Peel Pride Away
January 18, 2004
Every week, probably most every day, I am reading about the bearish case. I read about how the market is over-heated, over-speculative, and over-valued. All these things are probably true. Most of you have known me in all these years of writing as a bear, so you know I am more than a little swayed by these arguments. But as the market continues stretching the outer-limits of what most "rational" observers deem reasonable, the rhetoric clawing at the market gets more vituperative, more contemptuous, and overflowing with disbelief. The masses are blamed for falling prey to false idols and listening to the siren song of the sweet, easy success of hopping onto whatever is the latest hot money fashion. The masses are likened to impressionable teenyboppers who believe that the more expensive something is, the better it must be. It is as if the spanking of the vicious bear market was not enough of a lesson to make the worshippers of money repent and forsake all stocks with an "above average" price-to-earnings ratio. Heck, even my own missives have dipped into such blistering criticisms and characterizations.
As the rally in the financial markets continues, the bears have become almost the mirror image of the bulls who kept pleading their case for a market bottom. As that bottom became more and more elusive, the sillier they looked. Since it was not likely that the market was not going to zero, eventually they had to get it right. I daresay eventually the bears will call some kind of top of financial significance. I myself gave up trying to prognosticate when such a thing might occur: trying to build ever-tighter excuses to cover up your mistakes and miscalculations is one exercise fraught with futility. Alas, my fellow bears are full of pride and cannot let the market be. Let the bulls have their fun! Let them ride the market to infinity and beyond. Do not deny them their joy or their hope in a better and more wealthy future. Sure we know these things work in cycles, or at least phases, and that all good things must come to an end. But it does no one much service to try to call an imminent top every time some magical line of resistance approaches. How many lines of resistance need to be broken to declare an up-trend real and worthy of respect? Hard to say. It is probably the same number of lines of broken support it takes to prove that the market knows no bottom when things are bearish. Regardless, the contest of calling market tops (and bottoms) is extremely tempting as it could mean windfall profits if nailed just right. And if a top cannot be achieved, then a major correction might serve the purpose just as well. The bears can proclaim a "I told you so!" or even secretly start their own buying program. But what kind of correction is it really when the market comes down 10% after rallying for 25-30%? Were you better off hopping on board early or hopping on as others are hopping off? I will leave the specifics of the answer to other money and market philosophers for now.
I am not calling for the bears to capitulate. Indeed, such an event would surely mark a top of importance. Instead, I am trying to call attention to the uselessness, even the destructiveness, of pride. These days it seems the bears are the only ones applying rational yardsticks to the market, that they are the true arbiters of value in the market. Their reasoning makes sense in a rational world. But the market sprints madly from one rational milepost to the next. The majority of the action in the market strikes me as primarily driven by psychological forces. It takes pause to defer to reason just every so often. Surrounded by such torrents, it is easy, even natural, to get swept up by pride, whether bullish or bearish. The pride of the bull keeps him insulated from the mounting dangers threatening to sweep away the sands of his growing castle. The pride of the bear keeps him inured to the mounting losses (or the lost opportunities) as the "rational" bet against the market is proven increasingly expensive and wrong.
Pride is a blinding force. It allows you to feel comfortable in your own (self-)righteousness and the validity of your own theories. Pride keeps you aloof of the brutish and unattractive forces that prove everyone else is wrong and misguided and vindicate you as being misunderstood. Pride allows you to construct your own self-serving and self-fulfilling logic to validate your assertions and elevate your own philosophy and opinions. Pride shuts out alternatives because alternatives can expose your own vulnerabilities and reveal the possibility that you may not be as right or as smart as you think you are. And during those few moments when you do get to celebrate being correct, your pride finds new life and adds more bricks to the fortress shutting out all others from sharing with you the vision of something different, something created outside of yourself.
I am not knocking down pride to convince you to join the masses or to forgo independent thinking. As a believer in the contrarian approach to the market, I am firmly convinced that you must be able to think differently. Instead, I am grating at the excesses that lead to the destructive behavior of prideful thinking. Matters of money seem to fuel pride more than a lot of other things, so I feel it is appropriate to take this opportunity to talk about pride even in a column dedicated to the financial markets. I grimace every time I read about another bear flailing his burdened arms at the voracious wildfire that is this current market. It is the same grimace I wore when the bulls were so desperately trying to support the falling market with false promises, empty rhetoric, and the thin beams of irrelevant historical precedence. It is great to be right at the brief juncture when things change or when the world cycles back around to align with your own particular bias, but it is even greater to be at peace with the real world that surrounds you most of the time. No one is omniscient except those over-indulged in pride. Always hear out the alternative view, and if you disagree with it, hear out why your view may also be wrong.
Free of pride, you might just be surprised at how much more you will have to be proud of! And above all else…be careful out there!