From Jim Cramer to Suze Orman, and from Steve Forbes to Jim Altucher, the clarion call is, was, and always will be “buy, buy, buy!”
In other words, if you loved the stock at $100 per share, it’s even better at $80, and ohh, what a buy at $60! (After all, it will always come back!)
When the Japanese Nikkei increased from 30,000 to 40,000, the pundits and worldwide analysts loudly trumpeted “get on board or the train will leave you behind.” Many people took action just as they were told, only to find the Nikkei plummet an astonishing 75% to 10,000.
Currently, it trades at less than 9,000.
Over ten years ago, the NASDAQ powered through 5,000 with no end in sight and many jumped on board, only to be burned once again by the clarion call of “buy, buy, buy.” Just give it time they say, ten years really isn’t long enough.
My favorite examples are two local companies located in my home state of New York. Years ago, one of the darlings of the Dow was Eastman Kodak.
Living in Rochester, NY as a commentator on radio and television in addition to owning a financial practice, I’ll never forget the day Kodak broke $100 for the first time.
“Buy of a lifetime” was echoed loudly not only in Rochester, but also around the world.
“Sell everything, buy Kodak, and be secure for life.”
“If you don’t act now, you’re a fool.”
“Dollar-cost average, whatever it takes, buy, buy, and buy.”
Once again, many heard the clarion call, and responded accordingly.
Regrettably, Eastman Kodak recently traded at $1.77.
The other company is Corning, Inc, which was also a favorite of the pundits. In 1999, speaking to the Corning Rotary Club and with Corning stock approaching $330, I was asked about my thoughts regarding the stock.
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“Overpriced,” I said, to the dismay of the audience.
I also informed them that sometimes crazy things do happen, and the stock could go higher. Therefore, I encouraged them to buy put options, place stop-loss orders, or consider selling half of their position.
However, the crowd responded collectively, “you just don’t get it, it’s still a buying opportunity and it’s a great value.”
Those same thoughts were echoed as GLW split three-for-one, from $330 to $110. Many people heard the clarion call and jumped in with both feet, thinking they would be secure for the rest of their life.
Consequently, the stock then plunged to less than $2.00 per share.
Sure, my critics will cite Apple, Inc.and say buy-and-hold along with dollar-cost averaging does indeed work. However, for every Apple there are hundreds of stocks like Eastman Kodak and Corning, as well as horror stories comparable to the Nikkei and NASDAQ.
As an economist, I’m driven by the economics of the times, and they appear to be far worse than at any other time in recent history.
Blindly following the clarion call of “buy, buy, buy” may once again give rise to that age-old axiom: “A fool and his money are soon parted.”
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