/biz/ - Business & Finance

>>18462718
>>18462632
We are in phase three of the below.

THE COCKTAIL THEORY

If professional economists can’t predict economies and professional forecasters can’t predict markets, then what chance does the amateur investor have? You know the answer already, which brings me to my own “cocktail party” theory of market forecasting, developed over years of standing in the middle of living rooms, near punch bowls, listening to what the nearest ten people said about stocks.

In the first stage of an upward market—one that has been down awhile and that nobody expects to rise again—people aren’t talking about stocks. In fact, if they lumber up to ask me what I do for a living, and I answer, “I manage an equity mutual fund,” they nod politely and wander away. If they don’t wander away, then they quickly change the subject to the Celtics game, the upcoming elections, or the weather. Soon they are talking to a nearby dentist about plaque.

When ten people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it’s likely that the market is about to turn up.

“In stage two, after I’ve confessed what I do for a living, the new acquaintances linger a bit longer—perhaps long enough to tell me how risky the stock market is—before they move over to talk to the dentist. The cocktail party talk is still more about plaque than about stocks. The market’s up 15 percent from stage one, but few are paying attention.