Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 99
It's a simple thing, isn't it? Invest, wait, cash out, retire. Ahh, the truth will win out in the long run, though. And the long run has turned into a marathon.

You're probably wondering why the market won't turn around, why every headline and television program sounds the death knell for investors with words like recession, downturn, negative, bear, bear, bear, bear.

Oh, shut up already.

We are where we are for some very simple reasons.

1. Buzz

Or lack of it, really. Buzz is, quite simply, what people are talking about. I mean people like you and me, like the guys and gals at the water cooler, the local gym, and the gas station. Buzz is what drives people as consumers, and it is what drives businesses and their products.

A quick example: The Elmo doll. Remember the butt-ugly red thing that could talk a few Christmases ago? Remember how EVERYONE was talking about getting one for their kid – except every store was sold out. Remember how Elmo made Today show – the long lines at your local Toys (Aren't) Us, frustrated, angry parents bemoaning lack of supply for heightened demand.

That's Buzz.

Apply that to 1997-2000. EVERYONE was talking about everything TECH. Tech, tech, tech, tech, tech. Internet, dotcoms, wireless, dvd, cellular, blah blah blah. That drove people into buying computers and software and internet services and web surfing, and, and, and, and.

Consider how many new monikers popped up in the last few years – ISP, AOL, Surfing, Spiders (no, not the investing ones), do you Yahoo!?

Look back at the rise in computer sales, look at AOL's huge subscriber growth, look at the millions of visitors to Ebay, Amazon, even the Fool.

That's Buzz.

Then, everyone started talking about how all these tech companies were going to make billions and billions of dollars, and how everyone should be buying these companies because they represented this thing called a (insert moniker) New Economy. And people like Henry Blodgett made substantial names for themselves, not because they were geniuses, but because what they had to say generated even more Buzz (and, naturally, wall street picked up on the buzz and created more buzzsters (that's someone who imparts buzz) to go out and generate even more buzz, like a horde of little honey bees attracting dollars with their words of buzz).

Investors followed. Money flowed. And the Nasdaq rose, and rose and rose. It rose on buzz.

Damn if it didn't fall on Buzz, too. Because now we have negative Buzz. All things bad. Bad stocks, bad economy, bad earnings, bad (insert economic term). And so, stocks have remained depressed. Rising briefly, falling back. All driven by the Buzz of the day. Cisco, Intel, Microsoft, Ebay, Amazon, Nortel, Nokia – take your pick. All have been done in at one time or another in the last year by negative Buzz.

But Buzz is only the first part of the equation.

2. Confidence.

This is the second, and equally important element. Jeff Fisher (TMF Jeff - http://www.fool.com/portfolios/RuleBreaker/2001/rulebreaker010820.htm) was talking about the psychology of the market. Confidence is what we all had (regardless of what inspired it) over the previous three and half year. You were hard pressed to find a bad investment, weren't you? (Not that it was impossible, just that money went everywhere).

But the free-fall for the Nasdaq has destroyed that confidence. (unless you are one of those “SELL CISCO AT 16.33 EXACTLY 10:02AM” posters that seem to have proliferated here in Fooldom). Now where do you put your money? Who's making money? Who's selling product, gaining market share, growing their company exponentially? When will the bear return to hibernation?

Who the hell knows?

I do.

Follow the Buzz. When the buzz returns, it will stimulate confidence. When confidence is stimulated that will translate into faster, and greater consumer action (including investment activity).

Now for some hard points.

First, I think it's ridiculous for people to talk about the inability for the market to rally. When you pull several trillion dollars in investment value out of the market, it's going to be hard for the market to rally.

For those who may be a little confused about the ability for the market to go up or down, here's a great story from Morningstar, with a hypothetical example revolving around mutual funds (inflow/outflow).

http://news.morningstar.com/news/MS/Strategist/inflowmyth.html

So let's think for a moment:

Investor A (the public) gets Buzz fever, and, further buoyed by market confidence (because the buzzsters are saying the time is NOW) rushes to the market with money in hand.

Investor B takes the money, puts it in his pocket and goes to the bar. Over and over and over and over.

And suddenly you have lots of Investor A's out there who have paid $60 for Cisco, and $100 for Intel, but, as they now become the Investor B's they find the new Investor A's (which are really the former Investor B's in disguise) are only willing to pay, $50, $40, $30, $20 – for Cisco (or $90-$80-$70-$60 etc. for Intel, or every other stock, for that matter).

And so what happens is Investor A/B either: Petulantly refuses to sell his shares (which are now worth about 20% of their original value), or sells for a loss.

In which case Investor B/A has made money up, and he's made money down. And he's the only one.

