The classic stock tip is “Buy low; Sell high.” Unfortunately, this is difficult to do under the best of circumstances, and in recent years is very likely blind luck if you manage it.
The reason for this is that the classic stock tip has been superseded by the ultimate stock tip. The latter states unequivocally, “Don’t buy stock!” That’s pretty much it.
The only exception is if:
1) you have the controlling stock interest, and furthermore
2) you are the only person with access to the bank account(s), and
3) you are the only person with authority to encumber the funds, and
4) you are of sound mind and body (which is questionable if you’re reading this).
If you do not adhere to these criteria, then you will be dependent upon CEOs, Independent Accounting Firms, and other selected co-conspirators in any company offering stock. You will be at their mercy. According to their whim. Totally under their mercy. You’ll be toast.
Enron, World-Com, Xerox (the one who managed to correct a billion dollar accounting error), and all the other fraudulent schemes of late should give anyone pause. But these travesties of the market place are but the tip of the iceberg. There is, to mention only a few: Comdisco, Arthur Anderson, and, horror of horrors, Disney.
Yes, Disney. Disney, who pays its president millions each year based on its net profits -- net profits which were obtained during most of Michael Eisner’s tenure by taking out of the vault old animated movies -- which were carried on the books at their original value (perhaps a hundred thousand dollars in years past) -- and then reissued to make millions in apparent profits. The problem is that the Standard Accounting Rules gave no hint of the value of the company’s assets, but were instead used only for income tax purposes.
There is, admittedly, the possible justification for pulling out the movies -- i.e. as a means of protecting the copyrights of the originals -- but there is no justication for a brain-dead Board of Directors to award an incoming president with such a lucrative contract.
This technique of cashing in the assets of a company in order to make the appearance of greater profitability has been used in countless cases, where accounting firms -- even the ones that might remotely be construed as being honest and diligent -- did not provide an indication of the value of a company’s assets, but instead a measure of its taxable income. And thus Raiders of the Corporate Ark could easily find grossly undervalued companies, pay double the stock price (based on the faulty, but officially approved, accounting), and then sell the company for double or triple what the Raider paid for it. [Haven’t you ever wondered why a Corporate Raider would pay so much extra for a company’s stock?]
The obvious conclusion is that the idea of any independent accounting firm offering a fair appraisal of the value of a corporation is a retreat into Fantasyland. On top of that is the fact that CEOs and upper level executives are fleecing the companies at a phenomenal rate. The best indicator is that in the mid 1970s, the ratio of a CEO’s total compensation (wages, stock options, fringe benefits, personal jet, etceteras) to that of the worker’s (those who were actually producing something of value) was about 47. It is now roughly 500. Thus a worker earning $30,000 a year has, on average, a CEO making $15,000,000 a year. Clearly, some CEOs are doing much, much better.
[The really curious part is that when United Airlines was taken over by its employees, the compensation packages of its new top executives was significantly increased. Go figure!]
But if you’re still not convinced, if you like the odds of winning the Power Ball Lottery, if you’re willing to try to be the rare individual who beats the incredible odds and actually makes money on the stock market, and if you can ignore the fact CEOs, stock analysts with intense conflicts of interests, and high flying financial types are benefiting enormously from the dysfunctional gambling instincts of the average investor... Then you should be aware of stock market indicators of the weird kind.
CNN/Money described several of these in an article back in January 9, 2003. According to Justin Lahart, the author of the article, such indicators include the following:
· When stocks finish up the first five sessions of the year, the market can be expected to be up for the entire year as well. (This is good about 72% of the time.)
· When stocks are up for the month of January, then the market will be up for the year -- an indicator which is right on about 74% of the time. (The problem is that an up January can still result in the rest of the year being down, but that the down portion of the 11 months is less than the up portion of January -- and thus the year overall is up. In 1987, for example, January was up 13.2 percent, and closed the year up 2 percent -- implying that the period from February through December was down 9.9 percent. If you bought into the market based on a good January, you lost heavily.)
· When stocks in April are up, the year is up -- but only 68% of the time.
· When hemlines are up -- and presumably an indicator of a more robust, optimistic mood of the masses in the market in general -- then the stock market is going up. (The problem now is that fashion is anyone’s game, and there is very little consistency in wearing mini-skirts or hem lines to the floor.)
· When a team from the old American Football League (AFL) wins the Super Bowl, the stock market is expected to go down. For thirty years, this indicator was right 90% of the time, but then was wrong four times in a row. Bummer! (But even with the latter the Super Bowl is still a respectable indicator 79% of the time.) [The best part is the idea that the 2003 Superbowl had two teams who were both basically pirates!]
· When a bull or facsimile shows up on the front cover of Time or Newsweek, this is a sign of a bear market, i.e. good news in the market arrives at the market’s peak, and thus the only direction is then down. The opposite apparently also works. This is known as the Contrarian view, i.e. do the opposite of what the crowd is doing.
Now that you have the real skinny, consider investing in real estate -- perhaps a home in the country. Maybe a mountain home, or a cottage by the sea. Something you can use!
In any case, remember that The Greater Fool Theory states that it’s okay to be a fool and buy overpriced stock (or real estate) if you can find a greater fool who will buy it from you at an even greater overpriced value.
2003© Copyright Dan Sewell Ward, All Rights Reserved [Feedback]