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How Skepticism Can Fuel a Rise
November 27, 2006 (E.S. Browning - Wall Street Journal Online)
The stock market has been in a surprisingly strong rally since the middle of July -- so strong, that many experienced investors find it too good to be true.
Ironically, that very skepticism could be one of the reasons the market is doing so well.
"Some of the best market advances seem to be the ones that are the hardest to believe, and this one is hard to believe," says Paul Desmond, president of research service Lowry's Reports in North Palm Beach, Fla.
Mr. Desmond was one of many analysts who saw signs during the summer that stocks were running out of steam and heading for more declines. The decline that began in May looked like it could last a while.
But by mid-July, with broad stock measures down less than 10%, stocks suddenly turned higher. In August, Mr. Desmond says, he decided the rebound was for real and started sending alerts to clients, urging them to buy more stocks. Yet, many experienced investors remained doubters.
"We keep getting calls, especially from our older clients, saying, 'I am deathly afraid of waking up and getting a 30% decline.' We are telling them that we think there will be plenty of warning signs before something like that happens," Mr. Desmond says.
AntiSpin: Magical thinking reigns in both the bull and the bear camp. The bears say, "Bull markets end when the last bear is taken out on a stretcher." The bulls say, "Bull markets climb a wall of worry." Nonsense.
Markets don't care how anyone feels. There are no such rules. "Prices will fluctuate," is as close to a rule as you will find.
How many stock market participants understand that early stage inflation is driving profits that are driving the stock market today? One percent? Five? Will the realization of this fact and its implications strike suddenly or dawn slowly?
November 27, 2006 (E.S. Browning - Wall Street Journal Online)
The stock market has been in a surprisingly strong rally since the middle of July -- so strong, that many experienced investors find it too good to be true.
Ironically, that very skepticism could be one of the reasons the market is doing so well.
"Some of the best market advances seem to be the ones that are the hardest to believe, and this one is hard to believe," says Paul Desmond, president of research service Lowry's Reports in North Palm Beach, Fla.
Mr. Desmond was one of many analysts who saw signs during the summer that stocks were running out of steam and heading for more declines. The decline that began in May looked like it could last a while.
But by mid-July, with broad stock measures down less than 10%, stocks suddenly turned higher. In August, Mr. Desmond says, he decided the rebound was for real and started sending alerts to clients, urging them to buy more stocks. Yet, many experienced investors remained doubters.
"We keep getting calls, especially from our older clients, saying, 'I am deathly afraid of waking up and getting a 30% decline.' We are telling them that we think there will be plenty of warning signs before something like that happens," Mr. Desmond says.
AntiSpin: Magical thinking reigns in both the bull and the bear camp. The bears say, "Bull markets end when the last bear is taken out on a stretcher." The bulls say, "Bull markets climb a wall of worry." Nonsense.
Markets don't care how anyone feels. There are no such rules. "Prices will fluctuate," is as close to a rule as you will find.
How many stock market participants understand that early stage inflation is driving profits that are driving the stock market today? One percent? Five? Will the realization of this fact and its implications strike suddenly or dawn slowly?
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