Confucius and the stock market

Every so often an alert reader e-mails be a question about the stock market, or even a specific stock, and my answer is always this: Sorry, but I dunno.

My profession of ignorance is a function of two factors: the “professing” side of ignorance, and the “actual” side of it.

We’ll take first things first. I’ve never understood how anyone could profess to be able to predict the future course of stock prices. Anyone who could do such things would wind up being infinitely–or close enough to it–rich.
Maybe there are a few people in this category, I don’t know. But most of the know it all’s don’t seem to even know most of it, given that money managers are often outperformed by broad market averages. In other words, in many cases you’d be better off throwing darts at a listing of stocks on a dartboard than paying good money to some slick suited, fast talking, stock “expert.”

And now for the part you’ll really like, my ignorance about stock picking. Yeah, economists have some feel for the overall context in which stocks move, but a guy who can imperfectly predict the tides sometimes can’t necessarily handicap the boat races. The actual mechanics of picking stocks is best left to a certain breed of financial experts, not to economists. Such a finance expert would need to be well versed and formally educated in the high-powered, “big picture” world of corporate finance and would need to have a solid feeling for financial accounting, as in analyzing financial statements, particularly those ant-sized atomic footnotes in which the devil’s details lurk. I know quite a few people good at either, but very few good at both. Very few.

If a genie was to pop out of a bottle and give me the brains to predict things, I wouldn’t ask to be a stock market whiz. I’d want to be able to predict currency movements. This is a lot more intertwined with economics and far more interesting to me than any stock could ever be. Speculating in currencies is a notoriously fast way to lose all your money, and yet I’ve got this gnawing temptation to enter these treacherous waters sometimes.

Thus far, I’ve played it smart and kept my pennies in my pocket. Mess around with currency markets, you’re betting against big, institutional cash…and yet, I’ve seen these monoliths do incredibly stupid things (hey, somebody was paying $1.17 for Euros last year, and it sure wasn’t me).

But back to stocks. A few lonely voices are saying the stock market is in the midst of a long slide down. Others, the majority, I suspect, are still optimistic that the good market times will continue to roll. A few ask me what I think. I tell them that I don’t know. In the words of Confucius, “to know that we know what we know, and that we do not know what we do not know; that is true wisdom.” That’s an aphorism that never took root in our fair Commonwealth, though, which is why an economic chronicle of recent times here is a farce bordering on slap stick comedy.

Well, I like watching farces, but I won’t throw my wallet into one–here, or anywhere else.

Nor will I toss it into a mystery. When your waiter tells you what a killing he just made in mutual funds, it raises a red flag. When little old ladies in funny hats put down their knitting needles and publish best selling books on stock picking, it has to make you wonder.

So do you need a stock tip? Ask your waiter or a little old lady. Their advice would certainly be better than mine, if I had any to offer in the first place.