With Steven Goldberg, Investment Advisor, Writer for Kiplinger.com
Timing the stock market can be a loser’s game, but just like in Vegas, many people still gamble against the odds. And with easy access to the endless stream of information out there, anticipating the market’s gyrations has become even more difficult, if not impossible.
So how can you tell which way the financial wind will blow in times of stormy weather? A near seismic event occurred with the Brexit announcement which sounded pretty serious for a couple of days when stocks sold off, but then the air cleared and the market quickly recovered all its losses.
With all of his 35 years of experience in the business, Steven Goldberg admits that at the end of the day, no one really knows what the market’s going to do. It has a mind and a momentum all its own. Events of great magnitude can occur causing a market to fall, but sometimes it’s as simple as someone deciding to unload shares for whatever reason and buyers being unwilling to step up to the plate.
Circumstances can occur which point to a market turn, such as with the famous speech by Alan Greenspan in 1996 about irrational exuberance when stocks kept rising by double digits. His assessment was correct, but the peak didn’t happen until three years later. Someone reacting to this information too early would have been correct in terms of direction but wrong in terms of timing and would have missed out on all those earnings.
It’s very hard for investors to live with uncertainty, but with the enormous amount of information available on a 24-hour basis and so many more players in the game, Steven says it’s harder than ever to beat the market. There are ways to position your investments to profit from cheap valuations, however. For example, he cites that back in ’96 “to have sold some of the tech stocks and bought some of the more value-oriented stocks and some of the foreign stocks would have worked.” It’s the emotional aspect of investing that’s the most challenging; staying on the sidelines when tech stocks were going up would have been really hard. “Currently,” he goes on, “I think the real values are in foreign stocks and also in emerging markets and yet they’ve done terribly. US stocks have beaten foreign stocks for 3 or 4 or 5 years now.” Acknowledging that even though emerging markets are beating everything right now, Steven says we don’t yet know whether it’s just a head fake, a false alarm.
The last five years have seen a lot of head fakes. In a world full of uncertainties, we’re experiencing one of the longest bull markets in history which could be because the Federal Reserve is keeping the market propped up. Again, we just don’t know.
In conclusion, Steven adds that we need to remember “that since 1900 stocks have returned about 10%. In that period, we had the Great Depression, we had 2 World Wars, and all kinds of disasters that were smaller.”
The best advice is to buy good quality investments and to be diversified. If you’re going to buy mutual funds, buy index funds with low cost and low taxes. Successfully timing the markets would be very profitable if you could actually do it, but you really can’t.
People tend to hold on to their farms, their residences, their commercial real estate, and they tend to make money over time. But in stocks there is a blessing and a curse: The blessing is that stocks are liquid, and the curse is also that stocks are liquid.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Anticipating the market’s gyrations has never been easy and it’s only getting harder and harder, so I’ve asked Steven Goldberg from Kiplinger to join me. He just wrote about this recently, so I thought he and I could have a good discussion about what we both know about the subject of market timing. Hey, Steven, welcome to the show.
Steven Goldberg: Glad to be here.
Steve Pomeranz: This sentence that you wrote which really got my attention because I had the exact same experience. You wrote that when you woke up in the morning after the Brexit announcement, you thought— in my words anyway—”Uh Oh, this is going to be bad.” I felt the same way. It’s like you can have all these other fake problems that the media talks about but Brexit is the ripping apart of two economies. That sounded pretty serious to me and it was for a whole two trading days. The stocks did sell off but then it changed its mind and recovered all its losses. Isn’t this just an example about how impossible it is to time the market?
Steven Goldberg: It sure is. I had one of my clients—actually one of my smarter clients—I was checking my computer and he put in sell orders for about half a million dollars. I called up, I didn’t know what was going on, and he said this was before the Brexit voting was completed, so he got it right and I thought he was a genius. I knew from years and decades of doing this that you just can’t tell how the markets are going to react to stuff. You just can’t tell.
Steve Pomeranz: I think it’s kind of interesting and, again, I don’t know anything about you and your client but that he didn’t contact you first. In a sense, maybe he was like, “You know, I’m a little ashamed of this, but I’m going to do it anyway because I’m frightened.” It seems like market timing should work because we all can look back at events and go, “Oh yeah. Sure. There was a technology bubble in 2000, and, oh yeah, the real estate market was overheated. Prices were going up like crazy, that was going to crash,” but I guess the definition of a bubble is that it’s only obvious in hindsight. What do you think about that?
Steven Goldberg: I think it’s really true. I think it’s really hard for people to live with uncertainty. I talk to clients all the time and to readers and they want to know what you think. They want to know which way the market is likely to go. It’s just very hard for us, I think, as humans. It’s just not what we’re used to doing just saying, “We don’t know.”
Steve Pomeranz: We always have an explanation for what has happened.
Steven Goldberg: Sure.
