Five years ago today, I made the luckiest market call of my career. A few details and some context first, than an explanation as to why this was so lucky.

In 2005, I knew something was amiss in the global markets. The various metrics we track showed that credit had become a full on bubble, and was manifesting itself in residential housing. We discovered this by looking at such factors as median income to median home prices – at the time it was two going three standard deviations from the norm. Cost of owning versus cost of renting was also flashing warning signals, as was Housing value relative to GDP. Indeed, half of all new jobs being created were Real Estate related. That in itself was a giant red flag. All other signs pointed to a major correction in Housing, despite the denials from pundits

In 2006, I had done a huge analysis as to the fair market value of the Dow Industrials. At the time, the Dow was heading to 12,000, but by my calculations, was worth only 9,800. My expectations was that to reach fair value something was likely to have gone wrong in housing, and that could lead to a 3,000 point panic. My best guess was that Dow 6800 – and that hitting this was more a greater possibility than most traders might bet.

It was just a guess – and an early one at that. But after Housing began to reverse, it was apparent it would spill into the real economy. The stock market stubbornly ignored the collapsing residential real estate market until October 2007 – making that time feel like the longest year in my career. But as equities started rolling over, I began to wonder if my guess might come to pass. And so I made a promise to myself, not to become one of those one-way pundits who got one thing right in their career, and never changed their stripes ever again. There is a laundry list of such one hit wonders, and I vowed not to become one of them.  Continues here

Category: Bad Math, Investing, Markets, UnGuru

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Get Lucky: 5 Years Ago Today”

  1. CD4P says:

    Great call, BR.

    Now if I personally could only go on a massive credit binge and then have a FASB 157 manifesto bailout my arse…

  2. louis says:

    Yep Great Insight, some people won and millions still suffer in quiet agony, damn speculators.

    And to think it was all contained.

  3. Slash says:

    My indicator (not that I was in much of a position to profit from it, unfortunately) was when 40-something people who were not millionaires were talking about retiring by age 50 because they had tons of money in their retirement accounts and were planning on selling their house to cashing in on its “value” in the real estate market.

    I’m guessing most of those people are not retired now. And many of them probably don’t have the house, either.

  4. adrian.who says:

    Such a pity that epic call you made on Yahoo Finance (URL http://finance.yahoo.com/tech-ticker/article/204750/%22Big-Bear-Market-Rally-Coming%22-Says-Noted-Bear-Barry-Ritholtz ) is not available anymore. It was the moment I met you, Mr. Ritholtz. You can imagine a meeting in such a context could only leave good strong and livelong impressions.

  5. 4whatitsworth says:

    Great call! Now what have you done for me lately ;-) VGK is working out I suppose so thanks for that.

    Let us know when your fair value light starts blinking on the DOW. I don’t think anyone is up for excessive risk these days so I don’t think we are going so far from fair value this time around but you never know..

  6. bas_IC says:

    There are two sources of POWER:
    (a)Power based on force (muscle, gun, salary, etc.)
    (b)Power based on authority (child->parent, doctor->patient, specialist in a field->someone in need of that specific knowledge)

    Most important difference:
    Power based on (a) solely depends on the means, by which power is exerted. The second you take that means from the person exerting power – or that person deprives himself of that means(!), that person loses his power.
    Power based on (b) solely depends on the willingness of the person, upon which power is exerted, to accept that power. Only HE/SHE can decide whether to accept your power (based on authority) or to reject it. The very important difference lies in the fact, that you, being regarded as authority, cannot deprive yourself from that power!

    Most people are longing for authorities, and the more uncertain the relevant situation, the more they will want to be guided.

    You yourself, Barry, have no whatsoever chance to convince most of these people that it is not only silly to believe that your statement on March 9 2009 did mean anything more that you meant it to mean. It moreover is dangerous and basically the reason why most people perform so poorly in the markets.
    Their craving for guidance by a guru.
    Knowing deep down that they have NO plan/strategy, they know that they need luck in order to be successful in the markets. So they are also craving to receive a sign that they are the chosen ones to be LUCKY.

    My point: I admire your attitude and your honesty, but I also feel something like compassion due to the apparent futility of your very sincere attempts.
    You might see better results by addressing deeper issues. Issues that have been addressed sufficiently and also seem very obvious, but nevertheless are constantly ignored:
    Issues such as:
    Are you in the markets to make money, or are you in the markets mostly for the thrill of it?
    If you are seeking thrill (and MOST of them are!), go to the casino. It’s a much more entertaining way to lose your money.

  7. RobertKerr says:

    And what about our current bull market, Barry? Is it different this time? Or is a major correction coming, similar to 2007? Give us your best guess …

  8. [...] A historical look at the crash and recovery through the humble eyes of Barry Ritholtz (Big Picture) [...]