“I’m A Buyer”. . . Always.

If any of you have ever watched CNBC, you will have noticed an interesting phenomenon. No matter what is going on in the market, the economy or even the world, their fund manager guests always tell you that it’s a good time to buy stocks.

If the market is down, they tell you that stocks have never been cheaper and you don’t want to miss the coming rally. After all, "all the bad news is already priced into the stocks." If the market is up, they tell you to act fast or you’ll miss this incredible rally. When the market becomes obviously, ridiculously over-priced, they tell you that we’ve entered a new kind of market, where old-style valuation methods simply no longer matter.

So when do you sell stocks? You don’t. There’s even a theory for that: buy and hold. If you hold stocks long enough, you’re guaranteed to make money. Forget the fact that anyone who bought stocks in the last ten years lost significant amounts of money. . . that’s “just a matter of time frames.” Indeed, if you bought at the lowest point fifteen years ago and you sold right at the high point last year, you made a killing! So don't worry about that little ten year issue, just keep buying.

Why is this? As they say on CNBC, let’s begin with a few “disclosures.” Most of the fund managers who come onto CNBC are what is called “long-only fund managers.” This means they are forbidden by regulation or their investment charter to hold short positions. Thus, the only way they can make money for their funds is if stocks rise. But how does deluding themselves make the values of their portfolios go up?

It doesn’t. But here’s the dirty little secret, they aren’t paid for performance. They are paid a fee based on a percentage of the assets they manage. In other words, the more money you put into the fund, the more they make, whether they make you any money or not. Thus, they are not deluding themselves, they are baiting you.

But long only managers are not alone in this game. Wall Street is crawling with traders, people who move assets in and out of stocks (e.g. hedge funds). If one of these traders buys a stock, they want it to go up as quickly as possible so that they can get right back out. But if all of these trades have the same knowledge and training, and thus reach similar conclusions about the value of the stock, who will buy the stock from them? Wouldn’t the other traders’ analysis also say it’s time to sell? The answer is simple. They want you to buy it.

Indeed, during the last run up, the professional traders started buying in March, near the bottom. As the rally continued, they put more and more money into the market. They also started appearing on television to tell you that you better start buying stocks or you were going to miss the greatest bull market of all time. As we approached 900 on the S&P, the pros started bailing out. But as they were selling, they went on tv to encourage the “retailers” (you and I) to keep buying. Why? So that they would have someone to sell their shares to without the price collapsing before they could get out. Indeed, several cynically noted that “once the retail investors start buying, it’s time to get out and wait for the crash.” These same cynics, by the way, also shared a few stock names (that they coincidentally happened to own) that they felt would continue to rise even through the coming crash. So you can feel safe about buying those no matter what happens.

Nice huh? Well, gotta go, need to buy some stocks. . . they're up thirty percent in the last month, but I'm told they still have room to run!