LAW OFFICES OF BENJAMIN Z. RICE

After listening to all the investment gurus and "experts" talk about the "market" one is reminded of the following allegory Huey Long (former U.S. Senator and Governor of Louisiana) used to tell about a certain hair product used for taking the kinks out of hair:

The makers called it 'high popalorum' or 'low popahirum,' depending on how they manufactured it. They made the first by tearing the bark of a tree down, and the second by tearing the bark up.  When Huey dismissed two political rivals by comparing them to the two compounds, his amused rural listeners knew exactly what he was talking about.1

Compare two "expert" opinions taken from the September 7, 1998 issue of Barron's (published immediately following a brutal August which saw the S & P 500's 14% decline, the second largest monthly decline since October of 1987 where the S & P 500 plummeted 21.5%) explaining the market's "future" to the "non-professional" investing public.  First, listen to the dire predictions made by William Fleckenstein, Hedge Fund manager, and principal of Fleckenstein Capital, as the dow closed at 7610 on September 4, 1998 "[p]ersonally, just from a macro standpoint, I don't see any reason to want to own stocks, long, between now and the year 2000....  Take 5% and come back in 15 months. You are not going to miss much."  In a Barron's editorial, Jacqueline Doherty wrote,

And if the Dow can avoid crossing over the 20% barrier that separates a bull-market correction from being a bear market, we will by some measures set a record for the longest bull market in history.  The Dow is now 18% off of its high.  The current bull run began in October 1990, and if it can hold on until November 10, the market will have maintained its upward trend for 422 weeks, according to the folks at ING Barings.   That ties the previous record, set back in the 1920s, when the market rallies from August 1921 to September 1929.  Right now November seems very, very far away and mimicking the market of the 1920s is no comforting thought.  All told, there appears to be a lot more downside risk than upside potential.2

As it turns out, the Dow staged an astonishing rally from its early September lows, closing at 10,831 on April 27, 1999 and those that didn't flee the market as suggested by the "experts" have probably seen a considerable advance in the value of their holdings.  As this chart of the daily change in the Dow Jones Industrial Average shows, (the circled area encompasses the weekend the aforementioned articles appeared in Barron's) if you are a long term investor, you would be well advised to ignore market experts who make pronouncements based on short term thinking.  Long term investors realize that by holding a stock for years rather than days one largely avoids the risk of daily stock price fluctuation.  By disregarding excessive pessimism or optimism and focusing on understanding a business, it is possible to determine the approximate intrinsic value of a company and then seek to purchase that business when it is for sale at a price below that value. For what does it matter if a stock goes up or down twice as much as the average stock, if its value has increased in real terms over a five or ten year period.

Comments about the heading of the overall market should be considered more like the rantings of hair product salesman than reliable advice.  Any individual who has at least a 5-10 year investment horizon, should consider that by focusing on the qualities of a company as an ongoing business rather than a "stock," one can identify which of our great U.S. companies are worth purchasing, and then proceed to earn tax free returns for years by buying and holding the stock of these companies.  It is easier to do this today than it has ever been due to the wealth of financial information that listed companies are required to provide by the SEC and the rise of online discount brokerages.  All the information you could ever need to make an informed and decisive investment choice can be found in objective form for free on the internet.  We have provided links to that information on our financial data and financial news pages.  Try them out and let us know if they are helpful.