Tuesday, August 25, 2009

Richard Russell

That young fellow is Richard Russell and he has been writing the highly respected newsletter Dow Theory Letters since 1958. I am not a subscriber currently but someone emailed me Russell's note from today, which raises the question of whether this is a bear market rally or a new bull market. While that question is much more interesting than whether Bernanke was going to get another term, the conclusion that Russell is leaning toward gives me pause.

"Here's my problem -- I believe all great bear markets end with stocks selling at great values and with investors "fearful and hating the market." I have yet to see either of those phenomena, which makes me think that the final bottom for the bear market that started in October 2008 lies somewhere ahead. It's a fascinating puzzle, and the very viability of the US may depend on its outcome."

I have written about this before but I do believe that just because something happened before does not mean that it will happen again. Particularly, just because past bear markets ended with stocks trading at trough multiples on trough earnings, doesn't mean it will happen this time or ever again. The market may be smarter. Furthermore, making major investment decisions based solely on historical patterns is unlikely to ever create a variant view that leads to outsized gains.

Yet another argument that won't be settled until well after it is proven by time and history.

I am reminded of the following quote:

“Consistency requires you to be as ignorant today as you were a year ago.”
Bernard Berenson

1 comment:

Anonymous said...

i think my favorite is the postulation that all recessions last 16 months (or was it 18). something people were bringing up at the beginning of this year. "hey we are halfway through the recession!!". like it should be taught in physics. if that old goofball knew anything he would be george soros by now, pulling the strings of the new world order.