Beware and Be Aware

January 04, 2019 | Sam Rook


On the charlatans you will hear from

                When times get tough in the stock market a certain type of “animal” gets a lot of attention and praise. We typically call them “a bear” which is a term for someone who always thinks the next move will be a big drop in equities. You can be a bear on a stock but the true bears are the market bears. They are the polar bears of our world because they often live in a desolate and cold place and stick on their hunt to be proven right like it’s the only food for miles.


                Contrary to most, I am actually in favour of bears. Like a bear in the woods, stock bears do great work to help clean up the market of its excesses. Really good bears are the short-sellers who dig to find the rotten companies that can ruin your portfolio. Companies like Valeant Pharmaceuticals were found by the work of short sellers (people that sell a stock they do not own to buy it back later because they believe it should be trading at a lower price) who sniffed the decay and then devoured the remains. You can read a good summary of the story of Valeant here.


                In my world there is a special type of person that is disguised as a bear but is doing none of the good work to clean up the forest. I don’t call them a bear, I call them a Charlatan. In every market drop they suddenly achieve their time in the sun by saying things like “the market has been frothy” and “I have been saying for the past X years this was going to happen”. A charlatan states their opinion as absolute fact and often they used statistics/data/graphs to belabor their point. They will give hyper-specific information (The market is going down 37% from here…) that appear as though they and they alone have done the exact calculation that is correct.


                If I tell you that the market will go down from here, your mind takes note of it differently than if I give you a hyper-specific figure like Thirty-Seven Percent! Putting an exact number gives it an air of certainty and as humans we all crave certainty. Here is the important point to remember. Nothing in life is certain except death and taxes. I could tell you 37% but it could actually be 28% or 44%. Not even Hari Seldon himself has the power to correctly predict the future. No one has a secret sauce that divines things that have yet to happen to their brains in the present. It is critically important to remember that the next time you read a headline like “Stock guru predicts market doom”. It is also important to remember that charlatans also appear in a positive form; known as a bull.


                Your investment portfolio is never going to move in a straight line. Likewise your life, your career and your family are all things that move in cycles too. The goal being higher highs and higher lows over time. There will be lows and you, me or Marc Faber [Editor: Noted stock market doom and gloomer/charlatan] do not know when they will happen nor what will cause them to happen. Anyone that tells you otherwise is lying to you.


                Beware of the charlatan. Be aware of their tricks of guessing the future disguised as certainty. Always remember they do not know you or your goals. They are only out for one thing and it is only your attention. Stick to your plan. Stick to your asset mix. Spend your time on productive steps for you and your goals. Don’t waste it chasing guesses of charlatans.


                [Post Script: Hari Seldon is the fictional protagonist from Isaac Asimov’s Foundation novels. He believed he had mathematically worked out the future of the Trantor-led galaxy for a thousand years and worked to set up a system that would lessen the time of anarchy and chaos and keep more people safe. I cannot recommend the original trilogy- Foundation, Foundation and Empire and Second Foundation- enough. It is a great piece of science fiction writing that even 70 years later shines a bright light on our current world….which is not much different from the fictional world Asimov writes about in the trilogy]