Opinion | Old Wisdom for Today’s Markets


Traders work on the floor of the New York Stock Exchange in New York City, Dec. 8.


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I love Wall Street adages—find all 30—that help explain today’s crazy markets. One that keeps popping into my head lately is “bulls make money, bears make money, but pigs get slaughtered.” I’ve called this market bubblicious, and markets still push relentlessly higher. My mentor, the famed investor

Barton Biggs,

explained, “A bull market is like sex. It feels best just before it ends.” And now as coronavirus variants come and go, we see 500-point yo-yo swings. Be warned, no one rings a bell at the top of markets.

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Near-zero interest rates fuel the fire. Don’t fight the Fed! But rates may rise this spring, which is why high flyers and meme stocks have been reined in. A good proxy is the

ARK Innovation ETF,

down 38% from its February peak. It is smart to leave early before everyone rushes for the exits.

Maybe stocks will revert to the mean, but what is normal anymore? I remember a Wall Street strategist who claimed stocks go from 25% undervalued to 75% overvalued. Sensible but wrong—the price is always right. Stocks end every trading day valued correctly. Yes, even in the past few weeks, with stocks rising and falling like a runaway roller coaster. Billions of shares traded balance millions of bullish and bearish thoughts to reflect consensus expectations. Or as Efficient Market Hypothesis believers say, “Asset prices reflect all known information”—emphasis on known.

Correct compared with tomorrow? Heck no. In the long term, the consensus is always wrong. In the past 40 years, the S&P 500 has ended the trading day unchanged only 10 times. Inputs change. Expectations change. Macro information changes. Industries change, sometimes ever so slightly. Markets move up or down to reflect new information and investor moods and stuff out of left field. Bull markets climb a wall of worry and top out when there is nothing left to worry about and all the good news is baked in.

My advice is to figure out in which direction the consensus is wrong.

Warren Buffett

says, “Be fearful when others are greedy and greedy when others are fearful.” Sure, but the hardest part of investing is figuring out what everyone else thinks. Finding the pulse of the market is harder than waiting to buy when there is blood in the streets.

That pulse gets harder to gauge when bull markets turn everyone into momentum investors shouting, “The trend is your friend!” Roving gangs of investors chase meme stocks. Bears who face a rising market aren’t alone in getting trampled by bulls; markets trade to inflict the maximum amount of pain, in both directions.

There is nothing new on Wall Street, especially manias and the madness of crowds. Special purpose acquisition companies and bitcoin, both thankfully coming back to earth, fit that bill. Stock tips came from shoeshine boys in the 1920s and AOL chat room “experts” two decades ago. Now crypto-whispers offer advice on the next nonfungible token or doggy coin. Investing is a fashion. Any stock or crypto will work, until it doesn’t.

But sometimes markets can stay irrational longer than some investors can stay solvent. Initial public offerings often have six-month lockups before insiders are allowed to sell, so there isn’t true supply and demand to create a price signal. Expectations for electric truck maker


which had sold only 156 vehicles as of October, have gone through the roof. Its value peaked at $150 billion shortly after its IPO; now it’s worth “only” $98 billion. The definition of long-term investor is someone who is down in a stock praying it comes back. Cut your losers.

All known information baked into stock prices includes growth and profitability and risk and interest rates and macro stuff like election results, hurricanes, wars and Wuhan woo-woos. There are no absolutes. The market is a voting machine in the short term and a weighing machine in the long term, but it is usually an efficient mechanism summing up everyone’s perceptions.

What to do when this market inevitably rolls over? Remember never to catch a falling knife. Don’t try to buy the dips. Sometimes cash is king. Stocks take the stairs up and the elevator down. Market sell-offs can be relentless, and a different set of stocks lead new bull runs. I prefer markets where you have to figure out what can go right instead of what can go wrong like today. But be ready because no one rings a bell at the bottom of the market, either.

Write to kessler@wsj.com.

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