This Week’s Commentary – September 1, 2007 – More Thoughts on Idiots

I’m posting this a little later than usual, but here, for what they are worth, are my thoughts this long weekend:

It’s the end of the summer. Today is the first day of September. I’ve now been back to work after a week’s vacation. Nothing much happened on the market this week. Up one day, down the next. Boring.

It’s the last long weekend of the summer, and I don’t feel like talking about the market.

Instead, I want to discuss my theory of humanity. Here is my theory:

We are all idiots.

Let me give you some examples.

Example #1

You have all seen the video on You Tube; it’s a classic: the Miss Teen USA contestant from South Carolina answering a question about why one fifth of Americans can’t locate the U.S.A. on a world map. Her answer starts with the classic “I personally believe that U.S. Americans…..” I love that; “U.S. Americans”. What other kind are there? She also refers to “The Iraq” and uses the words like “suchas” and “therefore”. Apparently a lot of people in the U.S. don’t have maps. I love it, but I am disturbed. What does this say about the future of America? Is the stock market specifically, and the economy in general, destined to collapse because beauty contest contestants, long the bastion of the intellectuals in America, are no longer, to quote Homer Simpson, “Smart, S-M-R-T”? Go to You Tube to watch the video.

Example #2

Thanks to punter for this one. A few years ago, a bunch of guys started lending mortgage money to people who had no hope of every being able to pay the money back. The interest rates started out low for the first year or two, and then went way up. People got sucked in at the beginning, and now can’t pay the mortgages back. Foreclosures are up. The paper is worthless. Amazingly, the market has now realized that if something is worthless, people will pay nothing for it. No-one can sell any of this worthless paper, so now large mortgage brokers are filing for bankruptcy protection, and hedge funds are closing up.

Which begs the question: Who would you rather invest your “low risk” money with: the guys who package junk debt and pretend it’s triple A, or Miss Teen South Carolina?

Example #3

A few months ago I pulled into the parking lot of one of my offices. At this parking lot you have to put some coins into a machine to buy a ticket. You then display the ticket on your dashboard.

It was pouring rain. I was wearing a suit. (A dark blue Armani, if anyone cares). I did not want to get my suit wet, so I pulled my car right up to the parking ticket machine, jumped out, put my coins in the machine, took my ticket, and turned back to my car.

My car was locked.

The engine was running.

It was pouring rain.

I was wearing my dark blue Armani suit.

I was getting soaked.

My umbrella was on the front seat of my car. Which was locked. My cell phone was right beside my umbrella. In my car. Which was locked.

What’s a five letter word to describe rain, car locked, engine running, me outside, umbrella and phone inside?

Idiot.

I ran into my office, up four flights of stairs, have my receptionist let me into my office, so I can phone CAA (what is what we call AAA here in Canada), and ask them to come and unlock my car for me. They ask me for the nearest intersection.

I can’t remember. (I have only worked in this office, and parked in this parking lot, for 8 years). In my haste, I tell them I’m at the north west corner of X and Y street. I go out to my car, and stand in the rain, waiting for them to arrive. They say they will be there in 10 minutes.

Thirty minutes letter the CAA guy arrives. He tells me that he would have been here sooner, but the dispatcher told him the north west corner of X and Y, and this is clearly the south east corner. I feel like an idiot. It takes him four seconds to pop the lock on my car. The engine is still running.

Whenever I start feeling too high and mighty, I remember this story. I remember that, at times, I am an idiot.

We are all idiots.

(Can you remember a time when you did something idiotic, like locking your keys in your running car in the pouring rain?)

I was reminded of this experience this week as I read the discussion on the Buy High Sell Higher Forum. On Thursday there was an interesting discussion started by Depleted, asking that we declare ourselves; are we Investment Advisors, Brokers, or Fund Managers? He was specifically asking punter, one of our more prolific contributors. Megadeth said he enjoys punters’ posts; davidslane said he likes to read everyone’s thoughts, and punter never did disclose exactly what he does for a living.

Here’s my take on all of this:

We are all idiots. We should not believe anything anyone tells us, because we are all idiots.

I myself am an accountant. I have my own firm that specializes in a specific area of accounting. It does quite well, thank you very much.

Does that make me qualified to talk about the stock market? Of course not.

Do I pretend to know more than I actually do?

Of course. That’s the game we all play. That’s why we contribute to anonymous blogs and forums.

Am I going to change my way of thinking based on something I read on some web site, written by a bunch of anonymous people?

Nope.

Am I going to buy a stock because some guy named Dines or Casey or Whatever tells me to?

Nope.

I may be an idiot, but I’m not insane.

In fact, I’m proud of the fact that I’m an idiot. I wear the title “Idiot” as a badge of honour. It keeps me humble.

I know that every great scientific discovery made in the history of mankind was a mistake. Someone made a mistake, and it turned into something better. The definition of an expert is someone who has made more mistakes in a field of endeavor than anyone else.

I wear the title “Idiot” as a badge of honour because I freely admit my mistakes. The more mistakes I make, the smarter I become. You must be an idiot to be successful. It is essential.

Whenever someone tells me that they know it all, or they have found the answer, I run. If you can’t admit that you are an idiot, then you have nothing useful to offer me.

In a meeting between a wise man and a fool, who learns the most? You would think the fool has the most to learn from the wise man, but of course the answer is that it is the wise man who benefits the most from the meeting with the fool, because the wise man knows that we can all learn something from everyone.

And that, of course, is the purpose of this web site, and the Forum.

I don’t have all the answers. I don’t even have all of the questions.

But I like what all of you have to contribute.

Example #4

So who are the idiots? We all are. The market started to break down and we didn’t take profits. Hindsight is 20-20, but obviously, in hindsight, that is what we should have done. We can’t turn back the clock, so there is no use worrying about it now. We can learn from our mistakes, but let’s not act like idiots and obsess over it.

The market obviously bottomed on August 16. I say obviously because most stocks are trading higher than they were trading on August 16. Will they re-test their lows again? Probably. That’s often the way it works. So what do we do?

Simple: if fundamentals have changed and you think a stock is a loser, sell it. (For example, things don’t look great at the moment for PNP.TO – Pinetree Capital Ltd.; there is a chance they will be dropped from the TSX 300 Index; thanks to fissileU3O8 for that one. It seems risky to still be holding Pinetree at this stage in the game).

If you think a stock is under-valued, buy it. What stocks that we own, or want to own, will get much lower? Probably not many of them.

My plan is this: sell whatever obvious losers I still have left, and begin to accumulate stocks that I think will be winners in the next phase. I will accumulate them slowly; I don’t think there is any big rush here. We may have a bounce the first week of September as the traders return from vacations and pick up bargains, and that will probably be the opportunity to shed the losers. We will then presumably re-test the lows, which, if they hold, will be the time to buy for a fall rally.

Here’s my caveat to all of this: Obviously, I am an idiot, (which I say with a sense of pride), so I could be completely wrong. The sub-prime mess will probably get worse before it gets better. Hurricanes could do some damage (although that probably helps uranium). More bad stuff could happen. However, there is an election next year, and generally the ruling party wants the economy to appear to be in good shape when that happens, so I have to place my bets, ultimately, on the side of the bulls.

My favorites continue to be:

• IEC.V – International Enexco Ltd.
• JNN.V – JNR Resources Inc.
• SLW.TO – Sliver Wheaton Corp. and
• SMD.V – Strategic Metals Ltd.

I believe these are companies with good management, good prospects, and they appear to be bouncing back better than some of the other stocks.

Enough rambling for this long weekend. Thanks for reading, and please continue to post your thoughts on the Buy High Sell Higher Forum.