My ex-girlfriend used to insist that when our cat Attila washed behind his ears, it was going to rain. At the time I was living in Padua, Italy, where it didn’t rain that much. I hate to admit it, but Attila was pretty infallible. Whenever I saw him licking his paw and passing it diligently behind his ears, first one and then the other, I would make sure I took a raincoat or an umbrella when I left the house.
Attila’s prescience was brought to mind by a couple of books that have recently landed on my desk. Both propose unexpected – to say the least – methods of looking at the stock market and building your investment portfolio. They got me thinking that maybe old Attila could be put to more profitable use than just helping me to avoid the odd spot of rain. These other chaps are looking to evolution, quantum physics and Sherlock Holmes to help them with their stock selection, and I don’t see why my cat should be left out.
Quantum Investing, by Stephen Waite, considers evolution and its acceleration over the past hundred years. The part played by quantum theory in science and technology is not in doubt. Whether, however, our knowledge of quantum physics can help us to make a killing on the stock market is debatable. The foreword by Michael Mauboussin gives this priceless piece of advice: ‘Investors must constantly peer into an uncertain future and anticipate change.’ Well I never!
The Detective and the Investor is by Robert Hagstrom, author of the best-selling The Warren Buffett Way. Hagstrom compares real life investigative financial pros to his favorite fictional private eyes, and says that investors need the ability to see through market hype and focus on hard facts. That’s exactly what investment professionals are supposed to do, of course, but it hasn’t helped them during the current downturn. Stock-picking using quantum theory and sleuthery? Poppycock! Is it just me, or are we really clutching at straws?
Claims that the market can be predicted using various methods are of course nothing new. Two or three years ago thousands of self-proclaimed stock market gurus were telling us that there had been a paradigm shift and used Moore’s Law and other theories to explain that our gains on the exchange could be limitless, provided we were invested in the right stocks. And they would sell us newsletters telling us which were the right stocks to acquire (most of them rated JDS Uniphase a buy when it broke the resistance level at $120; today it’s about $1.65).
At the same time, many technical analysts said the highs of early 2000 were only the third of Elliot’s five waves, and therefore the Dow was on its way to 20,000 and the Nasdaq to 11,000 by early 2003. To cover their backs, however (but only once the big correction was already underway), they began talking about Dow 5,000 and Nasdaq 900 if certain tenuous levels of support were broken. Bull or bear, they were going to be right.
I am often reminded of the old soothsayer who predicted, for the benefit of a Greek general whose name escapes me, that, ‘If you cross the river today a great army will be defeated.’ The general thought he’d better cross the river to mash the Persian army that was marching against him. Unfortunately, it was his own great army that got stuffed in the ensuing battle. The soothsayer, of course, wasn’t risking much, since the Greek general was too busy escaping from the rampant Persians to string him up for his lousy advice. By the same token, it’s probably far more profitable and much less risky to write a book advising others on how to invest, rather that investing your own money on your own tenuous advice.
I wonder what ol’ Attila would make of it.
