Imagine someone giving one single piece of investment advice in his lifetime and absolutely nailing it. Although it's not widely recognized, that's exactly what President Barack Obama did on March 4, 2009.
Imagine someone giving one single piece of investment advice in his lifetime and absolutely nailing it: pronouncing a buying opportunity at one of the greatest inflection points in history, just before large-cap stocks doubled and small-cap stocks tripled.
Although it's not widely recognized, that's exactly what President Barack Obama did on March 4, 2009.
As you no doubt recall, we were at the tail end of a months-long financial panic that wiped away trillions of dollars in assets. The Dow had collapsed from over 14,200 to nearly 6,500. Depositors were yanking money out of local banks. Even sophisticated investors and hedge fund managers were frightened and reluctant to act.
Then Obama strode up to the microphones and uttered those immortal words, "What you're now seeing is profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."
An amazing call
On March 9, just 5 days later—a day when the headline of The Wall Street Journal's Money and Investing section was "How Low Can Stocks Go?" —the market hit rock bottom and began the amazing ascendency that has flowered into one of the great bull markets of the past 50 years.
Does Obama deserve credit for this astonishing call?
Well, yes and no. Its beauty is diminished a bit on closer examination. For starters, he called buying stocks "a potentially good deal."
This breaks the first rule of market timing. If you're going to make a call, make it a confident one. Take Elliott Wave Theorist Bob Prechter, for example. At roughly the same time, he insisted the market collapse was only just getting started and claimed it would be the biggest in 300 years. He proclaimed that the Dow would fall below 1,000. (That's not a misprint.)
This is how real market timers do it. They make a bold and specific pronouncement. Recall the famous Dow 36,000 prediction (and national best-seller of the same title) by James K. Glassman and Kevin A. Hassett in 1999. Now that's a market call, if not a particularly auspicious one.
Of course, when things don't go their way, market timers generally tell their followers that they weren't wrong, "just early." I know some gloom-and-doomers in our industry who have been early for 2 or 3 decades now. Many of them are as popular as ever.
Obama was only 5 days—or 3 market sessions—early. But he loses a few points for hedging.
The long haul
The second problem with the president's market call was the caveat "if you've got a long-term perspective." Snare, bass drum.
I hope anyone reading this column knows nothing beats a diversified portfolio of common stocks over the long haul. Not bonds. Not cash. Not real estate. Not commodities. Not metals. Not collectibles. Nothing.
So Obama was right about the long term. But he loses points for not realizing that it was a spectacularly good short- and medium-term call, too.
However, the biggest demerit comes from the gaffe at the center of his statement, where he talked about "profit and earning ratios" being attractive. Whoops. He meant, of course, price-to-earnings ratios.
The national media had big laughs over George W's misstatements like "nucular" and "misunderestimated," yet didn't seem to pick up on this mash-up, perhaps because their financial literacy is as low as his.
For these reasons, I give President Obama's A+ market call a gentleman's C.
And I suggest you not try short-term market timing at home. Because while stocks are an excellent long-term investment, what they will do in the short run is anyone's guess… even when "profit and earning ratios" are low.
Alexander Green is the chief investment strategist at InvestmentU.com. See more articles by Alexander here.The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.