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Return of The Great James Glassman?
By Brady Willett
Mr. Glassman, author of Dow 36,000, is at it again. This time his views are noted in a Washington
Post article entitled 'Stocks Won't Fall Forever'
"It rains, but the sun comes out again. Stocks fall, but they always
recover to a higher level. Still, it could keep raining for decades…'
After setting the stage with this useless comment Glassman bites
back with some insights into P/E's:
"At year-end, the P/E for the S&P 500 was a whopping 41 -- nearly three times the historic
average. In 1974, for example, the S&P fell to a P/E of 6 (!) when it hit bottom; in 1982, to 7. Today's S&P is probably distorted by huge, one-time write-offs, but even after adjustments, it's almost certainly
higher than 20."
Even with P/E's so high Mr. Glassman doesn't believe investors should time the markets. However, he does believe
investors should look at ever single factoid, short term or not, that promotes the opinion that 'now' is the time to buy.
"You don't
really need to know the precise reasons or the exact timing. Only know this: The U.S. economy bounces… The point is that there is no need to obsess over what the economy will do next. As long as you can ride out the
storms, the stock market is always the best place for your long-term money… Don't bother trying to time the market, jumping in and out when you think it's about to turn up or down… the way to assuage your worries about
P/E ratios is not to eschew stocks entirely but to direct a larger part of your portfolio toward value -- cheaper, unwanted companies (in other words don't time the markets but now is the time to buy 'cheaper unwanted
companies'?)."
If only Mr. Glassman had a clue of what these companies are:
Wish List 2002
Alas, he ends his tirade with some classic Glassman:
"What's changed this time? Investors, it seems, have become more comfortable with risk and more oriented toward the long term. As a result, they seem to be willing to tolerate
higher P/E ratios (and higher stock prices) because they understand that stocks are a better deal than bonds."
The problem with this
theory is that it gives the average investor too much credit. Remember, today's investor's are the same people who fell in love with Yahoo at $200 a share, paid fund managers 2% each year for no reason, and turned the
Cramer's, and Blodget's of this world into 'sane' analysts. As such, perhaps investors are not more comfortable with risk, but ignorant to what 'risk' means?
If this is true, and when considering more Americans
are involved in the markets than ever before, could it not be said that current stock holders are the most ignorant investing populace since the 1920s? Perhaps so…
Such is the flaw of Glassman
logic, or that investors will always favor stocks "because they understand that stocks are a better deal than bonds." Quite frankly, it doesn't matter what investor's favor. Even if everyone in America eats,
and breathes stocks, it doesn't matter. Rather, what matters for the markets are whether or not investors continue to buy, hold, or sell, whether or not new money will arrive on the equity scene, whether or not the Dow
30 will receive net inflows, or outflows, whether or not investor's penchant for small caps will continue unfettered, and whether or not 401Ks will be busted up tomorrow or 10 years from now as people need cash. As
such, saying there are '100+ million Americans invested in stocks' is the equivalent of saying 'McDonalds has a lot of restaurants'. Using the example of McDonalds ask yourself a couple of questions: where will
growth within America come from tomorrow, how many Big Macs can a single person eat, and how many more Americans have not yet fell in love with the greasy genius of McDonalds? With this in mind, people love stocks
and are unlikely to stop craving shares. But the only relevant questions are how many more people are left to catch stock market fever, and how patient are those that are already running a temperature?
In
sum, shareholders today are largely absentee shareholders and seemingly forever optimistic. While Glassman believes investors are aware of risks, how can anyone assume that a 'decade' of stock market stagnation
will not crush this optimism? A decade from now boomers will be using the sale of equities as a source of income: helping their children out, paying for vacations, and health costs. What they may not be
doing is be waiting patiently for a stock market rebound…
Yes, one day in the far off future Dow 36,000 will arrive. However, this doesn't mean Glassman was prescentiant. Rather, it just means that
since he doesn't have a clue about how to invest himself, Glassman packages market loving mantras into contradictory counsel. In fact, if anyone really believed what he said in 1999 made sense then why the need for
countless regurgitations? Why not just say 'my name is Glassman – I am a bull – the end"?
Ah yes, there is always some new angle to the ancient art of long-term investing. Too bad Glassman is forever stuck
at 90 degrees.
"Like a buoyant lifesaver or a rubber duckie, the stock market usually doesn't stay under water very long."
The same can be said about Glassman. Quack, quack...
January 9, 2002
http://www.wallstreetwishlist.com
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