Is it time to invest again?December 24, 2010: 5:00 AM ET
Now that order and sanity have returned to the market, it's hard to imagine how anything could go wrong.
I was sitting around the bunkhouse with a bunch of wealthy capitalists the other day, and we all agreed that the time was right for bigtime reinvestment. As one of them put it, "The economy is back. It's time to take intelligent risks again and make some friggin' money." I have been aware for quite some time that the fear/greed ratio is once again tipping to the second axis, avarice making its expected return to favor. If we were quants, we could create an equation tracking the desire to invest as a function of these two factors multiplied by a constant, S, for stupidity. But since we didn't go to MIT, let's just look at some of the postulations people are postulating to justify a return to securities.
The economy is back.
But it's not, not in any big way. Banks are doing well because they ingest capital and invest it for egregious gain while paying dust kitties for that privilege. Wall Street certainly feels that everything is roaring back because as we near bonus season, you could fill a fjord with the drool rolling down its collective chin. This festive holiday season, it appears that consumers, too, are tentatively twitching upward in a modest way, with single-digit increases in brick-and-mortar spending, and online shopping, which is generally done drunk, even more robust.
Conclusion: If wishes were horses, all men would ride. We have to wait for a while to see if things have really settled back to a level of growth justifying full-blown greed.
Wall Street has been fixed, and the rascals have been driven out.
This is possibly somewhat true. There has been some regulatory activity, albeit nothing that would impede idiotic fiduciary creativity yet. With the results of the last election, we can assume that Wall Street will once again be cooking up gadgets and gizmos that will thoroughly screw the average investor. So there's that. Of course, the SEC is all over the place in every corporation and enterprise, squeezing folks by their public filings and asking them to cough. The problem from an investment perspective, I think, is that you don't need to have bad guys running the show to wreak havoc on idiots like you and me. It's very good at what it does, our system. It's just not calibrated to do what you and I want it to do -- make money for the essentially uninformed and powerless.
Conclusion: In a casino, the house always wins. This house is very generous to its croupiers, and takes care of them first before scooping what's left into your tiny supper bowl.
The rational process of research, analysis, and financial measurement provides guidance and will yield results.
The thought here is simple: The market is now returning to sanity, where factors like revenue, EPS, cash flow, and Ebitda may be considered when predicting how a stock will fare in the coming years. This is perhaps the saddest leap of all -- the idea that there is a meaningful norm to which we all can return. I'm sorry. There's not. There is only a controlled form of madness, because there's money around. Companies attain and lose favor based on whiffs and vapors and rumors and crazy fears and hopes and dreams. The Street lunges at short-term gain and flees anything that smells of patient strategy that will pay off over time. Everybody reads everything online, and the message conveyed on a minute-by-minute basis is relentless: The world is ending soon. You gotta move fast and make the most of the carnage.
Conclusion: If you have to ask how much it costs, you can't afford it.
Of course, it's really hard to avoid playing when the rest of the gang is at the table chuckling, smoking cigars, sipping fine Scotch, and having all the fun in the world. What if by not playing you're missing the chance to attain not just a fair return but ... wealth? Wealth! Yeah, baby!
By the way, I hear the tech sector is once again poised on the brink of triple-digit growth. Venture capital firms are swarming to Silicon Valley with more cash than Croesus. You'd be a moron not to hop on that train early.