The earthquake, tsunami and nuclear energy problems in Japan have captured the world’s attention and sympathy. A good friend of mine asked me why this disaster was affecting him (and everybody else it seems) in a special way. I don’t have a good answer to this query, but I would note that our ability to record and quickly transmit video has reached a point that everyone with a cell phone is now a cameraman. Disasters have been occurring for thousands of years. Now we all feel more connected because we can see them in almost real time. This makes them see more horrific, more intimate and perhaps even more frequent.
The same day the earthquake struck Japan, a bout of gout struck my left knee, which proceeded to swell up to the size of a large grapefruit. For the uninitiated, gout is quite painful, maybe a 7 or 8 on the tradition 0-10 pain scale. The usual causes of gout my doctor mentioned (red meat, alcohol, sweetbreads, etc.) did not seem to apply to me. Another random event. The most painful position was sitting, so I had a rather unproductive week trying to keep abreast of the market from a prone position.
Then, I saw the unicorn. Well, not really. I just read a really cool quote that had the word “unicorn” in it. But, how neat would it be to see a real unicorn? Just saying…
The quote came from a young up-and-coming hedge fund manager by the name of Erez Kalir. He said, “We don’t try to predict the future. Anyone who tells you they can predict the future is selling you a unicorn, something that doesn’t exist.” I have been saying stuff like this for years. It’s nice to hear someone else echo my sentiments so perfectly.
So what does all this have to do with flying an airplane (inside joke)?
Here’s my take on all this. In our complex world, random stuff happens. By its very nature, randomness is beyond the scope of prediction. When we see it, we need to either react to it, or wait. Sometimes waiting is good – I did not see any need to sell stocks in the wake of Japan’s problems. So far, this tactic seems smart. Sometimes waiting is bad – not going to the doctor would have only compounded my knee troubles. It was not going to get better on its own. What we really don’t want to do in the face of random events is panic. Panic is never a good investment strategy.
I think we are still in a bull market for stocks. Within a bull market, corrections (regardless of the cause) are normal and natural. They weed out the weak holders and the fair-weather investors. Bull markets last, on average, 51 months. By this measure, if this one is “normal” we still have a few years to go before it’s over. I still sense a good deal of skepticism out there. “The market is up so much, how much more can it go?” is something I hear a lot. The market is up so much because it went down so much. We are still a ways away from the last peak, despite earnings already surpassing the last peak. Stocks still look cheap to me. Companies are buying up each other like crazy. They only do that when it’s cheap to buy them. Expect more good news for stocks over the next few years. And, avoid people who want to sell you a unicorn…