There’s No Magic in the Market

Note: Last week’s “Slap in the Face” Award was inspired by the article “Farewell Money” published by Richard Quinn in the HumbleDollar.

We encourage our readers to take a look at Richard Quinn’s original article by clicking here.

Here’s your slap in the face for this week. This one goes out to investors’ and Wall Street’s hero-worshipping complex – and maybe the end of an era in stock investing too.

Something that’s always bothered me about the money business is icons (maybe “money gods” is a better term.) I’m bothered by how many the business has and how it hangs them out there as if they were some type of ideal for investors to emulate.

Back in the heyday of mutual funds, there was Peter Lynch. This guy actually did some amazing stuff with the Magellan Fund, but he did it during a time when the market was exploding in every direction.

Then there was Elaine Garzarelli. She was credited with accurately predicting the 1987 crash. And it was the one and only prediction she ever made that was correct.

But for 10 or 15 years after the fact, she was paraded around talk shows, interviews and book deals as if she did this on a regular basis.

The truth is, she and the other stock market soothsayers are very lucky if they are right even once in their careers on broad market calls.

On the fixed income side of the house, we have Bill Gross and Mohamed El-Erian. Both have been marketed as money geniuses – but in my experience, neither of them has anything to say that’s measurable.

In fact, for my money, both have been part of the majority of fixed-income soothsayers who, since the 2008-2009 crash, have been consistently wrong about the debt markets. But they’re still paraded around as if they’ve never made a mistake – money gods.

And now the god of gods of the stock market, Warren Buffett, stated in a recent article that he isn’t sure he can beat the S&P and that it’s a toss-up between investing in an S&P index fund or in Berkshire Hathaway.

To Buffett’s credit, he’s honest about the fact that the market has changed so much he can’t do what he has done in the past. And he’s also always been upfront about the fact that there’s no magic here. It’s about buying good companies and holding on to them.

Of course, no one wants to hear that there isn’t any magic. Everyone wants to believe that all you have to do is follow the gods of the Street and money will fall out of the sky on you.

And that fact – that quest for or belief in money magic or messiahs who will lead us to the land of huge returns – has given the Wall Street marketing machine the opportunity to fleece the average guy.

And fleece the average guy it has. It’s a disgrace what it has done to the small investor.

There are no money gods, and despite the fact that it may appear at times to be the case, no one knows more than the market. And no one, not even Buffett, can beat it consistently.

There are people who have been extraordinarily lucky or have had illegal insider information and appear to have solved the puzzle that is the market. But it just isn’t so.

Don’t get sucked in by the Wall Street marketing machine. Fundamentals, time, market wisdom and discipline are the only proven factors that drive returns – not messiahs.

Good investing,

Steve