Steve Pomeranz: That seems to be a human characteristic so at the end of the day the reporters on CNBC they’ll go, “The market went down because …”
Steven Goldberg: My background is in journalism, of course, and I’ve always thought one of the worst jobs in the world would be writing a daily market wrap-up story because you really don’t have any idea why the market went up or down. You have some, but …
Steve Pomeranz: Is it facetious to say that it’s more sellers than buyers, more selling pressure in a given day? You look at a stock and it goes down in price or it goes up in price. Sometimes when it goes up there is news that it’s reacting to, but sometimes you look at a stock that you want and it goes down and you search and search for news reports on why it’s gone down and there’s just nothing even in the most remote corners of the press. A little story somewhere about something. There’s nothing. It’s just that someone decided to unload shares for whatever reason and buyers weren’t willing to step up to the plate and the stock goes down.
Steven Goldberg: What I think has happened, too, is that there’s so much more information out there now and everybody can get access to it, but it’s harder than ever to beat the market. I don’t know if you’ve heard this story but any baseball fan knows that Ted Williams hit .406 in 1941 and no one has hit .400 since and the theory is, and I think it’s true, that the reason nobody’s hit .400 since is because all the players are better so the pitchers are better, the fielders are better, the hitters are better, so you’re not likely to get someone quite as outstanding. The same thing has happened to the market because for every seller there’s a buyer and there’s so much information available to all of us that in the past you couldn’t get that it really makes low-cost index funds much more attractive.
Steve Pomeranz: I’m speaking with Steven Goldberg from Kiplinger. He’s written an article about timing the stock market. It’s entitled “Timing the Stock Market At Your Peril”, and we’re just talking about this whole concept of this desire or feel that, gosh, you should be able to time the market and there’s also all these people out there selling you the promise of being able to do so. When you’ve got experience … I’ve been doing this for 35 years and Steven’s been doing it a long time, too. Actually, you said in your little piece that you were a market timer once, weren’t you?
Steven Goldberg: When I started in 1982, I was a market timer. My market timer was pretty good. I got out in 1987 2 days before the market crashed. Was it 23% …
Steve Pomeranz: You must have felt pretty smart, huh?
Steven Goldberg: Yeah. I felt like a genius. I felt like my market timer was a genius but it also kept me out of the market for more than a year… and stock prices … I thought we were going to have a depression in 1987.
Steve Pomeranz: I remember that. I was there. Actually I started in ’81, so we’re very close to that and I remember experiencing that for the first time and all you can think of were the headlines from the Wall Street Journal during the market crash of ’29. Wall Street lays an egg, and it was the beginning of the depression and you go, “Is this the beginning of the depression?” Everybody was stunned and frozen at that time.
The other challenge I think is that you may be right but to actually know, get the timing right is hard. Let me give you an example. During 1996, Alan Greenspan gave his famous speech about irrational exuberance, right? It was obvious to him and to others that the stock market had just kept going up double digits, and that when you looked at valuations, they were extremely high, but it took 39 months after that announcement for the shares to actually peak. That’s over 3 years so you could have been out of the market for those complete 3 years feeling kind of like a dummy and frustrated because you’re in cash, expecting the market to crash and the market goes up and up and up and up. You could be right in terms of direction but wrong in terms of timing.
Steven Goldberg: I talked to a lot of people who got out in 2008, right about the time when Lehman went under and they’ve been out ever since waiting for the market to correct.
Steve Pomeranz: I know. That’s a sad thing, isn’t it?
Steven Goldberg: Yeah, but I do think there are some ways you can position your investments to profit from cheap valuations.
Steve Pomeranz: Okay, so let’s talk about some of those. Give me an idea.
Steven Goldberg: For example, in ’96, I think to have sold some of the tech stocks and bought some of the more value-oriented stocks and some of the foreign stocks would have worked. They were so much cheaper.
Steve Pomeranz: No, there’s no question but don’t you remember the fact that everybody was saying that Warren Buffett was just a dinosaur from the past. I remember watching CNBC and someone getting on and going, “Let’s face it. Warren Buffett likes Coca-Cola. I mean really, sugar water?” He looked really stupid for a number of years. You still may be right, Steven. I’m surely not arguing with you. I’m just discussing this point that you would still have been out of favor. Maybe your stocks would have gone up, but while these tech stocks were going up 20-something percent, maybe you were going up 6-7-8-9 percent.
Steven Goldberg: That’s why the actual intellectual part of investing isn’t really very hard. The math isn’t calculus. It’s really pretty simple, but the emotional part of investing is terribly hard. Being on the sidelines or in slower moving stocks when the tech stocks were going straight up was really hard. Currently, I think the real values are in foreign stocks and also in emerging markets and yet they’ve done terribly. US stocks have beaten foreign stocks for 3 or 4 or 5 years now?
Steve Pomeranz: Yes.
Steven Goldberg: Running. Every foreign stock you’ve owned has been a mistake.
