Set forth below is a Guest Blog Entry by Larry Weber, a new community member. I’ve taken the words from a post that Larry put last night to an earlier thread.
I think we have found some common ground.
There was absolutely no “main street/stream” investment type that agreed with my decision back in late 2006 when I opted out of the market (to be precise 92 percent out of the market). They thought I was crazy for leaving the market based on conventional investment wisdom at the time.
However, you and I have arrived at basically same investment destination with a slightly different road map. I based my decision on detailed data from state regulators, Schiller’s work, boomer demographics, and some other resources that I’ll discuss in minute.
The end result was that I strongly suspected fraud and severe market hype so I pulled the plugged on my stock market investments and went to cash.
By reviewing the detailed reports of state regulators, I was tipped off to the brewing sub-prime crisis and the impending financial tsunami (you had to read somewhat between the lines). In addition, I read a book called Stock Market Manias, Panics, and Crashes several years ago that gave me some clues as well. The book tracks stock market manias and panics all the way back to the 1600”s and highlights such stock market panics as the Tulip Bulb Mania and other stock market fraud.
Moreover, I read a book called Financial Shenanigans that helped me spot the accounting tricks and fraud of individual companies. The bottom line: I just saw too much risk for fraud in the market so I got out.
That’s also why I used the metaphor “Wild West Economics”. I was trying to find a way to point out the risk I saw in the market to friends, relatives, and anyone that would listen.
Financial companies and banks in general were living in the “Financial Wild West”. They could basically do anything they wanted because they were making up and playing by their own rules. In addition, there was no strong “investor sheriff” in town to keep financial institutions in line because Wall Street lobbyists neutralized the sheriff by influencing policy and limited the investing sheriffs (the Securities and Exchange Commission) authority. It was just like the Wild West in the 1800’s.The bad guys could do whatever they wanted because they made the rules and the sheriff had little authority to stop them.
In addition, I study demographics and knew the baby boomers were at the end of their home buying life cycle in about 2004. Home sales should have declined after 2004 because there were not enough “buyers“ left in the housing market to purchase all of the new homes that were being produced by the construction industry. In other words, home sales “ought” to have declined because there were not enough buyers for the new homes.
However, in a stroke of evil “genius” (really fraud), the unethical banks (not all banks played this game) and other financial organizations (some in the legislative branches as well) marketed sub-prime loans to buyers they knew could ever make their payments by any historical standard. The boomer market had dried “up” and the banks needed to do something to ensure growth and therefore profits. In one sense, some banks created a false short term market to sell homes at inflated prices. The housing market was declining because most boomers were done buying their homes and the inventory needed to be cleared. Enter the sub-prime loan fiasco.
There is another way of thinking about our discussion. You use a simple Price to Earnings ratio to help people see the fraud in the market. I use a much more detailed way of analyzing the reasons behind the inflated Price to Earnings ratio (not better, just different).
Your “timing” word also confused me initially. I am going to think about a different term that describes your process because it has merit. We are actually saying almost the same thing but in a different way.
In my view, most people think of timing in a very negative way especially those investors who are taught traditional investment theory. The “timing” word to me does not accurately reflect what you are trying to communicate.
It’s the “T” word that ruffled my feathers.I don’t think you’ll change mass investment thinking by using the timing word.
I will give my next suggestion a lot of thought because I think it has the power to change a lot of people’s minds about investment theory.
I think you need to scrap the timing tag line and come up with a new strategy to market( obviously,in a good and ethical way) this theory. You need to craft a “first” ever theme for the investing industry to give this theory more attention. I’ll ponder this potential strategy for a few days and offer suggestions.