Where are all of the Market Guru’s?
June 5, 2009
2008 Predictions, compliments of New York Magazine and how they turned out:
Jon Birger, senior writer, Fortune Investors Guide 2008
“Smart investors should buy [Merrill Lynch] stock before everyone else comes to their senses.”
Smart investors must have lost a lot of money. Merrill’s shares plummeted 77%.
Elaine Garzarelli, president of Garzarelli Capital, Business Week’s Investment Outlook 2008
“Buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch.”
The bigger they are they harder they fall… And in 2008 fall they did. This is why you don’t want to necessarily buy beaten up stocks. The next step very well could be bankruptcy.
Sarah Ketterer, CEO of Causeway Capital Management, Fortune Investors Guide 2008
“Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis indicates those stocks are at bargain basement prices.”
Do the words government bailout ring a bell? Fannie and Freddie lost 90% of their value.
Jon Birger, senior writer, in Fortune Investors Guide 2008
“Our bet is that in a stormy market investors will gravitate toward, GE, the ultimate blue chip.”
GE’s stock price tumbled 55%.
Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron’s 2008 Roundtable
“Bank of America will [not cut its dividend], I think they’ll raise it this year. My target price for the stock is $55.”
Bank of America went from $41.26 a share price to $14.08. Ouch! Oh, and it’s dividend was halved.
James J. Cramer, “Future of Business” New York Magazine
“Goldman Sachs… finishes the year at $300 a share. Not a prediction — an inevitability.”
Stock went from $215.05 to $84.39. In Cramer’s defense, Goldman is approching where it started in 2008. Maybe it was a two year prediction?
GURU SCHMURU!
What does it all mean? First it shows that the most respected names on Wall Street can be and are wrong. Guru one day, bum the next... The stock market has it’s own guru ratification system.
Does this mean you can’t make money on Wall Street? Of course not! There have been, are and will be great investments on Wall Street. You simply need to find a good strategy, DISCIPLINE and most of all a plan cut losses short.
We’ve all heard about at least one tragic story of a person ending it all because they lost it all. If you cut your losses short, you can not lose it all! Understand?
After having read about many successful investors, cutting losses short is one thing that nearly all, (if not all) do.
Let’s use the Bank of America example. If you had purchased B of A at $41.26 and put in place a sell loss plan of 7% - 8% on average, you would have been out around 38. Sure, it’s no fun losing money but if you are making new purchases in the market and the majority or all of those purchases are losing money, GET OUT and look for a better time!
Investments are to make money not lose large sums of money. Taking a small loss can preserve the majority of your money. I think some of the biggest mistakes “investors” make are:
1. Knowing when, in addition to having the patience, too invest at the right time. A famous investors quote that I keep in my office reads, “Wait, be patient, until as many factors as possible are in your favor… It’s the patience that makes they money”
2. Among investors, there seems to be a need to always keep your money working for you. Since 2000, if you decided to keep your money working for you by investing in the NASDAQ, all that work would amount to over a 50% loss.
As boring as it may seem, there are times leaving your money idle or even accumulating minimal bank interest is your best investment.
3. The need to trade. Are you a gambler or an investor? If you have a need to always make trades regardless of whether it’s in your best interest, get out now! If you don’t have the self discipline to stay away from the market when you can’t make money, then you shouldn’t be investing period.
