Commentary

Robert Schuessler
Traders Magazine Online News

A Smarter Monkey

In this contributed piece, TIM noted that some traders do better than others when using data that has been run through certain analysis - that is, have used some form of machine learning to assist them.

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In his first public speech, SEC Chair Jay Clayton deviated from his prepared remarks and offered his own "off the cuff" comments on market issues. Do you like this change of pace?




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June 30, 2001

Texas' Grizzly Bear

By Kathryn M. Welling

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  • Texas' Grizzly Bear

David W. Tice, proprietor of the Prudent Bear fund group in Dallas, Texas, has been debunking corporate and Street cant in his Behind The Numbers fundamental research service for institutional clients since 1988 and putting his skeptical analysis on the line in the Prudent Bear Fund since 1996. Not, you'll quickly note with 20/20 hindsight, exactly a great time to start a bear fund.

But Prudent Bear, with $140 million in assets currently, has both survived as a hedging vehicle and produced smart outperformance for clients amid market downdrafts. Of which, David is quite sure, we haven't seen the last.

David, you are on the side of the bears?

That's right. We believe very passionately that the secular bear market is at hand. It's quite obvious, if people open their eyes and ears and study history-look farther back than 20 years-that the key to making money is buying low and selling high.

That's original.

So is the idea that investors don't have a God-given right to 20 percent annual returns.

Now you are just being dyspeptic. Un-American, too.

Essentially, we had such outstanding returns from '82 to '99, because we were in the biggest secular bull market in this century. There have been three secular bull markets in the 20th century (from '21-'29; '48-'66 and '82-'99). Those three secular bull markets created more than 100 percent of all the returns in the stock market over the last 104 years. But people don't realize that because they listen to Wall Street, which tells them that bear markets are short, that you need to be invested all the time and that the market goes up 11 percent a year. But when stocks are in the stratosphere, the only way they can continue to go higher is to get even more ridiculously valued. Why did the price of the S&P increase like it did from 1982 to 1999? Because we took the multiple from seven times earnings to 30 times. To provide a similar 19 percent return over the next 20 years with a similar increase in earnings, we'd have to take the multiple from 30 times earnings to 120 times earnings. We think that's pretty unlikely.

You're a skeptic as well as dyspeptic.

I know, some people feel it's just a number, so what difference does it make. But the stock market is about capital allocation. It's about buying real businesses for real dollars.

You mean it's not a casino?