The media and the crowd.
A few weeks ago, a client forwarded me an article from the November 26, 2012 issue of TIME entitled, “Why Stocks Are Dead (And Bonds Are Deader)”. My immediate reaction was very similar to the other advisors in our office. We all instinctively said, “That’s great!” Of course stocks being dead is not great, but TIME magazine reporting that they are dead is great because TIME has a long record of being dead wrong on the markets.
In their defense, the writers at TIME are just doing their job. Their primary responsibility is to sell magazines and their primary tool to accomplish this is to overhype the news. A more responsible headline for the article, given its content, would be, “Stocks May Not Perform At Their Historical Standards In The Future” but that’s not as attention grabbing as “Stocks Are Dead.” The other great tool is to report only the negative, or to at least slant everything in a negative light.
Their second responsibility is to capture the present mood of the country and preserve it as a historical document. TIME’s long history almost demands that the prevailing attitudes and opinions of the day be recorded and preserved. The only problem with this is that some readers take this as a forecast of things to come, when it is really a statement of what the crowd is thinking. The most basic way to make money in an investment is to be there before the crowd. If TIME magazine is reporting it, most likely the crowd is already there and it’s too late.
All of the problems that our economy and our country face today have been seen before, and TIME was there to capture the moment. Unemployment was a concern on February 9, 1982, when the Dow Jones was at 830.57 and on November 22, 1993, when the Dow Jones closed at 3,670.25. I’m sure the future looked cloudy at the time, but that didn’t stop the market from advancing 342% in less than twelve years (or 13% per year on average). The banking industry was “Awash in Troubles” on December 3, 1984, just like it was in October of 2008. In the meantime, the Dow Jones managed to grow from 1,182.42 to 9,387.61, a gain of 694% (or 9% per year). Today, people are worried about the US debt just like they were on March 13, 1972, when the Dow stood at 928.66. In August of 2011, TIME reported “The Great American Downgrade” of US Treasury debt, and on that day the Dow ended the day at 11,482.90.
TIME magazine has been selling the same bad news over and over, because we have found ourselves in the same messes over and over. As serious as these problems were (and still are), this hasn’t stopped great businesses from adapting to the times and finding new ways to earn money. In the process, their patient stock investors have seen the reward of not following the crowd at every fleeting moment.