Since You Were Going To Ask

How I got 1,000% smarter about the stock market in 12 hours

By now you’ve realized that the early stages of the trade war have turned your 401(k) into a 301(k) and are wondering how it’ll all play out. It’s at times like these that I get questions from long-dormant Facebook contacts, my mom’s childhood friends, or neighbors who spot me out for a walk.

“So, what do you think about the stock market?”

I really don’t mind pausing my audiobook on a lovely spring day and stopping to chat for a few minutes about what each of us is experiencing. It’s therapeutic, and it rounds out my experience in a way that just speaking with economists and reading strategist reports all day can’t.

The psychology of money interests me (and, if you haven’t yet, this is a great time to read Morgan Housel’s wise book with that title). Markets are made up of people with all sorts of irrational reactions to getting richer or poorer in a hurry. No amount of experience strips you of them. It’s with only slight embarrassment that I’ll admit what I think about the market is that I’m mildly nauseous right now and fighting my instincts to avoid doing something dumb.

But what acquaintances are often fishing for by asking what I think is when the market will stop falling, whether it’s too late to sell, what to buy, and whether they’ll be okay financially given a certain sum saved and years until retirement. Sometimes this is even followed by a rundown of their specific stock holdings.

I’m not a financial adviser, so that’s when I look at my watch and say I’m running late. I do have some general guesses, of course, and even some specific hunches. I write about this stuff for a living, after all, and investing is as much my hobby as my profession. On a yellow pad in front of me right now I have a list of eight stocks that look pretty interesting. No, I won’t be sharing them with you.

This isn’t some tease where I’m going to send them to my very best subscribers or ask for money (this newsletter is free). I’m just doing it out of intellectual curiosity. I can’t even buy individual stocks due to my job. At most I’d bounce them off of a financial professional who would know to take anything I say with a grain of salt. Read this column I wrote last year, “The Random Path To Stock Market Riches,” to see how poorly even the best stock pickers do (email me for a free link if that doesn’t work and you don’t subscribe to the WSJ).

Once I get past stopping people from doing obviously rash things, my confidence level about what my neighbor really wants to know is low and my confidence about the general, long-term things that sound like “eat your vegetables” or “remember to floss” are high.

What would an actual financial adviser say? If he’s any good at his job he’ll sound much more sure of himself than me. That’s what people want to hear, and it’s why that business can be so lucrative.

Yes, I write about specific strategies and stocks in a carefully worded way in my daily newsletter and my columns. It’s my job, I try to do my best, a couple of editors check it, and I have no conflict-of-interest or products to sell you. I think people know that something they read in the Wall Street Journal or Barron’s is information, not professional investment advice.

Mercifully, my decision 23 years ago to quit my investment banking job and take a massive pay cut to become a financial journalist has made me less of an authority because, you know, who would do that? The external trappings of wealth or a fancy title magnify your perceived acumen, which is why those late night get-rich-quick infomercials always show someone stepping out of a really expensive car in front of a mansion they probably don’t own.

Back in the fall of 1998 I flew to New York from my home in London to take one of the emerging market companies I covered on a “road show.” That’s when you visit a bunch of fund managers with the unspoken goal of juicing their stock price and getting the mandate to be lead-runner on their next secondary offering.

I, as the equity analyst, was mostly there to represent the bank and to babysit the executives. On the bright side, it was a lot less work than the usual routine of doing the trip solo and being the one giving six presentations a day. Also, since the company was being charged for the whole thing and the CEO or CFO were with you, you got driven around in a fancy, chauffeured car instead of hailing taxis or taking the subway.

My mom lived pretty close to JFK Airport at the time in Queens so I opted to sleep in my childhood room instead of the New York Palace, where the company was staying. I’d catch a ride from our driver, who lived nearby, and join them early the next morning. I got out of the cab in Rego Park unshaven in ripped jeans and a Mickey Mouse t-shirt I’d had since college hauling a garment bag and a briefcase stuffed with PowerPoint presentations. When it was time to head to Manhattan, though, I was wearing my Savile Row suit and Hermès tie as I stepped into the waiting limousine.

You don’t see a lot of people getting into a limo on 67th Avenue. I had instantly transformed from the dumb kid on the block who broke the neighbor’s window after chucking an onion at his friend into an adult who knew things.

The next time I was in the neighborhood, at the height of dot-com mania, I got peppered with questions about tech stocks. When I strongly suggested that my mom’s friends should take some of their money off of the table instead of telling them what else to buy, they quickly switched to heroic tales of their huge winnings in Lucent. Everyone’s a genius in a bull market, even if you didn’t quite understand what it was that Lucent did.

It still amazes me that the words “I don’t know,” which would end the conversation if it were about any other important thing like fixing your car or curing an illness, only make people more curious. What a business.

I’ll leave you with a link to one of the simplest and best papers I’ve ever read on expertise, or lack thereof—the Seer Sucker Theory. In it, J. Scott Armstrong concludes: "No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers."

The literal money quote: “Don't hire the best expert, hire the cheapest expert.”