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Paul Farrell: Beware of Predictions, Optimism Bias

Posted By Barry Ritholtz On September 2, 2013 @ 7:30 am In Cognitive Foibles,Really, really bad calls,UnGuru | Comments Disabled

The following assortment of quotes comes from Paul Farrell

 

2007-2008 bank credit meltdown — the top nine happy-talking gurus

False predictions made before the 2008 subprime credit meltdown:

‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.”

Ken Fisher: “This year will end in the plus column … so keep buying.”

Ben Bernanke: No “serious failures among large internationally active banks.”

Goldman Sachs: “Fear priced into stocks is likely to abate as recession fears fade.”

Barney Frank: “Freddie Mac and Fannie Mae are fundamentally sound.”

Barron’s: “Home prices about to bottom.”

Worth magazine: “Emerging markets are the global investors’ safe haven.”

Bernie Madoff: “It’s virtually impossible to violate the rules.”

Kiplinger’s: “Stock investors should beat the rush to the banks.”

~~~

2000-2003 dot-com crash, a long recession — more happy-talking gurus

From Bull! 144 Statements from the Market’s Fallen Prophets [1], a few notable gurus spreading happy-talk:

James Glassman, author ‘Dow 36,000’: “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced … not a bubble. … market is undervalued.” (October 1999)

Larry Kudlow, CNBC host “This correction will run its course until the middle of the year. … not even Greenspan can stop the Internet economy.” (February 2000)

Cramer: “SUNW probably has the best near-term outlook of any company I know.” (September 2000)

Lehman’s Jeffrey Applegate: “The bulk of the correction is behind us, so now is the time to be offensive, not defensive.” (December 2000)

Alan Greenspan: “The 3- to 5-year earnings projections of more than a thousand analysts … have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.” (December 2000)

Suze Orman: “The QQQ, they’re a buy. They may go down, but if you dollar-cost average, where you put money every single month into them … in the long run, it’s the way to play the Nasdaq.” (January 2001)

CNBC reporter Maria Bartiromo: “The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.” (March 2001)

Goldman Sachs’s Abby Joseph Cohen: “The time to be nervous was a year ago. The S&P then was overvalued, it’s now undervalued.” (April 2001)

Lou Dobbs, CNN: “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” (August 2001)

Kudlow: “The shock therapy of a decisive war will elevate the stock market by a couple thousand points,” with Dow 35,000 by 2010. (June 2002)

Lots of hype, very little facts, just about all of it wrong.

~~~

1929 Crash and 1930’s Depression — seven early happy-talking gurus

Go back to the Crash of ’29 and the Great Depression. Same pattern: Optimism at the top, despair at the lows.

Listen to what investors trusted around the 1929 Crash:

Irving Fisher, Yale Ph.D. in economics: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels … I expect to see the stock market a good deal higher within a few months.” (Oct. 17, 1929, just days before the Crash)

Goodbody market-letter in New York Times: “We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.” (Oct. 25, 1929)

BusinessWeek: “The Wall Street crash doesn’t mean that there will be any general or serious business depression … For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before.” (Nov. 2, 1929)

Harvard Economic Society: “A serious depression seems improbable … recovery of business next spring, with further improvement in the fall.” (Nov. 10, 1929)

Treasury Secretary Andrew W. Mellon: “I see nothing in the present situation that is either menacing or warrants pessimism … I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.” (Dec. 31, 1929)

Wall Street Journal: As the Dow fell from 298 to Dow 41:“Chase National Bank says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930.” (June 1930)

President Herbert Hoover: “The depression is over.” (June 1930)

 

 

Source:
Why optimism is your worst investing enemy [2]
Paul B. Farrell
MarketWatch July 6, 2013
http://www.marketwatch.com/story/why-optimism-is-your-worst-investing-enemy-2013-07-06


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/09/paul-farrell-beware-of-predictions-optimism-bias/

URLs in this post:

[1] Bull! 144 Statements from the Market’s Fallen Prophets: http://www.amazon.com/exec/obidos/ASIN/0740736124/thebigpictu09-20

[2] Why optimism is your worst investing enemy: http://www.marketwatch.com/story/why-optimism-is-your-worst-investing-enemy-2013-07-06

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