed again. One or the other.
Here's an interesting read that's mostly off-topic, but slightly on-topic for about a paragraph or so. There is no mention of donkeys or mountain lions, though.
American Sucker
Reviewed by Allan Sloan The New York Times
Monday, February 2, 2004
By David Denby. Nonfiction. 337 pages. $24.95. Little, Brown & Co.
David Denby's memoir, "American Sucker," shows that timing is everything. Denby bet everything on tech stocks in early 2000, in reaction to the breakup of his marriage. Had his wife left him in 1998 instead, his memoir might have been called "American Stock-Picking Genius" because the stock bubble had two years left to run. Denby entered the tech-stock casino at the worst possible time: January 2000, just as the market was peaking.
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Denby, a movie critic at The New Yorker, plunged into tech stocks, he says, so he could buy out his wife's half of their New York apartment. That way he wouldn't have to move. But after three years of heavy losses he gave up and sold the apartment.
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Despite its title, "American Sucker" isn't about investing or the stock market. It's about Denby's midlife crisis and his sudden urge to make a lot of money quickly, combining his lifetime savings with $325,000 he inherited from his mother. The stock market is merely the theme that ties this memoir together.
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But there are investment lessons here nevertheless. The book not only tells us more about Denby than many of us want to know - do we really care about his flirtation with pornography or how he forgot his suit in the closet of a married (now former) paramour? - but it also shows us the difference between being smart and being a smart investor.
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Even if you haven't read Denby's movie reviews, you can see from this book that he is formidably smart. His writing is clear, and his allusions range from Alexander Pope to Edith Wharton to Thorston Veblen. Denby is even smart enough to realize how paradoxical it is that he not only has a good, prestigious job, but that he is also in a position to make money by relating how he lost money in the stock market.
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But the smart writer is not a smart investor. He's emotional. He's irrational. He confuses what he desperately wants - to make money to validate his investment manhood - with the market, which doesn't care what you paid for your stock or whether you live or die. He tunes out the news he doesn't want to hear about stocks being overpriced - advice from a New Yorker colleague, from the head of the Securities and Exchange Commission, from newspaper articles - and seizes on optimism, be it babble on CNBC or passing remarks he hears at his local newsstand.
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Making yet another classic mistake, Denby confused access with insight. He established relationships with Henry Blodget, the former Merrill Lynch Internet analyst, now disgraced, and with Samuel Waksal, the former chief executive of ImClone Systems, now imprisoned. Denby thought this offered him insights into the truth. Instead all he got was nonsense, but from high-level sources. Denby also falls for the pap being peddled by George Gilder, a telecom mega-bull. That's because these guys all told him what he wanted to hear. "I listened to those I wanted to listen to," he writes. "I wasn't lazy, exactly, but I thought the study of fundamentals was a waste of time."
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Denby would never have reviewed movies this way, but he invested this way, and he paid for it. In his last "quarterly report," dated Oct. 1, 2002, Denby puts his losses at $900,000. But later in the chapter it turns out that's not how much money Denby and his wife were out of pocket; it's how much their portfolio had fallen since its peak. Denby says his portfolio was worth about what he and his wife had originally put into the market. So it's not as if he lost money. He failed to cash in his gains, which isn't the same thing.
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As the value of Denby's stock portfolio fell throughout his 33-month odyssey, the value of his apartment seems to have kept on rising. Many of us who warned that the stock market was a bubble a few years ago now feel the same way about Manhattan apartments and other high-priced real estate, whose price has been enhanced by artificially low mortgage rates. At least Denby managed to sell his apartment at close to its peak value.
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The stock cycle even turned, just about the time Denby gave up. After falling 78 percent from its peak in 2000 to its low in October 2002, the Nasdaq market is roaring again, up 50 percent last year. The consulting company Ibbotson Associates says the smallest 20 percent of stocks, rated by market value, rose an astounding 60 percent last year. That's the most speculative part of the market.
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So while Denby may have stopped being an American sucker, have no fear. To paraphrase P.T. Barnum, there's a new sucker born every minute. And quicker than that when the stock market's booming.
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The New York Times
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Allan Sloan is Wall Street editor of Newsweek.
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