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I'm going to be speaking more harshly than I normally do, so I apologize for any feathers I ruffle in advance.


Please tell me that none of you actually believe this. I take it from all of the recommendations that you do. Is no one learning? Are you not taking stock of what is happening out there? I see the portfolio that Ted put together at the bottom of his post and I see someone willingly walking back into a massacre.

Please read and understand the definition of investing. It is this:

The accumulations of wealth AND the preservation of capital.

More on that in a second. First some myths to dispel:

"Wall Street" knows where the economy is going.

The hell it does. Have you ever thought about what Wall Street is? It is YOUR money. Wall Street, the part that deals withthe stock market, is the collection of all of the institutional money out there. A huge percentage of institutional money is YOURS. Mutual Funds, 401(k)'s, pensions.

so if Wall Street knows what's coming, why do 89% of its portfolio managers fail to beat the S&P 500? Why does 83% of all money managed by Wall Street lose to an unmanaged basket of stocks? You're suggesting that they have tomorrow's newspaper. They don't.

The conspiracy theory about Wall Street is just plain ridiculous. Oh, sure, there are a bunch of Machiavellian dirtbags up there, but nothing in their performance reflects any clairvoyance or even distinct advantage.

Need more proof?

If Wall Street is so smart and so far ahead of us, then why did they start pulling IPO's off the market only AFTER the Nasdaq began to crash? Alta Vista was scheduled for May, two months after the crash began. Why didn't AT&T, which has at its disposal the best and the brightest Wall Streeters regardless the cost, not rush to get its wireless IPO out the door before the market was going bad, instead of waiting until the end of April 2000?

Get a copy of the big Street firms' 10-k's. Sure, they're doing well, but do you see a long term profit margin that points to them getting the newspapers before we do?

If they know what's happening, why would Merrill Lynch allow its billion dollar asset Henry Blodget absolutely trash himself by keeping the highest ratings on such pieces of garbage like They would make much more money keeping the IPO market and the secondary markets open. That's where the big bucks are.

If any of you has read "When Genius Failed", why on earth do you think that Long Term Capital Management would take leverage at up to 99% and bet on perceived inefficiency spreads in the bond market of as little as .05%? Why would they need to take that kind of risk if they simply knew what was coming?

You simply cannot be serious. Those guys don't know anything, they've just got larger kittys to play with.

In biology I remember a teacher calling smallpox a "stupid" virus. The simple reason is that smallpox destroyed its host, and thus inevitably itself. "Smart" viruses were those that inhabited their hosts but did not kill them, thus the virus could be spread.

Wall street is manipulating the market
Wall Street would make boatloads more money when the markets are good than they are now. If you believe that they are smart enough to widely manipulate the market, you must also believe that they are smart enough to know this simple truth.

I keep seeing people looking for a bottom. Oh, it will come, in its own time. It will happen when, and only when, inventory gluts burn themselves out and capital investments once again are perceived to have a chance to offer a return.

It wasn't Greenspan, much as John Chambers would like to blame him. It was all that debt that companies took on when times were good.

Here was my prediction in September:

Does that sound familiar? You wonder where all the money went? It's not just sitting on the sidelines. Try this: $2 billion worth evaporated when the Nasdaq tanked. And considerably more disappeared when banks suddenly tightened not the cost of debt, but their own willingness to lend. That's why the bank stocks are not moving -- their normal sensitivity to interest rates is stunted by the fact that they have no profitable places left to lend without taking on additional risk, which they are unwilling to do.

Are you prepared for a bear market of not several months but several years? I look at where Ted's saying to put money, attach to the whale, so to speak, and I don't believe that he, or those who are recommending his post, are. "Go throw your money AGAIN at the same sectors which have just bloodied you, because the big boys can take them up in a hurry."

Look, I'm not saying that the companies in those lists are bad. Some of them are, most of them aren't. But a portfolio that contains only that type of stocks? Are you really going to touch that stove again? If so, use a glove. I'm not saying go buy gold either: I bought Avanex heavily last week. But I also own some party poopers like Church & Dwight (baking soda, mmmm sexy) White Mountain Insurance and Berkshire Hathaway (conglomerate), ones that absolutely positively do not need for the capital markets to open up before they make money.These are what allow me to invest the way I do, they are the foundation so I will not get washed away.

Deyz making money right now. You want to cry? Look at the White Mountains and Berkshire Hathaway charts for 2000:

This, in a bad, bad market year.

Look, I'm no investing genius, nor am I some hide-in-a-bunker conservative. I'm willing to take some real flyers, some which paid off spectacularly (Qwest), some (Iridium, PSINet) have not. All I'm saying is that you must search out the best companies in several different sectors.

The big boys are not behind this. Don't believe for a second that they are. They want the good times to come back, and badly. The good times can and will come back, when the economic tide lets them. No one knows when this is.

Are you prepared to wait 2 years or more? If not, then please, for all things holy, do not wait one minute. The market will drive you out of your mind while you wait. Get thee to an index fund and feel good about the fact that, not only are you practicing "sufficient" investing, but you are actually practicing SUPERIOR investing. you have your life back, and you have 85% of the US stock market working for your future enrichment.

We all want to believe that someone knows what is coming. Well, they don't. Actually, I do. I say that there is a 50.1% chance that the market will go up on Monday, and a 49.9% chance that it will not.

One last thing, I've noticed a much higher percentage of "LTBH does not work in all markets" type posts once the market is down. Funny how so many people thumped their chests and said "I'm in for the long term" when times were good.

There are two types of people that I feel worst for in investing: those who mindlessly mimic, and those who avoid making decisions in the name of being LTBH. The first group will always be chasing the rainbows, and the second will do things like ride bad companies into the ground. No amount of LTBH will help you if the companies you own suck.

Back to that first point: the accumulation of wealth and the preservation of capital.

What does this mean to you? Stop-losses? They may help you some, Bill O'Neil sets his at 8%. But if you keep losing, or missing out on gains because you're in volatile stocks, that's a tough way to beat the market.

Play sector rotation? What do you do when almost every sector stinks?

I dunno, nor is my purpose to tell you how to invest. But I suggest to you that those who you want so badly to be "in the know" are not. They can't be, because if there was something as simple as a conspiracy they would have long ago figured out how to be efficient about it.

I beg you guys: be careful. This that I see, it's a gamble based on knowing that which is unknowable, counting on people to manipulate that which they cannot.

The theme for investing is, in some ways, surviving to play another day. What path you choose to get there is your own, but taking outsized risk is something that will bite you eventually.

My best wishes to all of you.

Bill Mann
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