Tuesday, May 13, 2003

Fools Fly Into Marts

By CHRISTOPHER BYRON, NY Post, IT'S great to blame crooked CEOs and venal analysts for the bear market that's now in its third year. But let's get real for a moment.

Since the days of the buttonwood tree, the biggest single problem dogging the stock market has been stupid, greedy investors. And scarcely have prices now begun to improve in what may well turn out to be a beguiling but brief bear-market rally, than the simpletons of Wall Street have begun returning to the market in droves.

Want proof? Then look no further than the astonishing recent surge in the stock of UAL Corp., the parent company of United Airlines. This company is bankrupt, folks - it's kaput, finito. Its stock ain't worth nuttin'.

Yet, in spite of that, these worthless shares have nearly tripled in price during the last month, topping out last week at $2 per share. In fact, by this time next year, they're all but guaranteed to have ceased trading entirely.

This will leave thousands of knucklehead investors with hundreds of millions in losses. What's more, many of these chumps will doubtless turn up at the doorstep of the Securities and Exchange Commission to wail, "We wuz robbed!"

What's going on here? Say hello to the return of The Greater Fool, the most durable character in all of capitalism - the fellow who never shops for a bargain (which is, of course, what shopping is supposed to be all about), and only buys stocks when they're already over-priced (but are, he hopes, headed even higher).

WE'LL get more deeply into the Fool's involvement with the busted shares of UAL in a minute, but first a bit of perspective on what his return to Wall Street tells us about the condition of the market: It is once again getting speculative, meaning people are once again ready to buy anything.

Run your eye across the art on this page. Listed are the five most sharply rising stocks in America during the last 30 days. One of these companies makes plant extracts, two are in the cancer detection business, a fourth is in the software game and the fifth finances office equipment.

Two of the five have declining revenues, and insiders are bailing out of a third. All five are spewing red ink, racking up a total of $72 million in losses during their latest 12-month reporting periods. Nonetheless, the Fools of Wall Street have been piling into these stocks anyway, adding more than $120 million in paper value to U.S. equity markets in the last month through these five small and obscure companies alone.

The business of the Greater Fool is also known as momentum investing, and you can [make] a lot of money at it - at least during bull markets, and at least on paper. All you have to do is follow The Fool's basic premise: Never mind if the company issuing the stock is worth anything at all (or that it even exists), just "buy high and sell higher." The unstated assumption in that strategy is, of course, that there will always be a supply of Even Greater Fools to sell to, in an endless merry-go-round of spiraling prices.

In the end, this is how the bull market of the 1990s ballooned into the biggest speculative bubble of the 20th century: It wasn't crooked CEOs and lying analysts who caused this to happen, though they certainly helped; rather, it was mindless, momentum-fueled investing by Wall Street's Greater Fools. Link found at U S Bear Market Commentary >>Full story...

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