Down with Slogans!

One of my New Year’s resolutions is to wage a war on slogans.  I hope to help my readers to see how they can gain edge through a Contrarian approach to slogans.  This will take a series of posts with different subtopics and examples.  Partly it is my effort to put down pieces of a longer work in progress.  Partly it is inspired by Barry Ritholtz’s excellent series (which I expect will be a successful book at some point) The Apprenticed Investor.  You can and should read these articles.

So what is my mission?  Here is a typical conversation among those analyzing the market.  It may occur on CNBC, on professional sites, on blogs, or on forums.

A:  I think that this is not like a typical Fed tightening sequence (or inverted yield curve, or economic recovery cycle, or energy spike, or trade deficit, or many other things).

B:  Are you suggesting that something is different?

A:  Well, it does seem to be different…..

B:  Gotcha!!  You said the magic phrase, "It’s Different this Time."  That shows that you are a hopelessly inexpierienced, clueless, newbie who does not realize that things are never different.

A:  (Apologetic and hanging head) Oh… well it does seem different.

B:  Don’t you know that we all got buried in the bubble because we thought it was different?

And so forth.

Here on "A Dash" my intention is to show readers how to tell when things really are different and why this is important to know.

Some of my kind friends over the years have said that I have a knack for taking complex topics and making them clear to my audience.  I am probably better at doing this in public speaking, but I am going to attempt it here anyway.

My normal method, familiar to professors teaching research methods, is to take a blindingly clear example unrelated to the problem at hand.  With understanding of this in mind, one then tries to show the audience the similarity to the current problem.  If someone thinks that the examples or method are too obvious, then a pat on the back is in order.  Anyone who gets it already is way ahead of most consumers of stock market research and analysis.

Let’s start by getting rid of the dismissive nature of the "This time it’s different" putdown.  There is no advantage in following the slogans of everyone else.  If you are a sophisticated player in the market, it is your mission to discover when it really is different.  It is my mission to suggest places where that might be true.

P/E vs S&P 500 (50 Years)

Take a look at this great chart of P/E versus the S&P 500.  It does a wonderful job of setting up the valuation question.  You can see what is wrong with it, even without looking for a better model.  The trailing P/E ratio method is poor both descriptively and prescriptivey — the two reasons we look for relationships.  It is exciting in that it explains why the parade of talking heads have been saying for years that the market is overvalued, and lets you judge the wisdom of their statement.

Take a look at the chart, courtesy of Mike Panzner via Barry Ritholtz, and then we’ll analyze it more carefully.

Link: P/E vs S&P 500 (50 Years).

As promised, today brings us to the 4th in our series of charts: P/E vs SP500click for larger chart courtesy of Mike Panzner, Rabo Securities I’ll get into the significance of what this means to the markets later, but for now, note where the P/E is over …

Continue reading “P/E vs S&P 500 (50 Years)”

Themes from 2005 — Dick Green of

Dick Green, President of, is an award-winning writer, picked this year by Smart Money as one of the top 30 market movers.

His Summary of 2005 highlights some key themes, and he then offers lessons from each.  (You might need a subscription for some articles, but you can find many of them here).

Dick draws some lessons from each theme.  I agree with the 2005 summary, and my own market outlook will also build on the 2005 events.

Here are the themes:

1) The U.S. economy proved extremely resilient to exogenous shocks.

2) Earnings growth was very strong and corporate balance sheets shined.

3) Value returned to the overall stock market despite rising interest rates.

4) Inflation remained surprisingly constrained.

5) Pervasive pessimism persisted throughout the year.

Dick (like me, Chicago-based) sees misplaced fears and pessimism, especially from "journalists based in the slow-growth Northeast.  He warns investors not to get caught up in the fashion of the moment or specific data points.

It is great advice.