On Monday, the Dow Jones industrial average nose-dived another 300 points. So, what advice did the perky money manager quoted in my local newspaper the next morning have to offer? "I think we're going to look back and see that this was the best buying opportunity we've seen in years," the man said. "When General Electric is selling for less than the cost of a light bulb, that's an opportunity."
The best buying opportunity in years is now 14 months old. Financial advisors started touting it about the time the Dow hit 11,000, and they have grown increasingly enthusiastic as it has worked its way down past the 7,000 level.
As the Dow has tumbled deeper into the abyss, money managers, stock analysts and even well-meaning journalists have consistently warned laymen about the risks of throwing in the towel. Over and over, investors have been told not to panic because no one has really lost any money until they've sold their stocks. Meanwhile, the market has surrendered more than half its value and seems perfectly prepared to continue its merry toboggan ride south. So even if you haven't actually lost any money yet, it may seem as if you've lost money. It may seem, in fact, as if you've lost half your life's savings.
About a year ago, I began collecting hilarious articles warning the public not to make the mistake of panicking. My favorite is "The Economy is Fine (Really)," which ran in the Wall Street Journal on Jan. 28, 2008. In it, Brian Wesbury, chief economist for First Trust Portfolios, opined: "It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble." Wesbury also noted that "initial unemployment claims, a very consistent canary in the coal mine for recessions, are nowhere near a level of concern." He concluded: "Dow 15,000 looks more likely than Dow 10,000. Keep the faith and stay invested. It's a wonderful buying opportunity."
"Are you ready for Dow 20,000?" was the headline of a March 24, 2008, Barron's article, in which the very fine journalist Jonathan Laing allowed "veteran strategist" James Finucane to hang himself. Finucane believed that "months of stock liquidation and cash buildup, horrible sentiment and a bailout that could alter investor psychology have lit the fuse for an explosive rally."
In the last year or so, there have been hundreds, if not thousands, of articles warning investors about the idiocy of panic selling. One ceaselessly regurgitated bromide warns investors that if they missed out on just a handful of the top-performing days during the 1982-2007 bull market, they would have ended up with a 25% smaller return. No one, not even Warren Buffett, can time the market, laymen are warned, and those who duck in and out do so at their peril. So stay the course. Buckle up for a bumpy ride. And whatever you do, don't panic.
A few months ago, I decided that the time had come to panic, so I started to move a portion of my emaciated 401(k) into cash. I felt like a jerk at the time, knowing only too well that the man who is bearish on the United States of America will end up a pauper, and that if I got out now, I risked missing out on that massive, once-in-a-lifetime rally. But I was willing to take that chance, as half a loaf is better than none, and my 401(k) is now about half the loaf it once was. That first time I panicked, the Dow was trading at 9,500.
Afew weeks ago, I panicked again and moved another hefty chunk out of the market. The Dow was then trading at 7,500; now it is approaching 6,500. I fully expect to panic again at 6,000, probably at 5,000, and might even get in a bit of late-in-the-day panicking at 4,000. Tentatively, I am drawing a line in the sand at the crucial watershed of Dow 3,000, because any hysterical selling beyond that point would be anti-American and counterproductive. But even that hideous benchmark is subject to revision. I realize that I have come late to the panic mode, but as my father always said: No matter how bad you have been burned, it is never too late to try dousing yourself with water. Remember that, son.
One thing that encourages me to panic is the steady cascade of admonitions from luminaries urging me not to panic. Last week, professional cheerleader and Wharton School professor Jeremy J. Siegel wrote an Op-Ed article in the Wall Street Journal arguing that stocks are significantly undervalued because the S&P calculates its earnings incorrectly. I couldn't understand all of his reasoning, but basically he said that stocks were cheap. The next day, Jason Zweig, author of the Journal's "The Intelligent Investor" column, fired back: "The belief that stocks become virtually riskless if you just hold them long enough -- popularized a decade ago in books like Jeremy Siegel's 'Stocks for the Long Run' and James Glassman and Kevin Hassett's 'Dow 36,000' -- has been shattered by reality." Hassett, by the way, was one of John McCain's top advisors. Talk about dodging a bullet.
The lower the Dow goes, the more adamantly some professionals insist that the worst is over. In this week's Barron's, portfolio manager William D'Alonzo said: "Whether it takes six months or several years for this crisis to bottom, we believe the market has largely discounted the economic downturns, and that it is essential to remain in the market to take part in its eventual recovery." No thanks; I'm panicking.
Meanwhile, Tobias M. Levkovich, chief U.S. equity strategist for Citigroup Global Markets, wrote in his Feb. 26 report: "Stock prices are showing up as attractive against other assets." Since then, the Dow has dropped almost 700 points more. Citigroup, it bears noting, is a banking colossus that may cease to exist as an independent entity soon, if rumors of impending nationalization are true. In other words, the top analyst for a bank that has effectively imploded is telling investors to buy stock in the equity market that Citigroup helped to destroy. This is a little bit like the chief petty officer on the Titanic offering up survival tips: Whatever you do, don't abandon ship; it's cold out there in the North Atlantic.
Well, with all due respect, sir, I know that your intentions are honorable and that you've got loads of experience in this field. But right now, I'm no longer accepting advice from employees of the White Star Line. There is a time for hysteria, and a time when cooler heads should prevail.
This is the time for hysteria.
Joe Queenan writes frequently for Barron's, the New York Times Book Review and the Guardian.