Steve Pomeranz: That’s right, so you even own the index fund of foreign stocks, The EP index and it’s been a terrible disappointment, really. You have to somehow be very sure of yourself and believe that your course of action, though while in the heat of battle the short term looks terribly wrong, but in the long term you’ve got to be pretty sure it’s right. So the idea here is while you hold on the foreign stocks anyway, even though year after year after year. I guess the idea though is that once you capitulate, once you throw in the towel to foreign stocks and you go, “You know, I’m getting rid of all of them and I’m going US,” that’s probably the top of the US market because you now believe in the US market so much because it’s gone up and up and up continuously.
Steven Goldberg: Sure, and you hear the argument made today that wasn’t made five years ago that says, “You don’t need to own foreign stocks because the US stocks do all this business overseas.” That’s true, of course, but you weren’t hearing that five years ago when foreign stocks were outperforming, when particularly emerging markets were beating everything.
Steve Pomeranz: Now this year, emerging markets are killing everything. They’re just beating everything.
Steven Goldberg: What we don’t know is whether that’s just a head fake or whether that’s a real beginning of recovering.
Steve Pomeranz: I guess the operative words you just used is “you don’t know”.
Steven Goldberg: Nope. What you do know is that emerging market stocks are still selling for about 11-12 times earnings.
Steve Pomeranz: When you look at the value you’re getting for a dollar invested the return on that dollar it’s pretty attractive.
Steven Goldberg: Right. Where US stocks are pretty pricey.
Steve Pomeranz: If you have the patience and you’re not looking at it every day or going on to … Actually, I tell some people, “You know, if this upsets you, just don’t even look at your statements” because it’s just like buying… if you bought a commercial office building. The price isn’t listed every day in the paper; you’re not getting a monthly statement telling you what it’s worth; you just have an idea that it’s throwing off X dividends or cash flow, and you’re hoping that over time it appreciates in value. And if you decide to sell it, it’s very hard to sell; it’s very expensive, and it takes a lot of time; you’ve got to find a buyer, and so on. People tend to hold on to their farms, their residences, their commercial real estate, and they tend to make money over time, but in stocks—one of the blessings as well as the curse—the blessing is that stocks are liquid but the curse is also that they’re liquid.
Steven Goldberg: Right. There are no headlines. Peter Lynch made this point a long time ago. There are no headlines in the paper saying, “Pomeranz house loses 10% value”.
Steve Pomeranz: Thank God. You’re right. Exactly. You can’t then call your broker and say, “Sell my house”. First of all, where are you going to live? There’s a lot of reasons that long-term investing, in certain cases having the illiquidity, can actually act in your favor. The fact that you can’t actually get out can be a positive, though I still think, on balance, liquidity is always better than illiquidity, right?
Steven Goldberg: It depends on the situation. Depends on the client, too.
Steve Pomeranz: I’m thinking back to the last five years. We had a lot of head fakes—you used that word before—with false alarms. There are periods of time when the media gets on a topic that they can put into attractive sound bites, and it’s easy for us all to understand. So whether it’s plunging oil prices that it’s just telling you every day, every day—oil prices are down this or down that, and they’re talking about the “what ifs”—that could trigger a bear market or Greece’s debt. When did you ever think about the debt in Greece, for God’s sake, right? All of a sudden, we’re thinking about it. I have clients that come to me, and they’re saying, “I’m scared to invest because of what’s going on in Greece”. What can you really say? It’s a country that’s not even as big as Delaware. What real effect is that going to have? My point is that there are a lot of false alarms. I’d like you to talk about that a little bit.
Steven Goldberg: There are a lot of false alarms and there are a lot of times that the market just sells off without being a reason. I think what is amazing is we’ve had really slow growth. We’ve had 2% GDP growth pretty much the last 10 years and the market has gone up since the bottom in 2009. The market’s gone up without a bear market. This is one of the longest bull markets in history.
Steve Pomeranz: All in a world of so-called negative feeling about the economy and the world and things seem to be not as good today as they have been in the years past, and yet the market is basically saying something quite different, so maybe we’re just focusing on the wrong things.
Steven Goldberg: Right. Or maybe the Federal Reserve is just keeping the market propped up and as soon as they start tightening things are going to fall apart.
Steve Pomeranz: Well, that is true.
Steven Goldberg: I don’t begin to think I know.
Steve Pomeranz: Yeah. Nobody really knows and I think that’s the lesson that needs to be learned from this discussion is that nobody really knows. They say don’t ever mistake a bull market for genius.
Steven Goldberg: There is one thing we do know, that’s since 1900 stocks have returned about 10%. In that period, we had the Great Depression, we had 2 world wars, all kinds of disasters that were smaller.
Steve Pomeranz: Buy good quality investments, get diversified. If you’re going to buy mutual funds buy index funds with low cost, low taxes and you know what? Just hold it and forget it and …
Steven Goldberg: I think there’s very little reason for people to buy anything but index funds.
Steve Pomeranz: You’ve got one investor that agrees with you and that’s Warren Buffett, right? Lesson learned. Of course, successfully timing the markets would be very profitable if you could actually do it but you really can’t.
Steven Goldberg: Right.
Steve Pomeranz: My guest Steven Goldberg from Kiplinger Magazine. Thank you so much for joining us, Steven.
Steven Goldberg: Thanks for having me.