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Nobody Knows? Who Knew?

July 23, 2002|JAMES P. PINKERTON

"Nobody knows anything"--that was how the famed Hollywood screenwriter William Goldman summed up his long career. That same lesson is now humbling Wall Street.

Goldman, of course, knew a lot. He won two Oscars, for "Butch Cassidy and the Sundance Kid" and "All the President's Men." He also had his share of turkeys: "Chaplin," "The Ghost and the Darkness." Yet at no point did he set out to write a bad movie. Stuff happens, that's all.

The same holds true for would-be market wizards. They don't set out to make fools of themselves. It just happens. After Friday's 390-point drop, a weekend's worth of pundits sagely stated that if investors went into a weekend in a gloomy mood, then the next day of trading was likely to be even worse. That was the case in 1987 when a 108-point drop on Friday, Oct. 16, was followed by a 508-point drop on "Black Monday," Oct. 19.

Speaking on NBC's "Meet the Press," New York Stock Exchange Chairman Richard Grasso said, "Mondays following Friday declines have always been difficult, and I suspect tomorrow will be no different." But, in fact, Monday's drop was "only" 234 points, barely more than half of Friday's.

The one sure thing is that nobody knows anything. In fact, the smartest people on the street seem to know the least. The June 10 issue of Fortune magazine reported on almost 40,000 stock recommendations from 213 brokerages during 2000. The most highly recommended stocks suffered a 31% negative return in the following year, while the stocks least recommended gained 49% for the year. In other words, just about the best guarantee that a stock will go down is that the experts predict it will go up, and vice versa. And yet the same issue of Fortune couldn't resist offering readers more stock tips.

Will the market come back? Probably. Two centuries of data suggest that stocks are indeed the best place to invest money. But meanwhile, the market could go lower still. The July 22 issue of Barron's argues that the "support level" for the Dow--a technician's concept for determining stock values--is 7,400. If so, then the Dow has 384 more points to fall.

Of course, as Barron's also noted, "support levels are not inviolable." The same edition quotes Boston-based money manager Jeremy Grantham as saying "1,100 is fair value" for the Nasdaq. That's 182 points below where that tech-heavy average closed Monday. But then, as the article notes, last year Grantham assayed the fair-value target for the Nasdaq at 1,250.

So is there any hope for learning, let alone investing? Three predictions seem safe: First, it's going to be a long while before investors write blank checks to visionaries peddling blue-sky technologies. That's what happened over the last decade in the Internet and telecom sectors; memories of the $4 trillion or so gone down the drain are going to linger for a while. But, of course, the creation of that cyber-infrastructure wasn't a total loss. Sunday night, WorldCom was able to e-mail its bankruptcy papers to a Manhattan court.

Second, the professions of accounting, investment banking and stock-analyzing are going to be under a black cloud--not to mention a heavy federal thumb--for quite some time. And once-trendy callings such as "day traders" and "dot-commer" might have been permanently deleted.

Finally, the popular culture will change too. In the last two decades, the small fraternity of ticker-tape watchers has become a larger community of financial news consumers.

CNBC's Maria Bartiromo, for instance, "the money honey," became a star, admired for her thoughts on 401(k)s as well as for her luminous big eyes. But today this icon of brainy womanhood has been eclipsed; CNBC's ratings have fallen as many ordinary investors grew too discouraged to watch anyone anymore.

And so an older approach to profiting from the nexus of looks and lucre is making a comeback: The current issue of Playboy features "The Women of Enron."

Already, '90s-style money mania seems like the distant past. Yet we might pause and reflect that it was only yesterday. And then we can resume gazing into the future. Yes, that's the place where nobody knows anything. But if we ever could get it figured, boy, would we get rich quick.


James P. Pinkerton writes a column for Newsday in New York.

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