Keith Chrostowski

Sense and nonsense about market maxims

Updated: 2013-12-05T04:09:11Z

By KEITH CHROSTOWSKI

The Kansas City Star

With the stock markets tickling new highs, many people scared off from equities after the 2008 financial collapse are returning to the investing game.

Some, no doubt, are tired of the low interest rates on savings and have succumbed to the lure of stocks. But many first time investors are also jumping in.

Let’s put aside fact that stock investors are ignoring the maxim to “buy low, sell high” — that the best way to build wealth over the long term is to keep pouring at least some money into the market no matter what. Through dollar-cost averaging, in a down market you pick up a lot of shares when they’re cheap and thus reap relatively better gains when the market rises.

At any rate, if you’ve just returned to the market or are just a rookie, you’re also probably paying more attention to market reports and commentary from the financial press, pundits and equity analysts.

So now may be a good time not only to brush up on hoary but effective market maxims, but to arm yourself against hyperbole and, to be frank, outright nonsense issued by so-called expert market observers.

Morgan Housel, a commentator at the appropriately iconoclastic Motley Fool financial website, recently posted a list of “stupid things I hear a lot” from financial journalists. The 29-item list covers not only the stock markets but nonsense statements about personal finance.

Here’s a few that struck me and how Housel hilariously pokes holes in them.

• They don’t have any debt except for a mortgage and student loans.

As Housel says, “OK. And I’m a vegan except for bacon-wrapped steak.”

• Earnings were positive before one-time charges.

“This is Wall Street’s equivalent of, ‘Other than that Mrs. Lincoln, how was the play?’”

• Earnings missed estimates.

“No. Earnings don’t miss estimates; estimates miss earnings.”

• He predicted the market crash in 2008.

“He also predicted a crash in 2006, 2004, 2003, 2001, 1998, 1997, 1995, 1992, 1989, 1984, 1971….”

• More buyers than sellers.

“This is the equivalent of saying someone has more mothers than fathers. There’s one buyer and one seller for every trade. Every single one.”

•  (Guy on TV): It’s time to [buy/sell] stocks.

“Who is this advice for? A 20-year-old with 60 years of investing in front of him, or an 82-year-old widow who needs money for a nursing home? Doesn’t that make a difference?”

•  We’re trying to maximize returns and minimize risks.

“Unlike everyone else, who are just dying to set their money ablaze.”

• Shares fell after the company lowered guidance.

“Guys, they just proved their guidance can be wrong. Why are you taking this new one seriously?”

•  The Dow is down 50 points as investors react to news of [X].

“Stop it, you’re just making stuff up. ‘Stocks are down and no one knows why’ is the only honest headline in this category.”

•  Investors are fleeing the market.

“Every stock is owned by someone all the time.”

• This is a strong buy.

“What do I do with this? Click the mouse harder when placing the order in my brokerage account?”

• He was tired of throwing his money away renting, so he bought a house.

“He knows a mortgage is renting money from a bank, right?”

Reading and laughing over Housel’s jibes should remind investors that while stocks are sometimes expensive, common sense is free.

Sensible Swiss

Speaking of common sense, voters in Switzerland the weekend before last soundly rejected a government-imposed cap on executive pay.

The 1:12 initiative would have barred executives from earning more than 12 times as much as the lowest-paid employees at their companies. But it was turned back decisively by 65 percent of voters.

Switzerland has recently seen a couple of huge scandals regarding executive pay. And opinion polls showed widespread dismay with the behavior of some companies and executives.

But the vote showed that many Swiss don’t want a rigid, government-imposed salary cap. Switzerland is one of Europe’s most business-friendly countries, with light regulation on business, and has relatively low income taxes, but it also has a history of social equality and robust safety net programs.

What the Swiss realize is that their highly charged capitalist economy is the best way to fund their social programs. And that the executive pay cap might cause companies to flee the country.

They didn’t want to kill any golden geese.

To reach Keith Chrostowski, business editor of The Star, call 816-234-4466 or send email to chrostowski@kcstar.com. Follow him at Twitter.com/keithc3.

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