Beat the Crowd. Kenneth Fisher

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СКАЧАТЬ they branch out. Or they look at the same things but see them differently. Both actions let them find the risks and opportunities most others miss.

      The Right Frame of Mind

      Contrarians are patient – they think long-term. Short-term thinking makes you antsy, and that’s when bad decisions happen.

      You see it all the time when folks chase heat, piling into whatever is hottest purely because it is up the most. They might get bored with broad diversification during a rally and try to concentrate in a hot trend – they ditch long-term thinking for short. Think back to 1999 and 2000. Internet stocks flew high. Fiber optics was the Next Big Thing. The Nasdaq soared, and everyone wanted a piece of the new economy. Dot-coms seemed like the ultimate get-rich-quick magic.

      It’s an extremely short-term mindset, but it viraled. Few thought about where they needed to be in 10 or 20 years (of course, we’re there now). Few looked a year ahead and considered whether companies with ultrahigh cash-burn rates and no revenues could still possibly be in business. They just wanted what was hot then, and they wanted as much as they could get. The bear market beginning in March 2000 was a rude awakening.

      Panic-stricken people think short-term, too. Go back to March 2009, those violent final throes of that financial panic. People truly believed stocks could go to zero. Don’t believe me? Do a Google search on “Can the stock market go to zero?” They asked it. Markets were tanking; zeroness felt real.

      You’re probably sitting there thinking, “That’s not rational.” But panic never is! Folks take those big losses and extrapolate them forward. They lose their grasp of history and reality. They forget the simple truths: Cycles always turn. Markets rise more often than not. As long as capitalism exists, businesses will find ways to profit and grow. New technologies will collide, bringing new growth and new sources of profits. This is what the steel-nerved contrarians believed in March 2009.

      Steely contrarians also look past short-term market movement. They know daily drops, quick pullbacks and corrections are normal during bull markets, and reacting is dangerous. It usually means selling after stocks have already fallen, just when folks should hunker down and wait. Reacting to volatility is a good way to sell low, buy high.

      The same goes for seemingly big short-term events, like geopolitical earthquakes. Skirmishes, minor wars, revolutions and saber-rattling have plagued us since the dawn of civilization – terrible as they are for lives and property of those in the line of fire, they usually aren’t terrible (or even just plain bad) for stocks. Markets have dealt with conflict since before the first Dutch tulip changed hands, and only big, global and nasty conflicts, like the onset of World War II, have ever ended in bull markets. Life always goes on, and the going on is what matters.

      Check Your Ego

      As I said earlier, the contrarians know they won’t be right all the time. Perfection is impossible.

      Even a practiced contrarian should expect to be wrong fully 30 % to 40 % of the time. You needn’t be right any more than two-thirds of the time to do fine and stay ahead of the pack. Simply being right more often than wrong is huge and exceptional. As said, a professional who is right 70 % of the time in the long term becomes an absolute living legend – and had better also be used to being wrong 30 % of the time. So you should be, too.

      So how can you be right more often than wrong? I already told you: Remember markets will do whatever the herd doesn’t expect! But there are many ways to apply this simple rule. I’ll detail them. Read on!

      CHAPTER 2

      For Whom the Bell Curve Tolls

      In terms of rites and traditions, not much matches New Year’s. If you ever went on Family Feud and this category came up, you’d have a field day. Champagne toasts! “Auld Lang Syne”! Resolutions! Ryan Seacrest (Dick Clark for graybeards) counting down before a big glittery ball drops on national television!

      Here’s another: professional investors’ annual market forecasts. Will they pop up in a game show? No way. But knowing and understanding them can help you make more money than game shows ever can, assuming a 50-show Jeopardy run isn’t in your future.

      Parsing professional forecasts can also help you develop one of the most basic principles of contrarianism: thinking different, not opposite. Wall Street strategists are far more gameable than retail investors. As my old research partner Meir Statman and I found in a 2000 study for the Financial Analysts Journal, professional forecasters are wronger stronger and for longer than regular folks. Most individual investors are less stubborn and flip with trends – they won’t stand being wrong for too long before they flip. If they’re skeptical, four months of strong returns can turn them into bulls. If they’re getting optimistic, it just takes one big pullback to flip them back to skeptics. Amateurs often have less confidence in their views. As Meir and I found, when the media swings, individuals swing with them.

      The pros are more stubborn. As we wrote then:

      Individual investors and newsletter writers form their sentiments as if they expect continuations of short-term returns. High S&P 500 returns during a month make them bullish. The sentiment of Wall Street strategists is little affected by stock returns. We found no statistically significant relationship between S&P 500 returns and future changes in the sentiment of Wall Street strategists.1

      Pros don’t flip like retail investors do. Their status breeds self-confidence – they’re darned sure they know where markets are going and are willing to be patient. They don’t give up the ghost, though they do mean-revert. If their forecasts for a year are too dour, clearly behind the mark halfway through, they’ll revise them up – just a bit, and largely so they don’t look ridiculous if the market finishes up strong. Many did this in 2014, pulling up their forecasts midyear when markets had already exceeded their full-year forecast for mid-single-digit returns – interestingly, the market then moved against them, with a third-quarter “stealth correction.” That’s The Great Humiliator (TGH) in action.

      Armed with the knowledge that Wall Street pros are wronger stronger and longer – more often than not – we can game them. As we chronicled in Chapter 1, the curmudgeon posing as contrarian would say if all the pros are bullish, you should be bearish – and if they’re bearish, you should bullishly rage on. But as we’ll see, this is too black and white! Professional market gurus are wrong an awful lot, but not because the market always does the opposite of what they say. Understanding how and why they’re wrong – and why the market does what it does instead – is the first step to being right more often than wrong.

      In this chapter, we’ll cover:

      • Why most pros are mostly wrong most of the time

      • What their wrongness really tells you about what markets will and won’t do

      • Why nailing a forecast on the head isn’t important

      Wall Street’s Useless/Useful Fascination With Calendars

      Wall Street’s fascination with calendar-year return forecasts is largely foolish. Calendar-year returns don’t matter. It’s true! Market cycles are what matter, and market cycles don’t care about calendars. Rare is the bull or bear market that turns with the calendar page. No Standard & Poor’s (S&P) 500 Index bull market since 1926 began in January, and only one – 1957 through 1961 – ended in December. Maybe the next cycle aligns perfectly with the Roman calendar, or maybe it follows the lunar cycle. First time for everything! But nothing fundamentally changes when the calendar flips.

      Yet СКАЧАТЬ