So, now the Investor A's of the world have lost 30-90% of their stock/portfolio values. There's only one way (excepting the lottery) to make that up – income. (They ain't makin' it from dividends or returns, right?) And to make matters worse, the economy (which has fallen victim to negative buzz) is producing layoffs, lost jobs, dead dots, closed companies, take your pick. In other words, no confidence.

Further, the average Investor A is in no hurry to lose again – right? So what possible impetus is there for him to buy Cisco at 16, or Intel at 40 (or any stock at any price); compounded by the negative buzz and zero confidence…

It's easy to see why the market isn't moving.

Here's something else to think about: one of the tenets to investing (and there are a hell of a lot of them) is the movement of the market in correlation to the market's volume.

We'll look at the Nasdaq for this example, because if you look at a three-year Nasdaq Composite chart you will understand what I am talking about even better:

http://quote.fool.com/Chart/chart.asp?currticker=$COMPX&symbols=%24SPX%2EX%2C%24INDU%2C%24COMPX%2C%24RUT%2EX

When the market moves UP or DOWN on substantially increased volume, that typically indicates buying or selling on the part of institutions, not individuals. When the market moves up on weaker volume that typically signifies individual money flowing to market and not institutional. So go look at the three yr Nasdaq Chart. What do you see?

Look at the long increase in volume heading into 2000 (starting back about Oct 99) That takes the Nas from 2800 to 5000. From March to April you see a V in volume and the Nasdaq (twice hitting the 5k point, the second of which is my focus now.) See them big spikes in April and again in May? See the Nasdaq falling all the way to 3000? Institutions – bailing out. (Or Investor Bs)

Now look at the runup through Oct 2000: see how much lower, how much weaker the volume is; particularly the August to September timeframe, volume in the 1.5 million share range, and the Nas moves UP from 3600 to 4200…(and wasn't everyone breathing a sigh of relief). Then, as the volume increases (and institutions sell into possible renewed market confidence), the market falls, and falls, and falls.

December 2000 – February 2001: market-defying logic? Probably not. First, Institutions lead volume up in another rally from 2300 to 2900 – investors aren't biting (the buzz is turning negative, confidence is eroded). February to May, lower volume churn, market falls to its lowest point, in the 1600s. (Institutions return mid-May, drive market back up over 2200, volume subsides, Nasdaq moves sideways-downward).

So here we are, August 2001. Volume is getting weaker, the Nas is trending downward. I say that's a good thing. It should be easy to spot the return of institutional money, and that can be a leading indicator for YOU as to when the market may (and I stress MAY) return to growth.

But that said, there's more to be thinking about. Specifically, Enemies and Perception.

1. Enemies

You have two: the media and the street (but since you're here you know about the street, thanks to the Fool and their in-depth incantations of the ways of the Wise, so I'll deal with the first)

The media is NOT your friend.

No they aren't, stop trying to convince yourself that they are. Stop it.

Think of it this way. The Fool tells you that the Wise are out to do what?

Make money. (Yours)

Fine. What is the media?

A business. Based on an advertising-revenue model (or, for print, an advertising and subscription model).

How does the media sell you on watching or reading their show/publication? With BUZZ and buzzsters.

Let's come back to Henry Blodgett for a moment. Truthfully he was an unknown until he made his incredible Amazon predictions a few years ago (the beginning of the Buzz); what happened? Every media person wanted his take, his predictions, and then they reported those predictions to you (to get you to Read/Watch);

And when you read or watched, you became a Nielsen, a rating, a subscriber, a number which was used to validate to advertisers the value of the placement of their ad on CNBC, or CNN, or NY Times, etc.

So beware the Media buzz. I've said before and so have countless Fools, shut out CNBC. These people are not helping you. They are costing you money. While they make it.

2. Perception

Seems everyone is down on investing. I have been. It's hard, isn't it? Watching something YOU built get taken apart without seeming rhyme or reason (other than 'over-valuation'). Perhaps the time is now to change our perceptions. Perhaps now is the time to start thinking about the next five years. Where can profits be made in that time frame? What companies are beaten down enough to warrant our attention? What companies will be producing BUZZ in 2002, 2003, 2006? No, I'm not a fortune-teller; but I bet they're out there.

And I bet they're just waiting to be found.

Equationally: (-buzz) * (-confidence) does not produce a positive. Or does it? Does it perhaps become this:

(-buzz) * (-confidence)/perception = opportunity

Make buzz work for you; watch for institutional confidence; use the media to point you in the direction of buzz, but ignore their siren calls; find the opportunity - then exploit it.

I believe the Fool is one place where you can do all of that. Don't you? Thanks for listening. (hope I wasn't talking to myself)
hutch
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.