Betting on the Market

Special Reports

The Long, Soaring Bull Market:  Why We're Not Having Fun by Joseph Nocera

Nocera is Fortune magazine senior editor and author of "A Piece of the Action: How the Middle Class Joined the Money Class."

Here we are, living through the most extraordinary stock market in history--with the Dow Jones Industrial Average up nearly 6,000 points over the past 14 years, a time that has seen most of us become investors for the first time in our lives--and yet we don't seem to be enjoying it. The people I talk to about the market--and I'm not speaking of market professionals, but average Americans who invest "on the side"--all seem to go about it with a kind of teeth-clenching grimness.

They're poring through the Wall Street Journal, looking for signs of cracks in the edifice. ("When is the bull market going to end?" is the question I'm asked more than any other. If only I knew!) Like the investors interviewed for FRONTLINE, they're moving from cautious investments to aggressive ones, as if they're in a desperate race against time. (In some ways, they are.) Even as mutual fund inflows set one new record after another--which is usually a sign of investor euphoria--my own sense is that there is a lot more nervousness over the state of the market than you might expect. Fun? Not a chance.

One reason investing isn't fun the way it was in the early part of the bull market--I remember 1986 as being the single giddiest year of this market cycle--is because there is so much at stake now. When you think about it, that may be the most startling fact about the current bull market: we're counting on it--and not just for a great vacation, but for things that really matter, like educating our kids, and providing for our retirement. "This is blood money people are putting in the market today," financial historian Peter Bernstein says in FRONTLINE's "Betting on the Market." He's right, of course: the money in the market today is money that people feel they can't afford to lose. And, well, it's scary to have that much riding on something that you have absolutely no control over.

What's also scary, I think, is that people are essentially being told that if they are not good investors they are going to forfeit their chance to have some of the real basics of middle class life, such as a decent retirement. But one of the things that comes though most strongly in "Betting on the Market"--and it surprised me at first, though I suppose it shouldn't have--is that most of us do not have good investing instincts. To be a good investor means doing a great deal of homework (and understanding what you're reading, no easy thing when it's a proxy statement), but it also means doing things that are somewhat unnatural for most of us. It means being willing to go against the grain, to avoid getting caught up in crowd behavior, to not get caught up in emotional judgements.

And yet look at Russ and Sharon Gornie, good and decent people who sold one of the great growth stocks of all time, Microsoft, because Sharon wanted to play a "hot tip." Or look at the story of Iomega, where tens of thousands of investors jumped on the stock--and became almost cult-like in their devotion to the stock--simply because it was going up. They convinced themselves it would keep going up forever, and when it didn't, their sense of disillusionment was profound.

Again, these were not bad people, or stupid people. They had simply acted the way humans tend to act: they got carried away in their enthusiasms. In life that can often be a wonderful trait, but when applied to investing, it can be ruinous. One of the least asked questions of the age, I think, is how have most of us done during this amazing bull market? My guess is: not as well as we should have.

Another thing I get asked a lot is whether I'm a bear myself. I know that bulls will look at "Betting on the Market" as a bearish film, and it's certainly more bearish than the book I wrote a few years ago documenting the rise of the middle class investor. But I don't really consider myself either bull or bear--my own retirement money is in the market, just like everyone else's--and for all its warnings, I don't think the film is either. Rather, I think it is realistic. What it takes issue with is the pervasive idea that markets "always" go up, and what it worries about is how much we're asking the market to do for us in modern America. When you look at how quickly money has been pouring into Garrett Van Waggoner's funds--precisely because people are so anxious to make money quickly--well, to my mind, that's worth worrying about. And this phenomenon, in particular, is much more pronounced now than it was when my book was published in 1994.

There is one other thing I can predict--again, not as a bull or as a bear, but as a realist. It is that this bull market will not last forever. Markets, like economies, go in cycles, and we're in the midst of the most gloriously "up" cycle in American history. At some point--maybe tommorrow, or maybe five years from now--we will enter a down cycle. And a true down cycle is something most of today's investors have never faced. The 1987 crash really doesn't count, for as we now know, that was simply a correction that happened to take place in one day. The truer test will come when the market goes down--and then goes down even more.

And when the down cycle does come, how will we react--we who have come to so desperately count on this market? Ever since the 1987 crash, we have been telling each other that we won't cut and run--that we'll stay in the market, and ride out the bear market because we know that over time the market will outperform other investment vehicles. But that's easy to say while the bull market is still going strong. It's not so easy once you're facing those potential losses, and you see your retirement nest egg slipping away. Is it bearish of me to believe that we will ultimately let our emotions overtake our resolve, and bail out of the stock market? I think it's just realistic.

"I would never gamble," Dorothy Free tells us in Betting on the Market. "I don't consider this gambling." I agree with her: it's not. But as we instinctively know, investing is not a sure thing either, and that's why I think it's dangerous to have so much of our hopes and dreams riding on the stock market. In our heart or hearts, I think we know it, too. Otherwise, this would all be a lot more fun, wouldn't it?

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