Why Investing Favours the Old


Dow flat. Gold flat. Everything flat in preparation for Thanksgiving.

Thanksgiving is probably the most important American holiday,‘ we explained to our Australian visitor. ‘People travel to be with their families. Everybody looks forward to it. You don’t have to decorate. There’s no music associated with it. No religious doctrines. There’s no pressure to shop for presents…and no worry that you might not get the right thing. It’s just a great feast day.

But wait,‘ a friend counters. ‘It’s a deeply religious day. We can’t have Thanksgiving without thanking someone. We thank God for our blessings.

Everybody’s got an opinion.

Investing is one of the few things – maybe the only thing – at which you get better as you get older. Young men know. Old men doubt. 

As you get older, if you keep your wits about you, you realise that you don’t know anything. That helps in investing. You realise that it would have helped a lot in raising a family too, but it’s too late for that.

Asked what the world would be like in five years time, at the Kilkenomics conference in Ireland a few weeks ago, we replied: ‘I have no idea.

We only recall that because we saw the quotation in Simon Kuper’s column in the Financial Times. No doubt, it will become our legacy quote. ‘Bill Bonner: I have no idea.’

Even as to that we’re not quite sure. Actually, we have a lot of ideas. But they are merely speculations. As to knowing what the future will bring, we do not. And we become less sure of it with each passing year.

That is why being wrong is more beneficial than being right. When you are right, you cultivate the delusion that you know something. When you are wrong, the air goes out …the windbag flattens…and you see yourself for the idiot you really are.

We bring this up because our friend Hugh Hendry capitulated. Wrong about a stock market crash (he had plenty of company), Hugh decided that if he couldn’t beat ’em, he would join ’em…as long as stocks kept going up.

He can’t bear to look at himself in a mirror, he says, but at least he’s not losing money. For now.

Dennis Gartman uses this as an investment model: ‘Do what is working,‘ he says. ‘When it stops working, stop doing it.

But how do you know if it is really working? And how do you know when it has stopped? Stocks go up. You get on board. Then, they go down…do you get off? No, you wait to see. They go down more. So, you get off. Then, stocks go up again. Now, you have to buy back in at higher prices.

Next time they go down, you hold your ground more firmly. They go down more…and still, you stick with them. ‘They’ll go up soon,’ you say to yourself. But they go down again. Now, what do you do? You could get out…but they’ll probably go back up like they did the last time.

So, you sit tight…and this time they drop big. Oh my, now you’re down 10%… ‘Don’t take the loss,’ you hear a voice telling you. ‘Stick with it. You may have to wait… but stocks always come back.’ So, you stick with it. And stocks lose another 10%. Now you can’t afford to take the loss. Now, you’re stuck.

But hey…stocks come back. They always do.

That’s what Japanese shareholders told themselves in 1990. They’re still waiting. The Nikkei stood at 39,000 at the top. Now, it’s 15,000. A 50% loss of capital over a 23 year period.

Who knew? Nobody.

Stocks for the Long Run was a famous book by Jeremy Siegel. Now, Siegel says stocks are not expensive. US stocks, he says, are ‘extremely normal’, whatever that means.

But that doesn’t mean they can’t become normally extreme, whatever that means.

The Dow peaked over 16,000 last week. This week, the Nasdaq rose above 4,000.

How come the US markets are going up, while those in Japan couldn’t go anywhere?

Maybe it’s QE. Japan was more cautious (until recently). It turned its banks into zombies, just like the US and Europe. But it was unable to get its share back up. 

Still, Japan could be the tsunami of the future. US stocks could go down…and then stay down, just like their Japanese counterparts.

And what about QE itself. Does it work? Or not?

Oh, darned…there’s that two-handed economist again! On one hand, QE does make money available that didn’t previously exist. On the other hand, there are powerful de-leveraging, contractionary forces that seem to cause liquidity to coagulate immediately. Money velocity falls. Demand slumps. Prices stagnate. 

Result? Sluggish growth. Low inflation. Tokyo, in other words!

Nobody knows anything.

Have a nice Thanksgiving.


Bill Bonner
for The Daily Reckoning Australia

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Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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