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Janszen Crying Wolf?
Not So Fast.
By Eric
Janszen • Bankrate.com
Steven Cadoff's Letter
Eric,
Your article "When (and Why) the Bubble Must Burst"
is proof that you are eloquent and very well learned. However, your
vision of the stock market is misguided and wrong. If you have been
predicting the end of the so-called "mania" since 1998, you and
any one who followed you would have missed the boat on the largest
economic expansion of our time.
It doesn't matter if the Nasdaq market tanked tomorrow,
because many stocks have risen 1000 percent since 1998. I doubt
that even if these stocks got clobbered that they would relinquish
all of their gains. In fact, their returns would still be better
than Coca-Cola (NYSE: KO).
It is just sad that people like you who did not do their homework
over the past few years are blaming everyone else and overvaluations
on the fact that you are not cut out for stock picking. I have been
watching the market for 5 years straight, day in and day out. I
watch the stock ticker cross the screen and I read all of the articles
on the Internet about the stocks I invest in. In fact, when I first
started watching the market five years ago, I was watching the Cokes,
Wal-Marts (NYSE: WMT),
and Mercks (NYSE: MRK)
of the world.
Times have changed and so-called "old economy" stocks
have not been the place to invest. The only reason I have invested
successfully is because I worked hard to learn and understand the
stock market. If you or anyone had exercised similar due diligence
then they too would have been able to capitalize on the recent stock
market boom.
I also don't believe the hype that people are so-called
"value investors," which is why they refrained from investing in
technology. This is just an excuse for not doing their homework.
If they had done their homework they would have realized that the
true value in the stock market was in technology stocks.
Let me give you another example. Coke is currently
trading at 50 times earnings while experiencing 5 percent revenue
growth and declining profit growth. On the other hand, Lam Research
(Nasdaq: LRCX) trades
at 99 times earnings with 87 percent revenue growth and accelerating
earnings. I have given you enough information right here to prove
that Lam Research is a better value than Coke. This kind of research
will lead to the uncovering of a stock that will eventually appreciate
in price.
Eventually markets will turn down, but it is silly
to keep calling a downturn year after year if it never happens.
I mean, are you relying on the fact that if you keep saying this,
one day it will be true? It's like you have cried wolf a thousand
times, and on the one thousand and first time you actually see a
wolf. You have to do better than that. In this world, performance
is everything; if you're wrong, you're wrong. Not only that but
the Nasdaq will continue to outperform the Dow for the reasons I
stated above and others, so unless you change your tune, all you
will be able to do is hope that your ill-conceived prophecies will
eventually come true.
Eric Janszen's reply
Steven,
Thank you for your thoughtful comments. The idea that
I try to get across is that Internet stocks have enjoyed mania status
for a while, but that the stock market in general is a lower grade
of gambling, merely speculative. No one knows when it will end,
only that it will. The broader stock market became speculative at
the point where prices began to far outrun earnings growth, in 1995.
Since then the return on risk has been falling like a rock, although
investors only notice the return part and lose site of the risk
-- until it shows itself in the form of sudden liquidation.
Of course, no one rings a bell to signal investors
that the same stocks they were used to buying for capital gains
net of inflation at a rate determined by earnings growth has become
a completely different beast, where prices are set by the greater
fool. A place where stocks in companies with no earnings can rise
1000%. No one tells them that this change in the dynamic of asset
prices is made possible by the largess of the nation's central bank.
I see no problem with speculating in stocks or pork bellies or anything
else -- so long as you know that's what you're doing, are aware
of the risks, and do not speculate with undue leverage or with money
you cannot afford to miss for a half dozen or more years. Retirement
money, for example.
I agree that one should invest in businesses one understands.
I invest in technology stocks because technology is what I know.
But look where that got Warren Buffett. Intelligence is no match
for the momentum of the herd. Bad investing drives out good.
It's true that anyone who bought a stock that's risen
1000 percent since 1998 has made a lot of money on paper, and if
they sell, then they've made actual money. That's the nature of
all Ponzi schemes -- early investors do very well. The last guy
to buy 100 shares of American Austin Car Company in 1929 was not
so lucky. Same with those who are now buying stock in companies
that will go out of business once the public markets stop funding
their unprofitable operations. Alas, no one makes money in the stock
market until he sells and if many try to sell at once, all the apparent
wealth suddenly disappears. Last guy in loses.
Value investing works as long as everyone else sees
the market the same way you do. But the value investor is a hard-working
investor, and speculative markets have little use for them. All
the information in the world won't help you if no one else cares
about the information or makes decisions based on it. In a speculative
market, the most important piece of information about a stock is
its price. Period. One speculates on which way it's more likely
to go. It's not hard to make money in a bull market driven by excess
liquidity. One buys stocks and waits. Genius, Samuelson said, is
a rising stock market. The Wall Street Journal runs a piece
where they compare their dart throwing monkeys to the stock pickers
and the monkeys on average have as good a record. The real test
of your stock picking talents will come in the next bear market.
Not sure what you mean about crying wolf. I say only
that the wolf is out there, not when he's coming. That's for him
to decide. I have made money in this stock market. There are hundreds
of sites to go to for information on stocks and stock market investing
and I use several. I have no quarrel with anyone who is in this
market or who encourages playing the market. But I do take issue
with those who fail to mention the risks. This leads many to put
retirement money into the market, or take out a second mortgage
on the house to buy stocks, or borrow money against stocks to buy
property. My message is for them.
-- Posted: March 21, 2000
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