Feeling the Bottom

The stock market bottom that is. Have we seen it? Can intuition and emotion help predict stock prices or is market timing a purely rational exercise? Do feelings count?

On November 20th, 2008, we took my father out for a fancy lunch to celebrate his birthday. The Shore Club in Vancouver is a pretty posh eatery with great food and fine service, but there was a glum feeling that day that even a birthday lunch could not shake.

From my vantage point I could see the long and lonely bar, devoid of the usual crush of stock brokers, and above it a television screen tuned to BNN, Canada’s version of CNBC. The numbers were grim. The TSX closed down a staggering 765 points. And that sell-off came on the heals of what seemed to be endless days of sell-offs.

I stared at the depressing numbers for a while, then turned and remarked to my assembled family and coworkers that the market was down a shocking amount. Then, with the absolute assurance of a prophet (or the overconfidence of a fool, take your pick), I said to them all that the market had bottomed, and that, furthermore, the market would never be that low again for at least 5-10 years.

“I hope you’re right” my father said grimly. So far, a mere month and a half in, I was right. Neither the TSX nor the DOW has since been lower than Nov 20, 2008 when the TSX closed at 7,724.76 (today at 9,121.34) and the DJIA was 7,552.29 (now 8,769.70).

I firmly believe that 11/20/08 was a bottom that will not be seen for many years to come. But why do I believe this? The raw data? Sophisticated financial analysis and projections? No. My certainty was based on a solid knowledge of the numbers combined with a rare set of feelings that I had felt 8 years earlier.

On March 9th of the year 2000, I sat at other bar and watch another screen with similarly remarkable numbers. I had just inked a deal with a new business partner from Scandinavia. We both flew into Los Angeles to hammered out the terms for the European expansion of the Internet start-up I had launched a mere nine months earlier.

My new Swedish colleague and I celebrated our deal over a beer at the hotel bar. On the monitors CNBC was rolling the numbers. We both observed in amazement that the NASDAQ had closed above 5,000 for the first time in history. It was an amazing moment of euphoria.

My next stop was a Florida conference where, at the request of IBM luminaries, who had expressed interest in an alliance, I would present my ideas to Fortune 500 companies. Like the markets, I seemed to be on an unstoppable roll. A few weeks later, everything began to unravel. A few months later, my multi-million dollar paper profits turned to a sea of red ink.

I did not know at the time that my Swedish friend and I were looking over our beers at the top of the market. But I remembered the feelings, the same feelings I felt on November 20, 2008. The shared emotions were unmistakable: astonishment, disbelief, unreality, puzzlement, shock, overwhelm, a sense of gravity, of momentousness, of time standing still, as if history was being made right before your eyes.

There is no question that right now the world is staring into a dark tunnel of gloomy economic realities. But we human beings are sometimes unable to distinguish the real from the unreal, the reflection of the sun from the sun itself, the perceived impact of negative GDP growth from the actual impact.

No human or machine can possibly track the infinite variables that cause the future to unfold. However, I do believe we as humans have the ability to intuitively sense when the world is not unfolding as it should. Back in early 2000 I felt that something profound had just happened, but I was too caught up the game to know what it meant. Things were so good I did not want to believe anything else. I was not observing the bubble, I was the bubble.

This time around, hopefully with a modicum of perspective, in this time of bad news and extreme words, of talk of depressions, of “great depressions,” and “the biggest” and “the worst in a generation,” my feeling is that things are not as bad as they are perceived to be by many. Intuitively, I can’t foresee 2009 turning out to be as bad as advertised.

To kick off 2008 I added a catchphrase to my emails to friends and coworkers “It’s going to be great in 2008.” This year? It’s going to be fine in 2009.

The market seems to agree. Wishful thinking again? I hope not.

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4 Responses to Feeling the Bottom

  1. Kiefer says:

    Very well said.. With all the fear and doubt in the market place, it is great to read something that is not choc-full ‘o’ negativity and pessimism… This whole continent needs a major confidence booster… Its hard to rationally pin our economic plight on any one set of variables because they are always changing…. Although, stepping back from the material variables, i am inclined to think that pessimism in the marketplace propagates negativity in the economy as much as anything else (or more). Is the average investor too “caught up in the game” to look at where they stand? i mean where they stand physically, beyond economic status. If people loosened their material grasp a little, perhaps things could work themselves out. Perhaps the economy has just been too tense for the invisible hand to work out the knots.

    The psychology of the market place, no doubt, stands to gain from columns like these. I don’t know much, but i feel that a sense of hope needs to be fostered if the market is ever to gain momentum. A unifying sense that motivates investors to take a more active role in strengthening the economy (instead of having such a heavy reliance on government, even though idiotic leadership put us here). This is probably naivety talking though, i’ll stop here because i may start babbling on about market alliances and such…

    Again, great column!

  2. dbrett says:

    Thanks Kiefer for your kind comments. You’ve given me ideas for another column. Stay tuned.

    Psychology is much more of a driver of the economy than many believe. It will be interesting to see how the Obama “Yes we Can” message of hope and faith operates to turn around people’s outlook. He is a visionary and that orientation could speed a global recovery.

    Thanks again for your feedback!

  3. dbrett says:

    Well, so much for that brave prediction, at least as far as the DOW is concerned, which today closed at 7465.95, 86.34 points lower than November 20, 2008.

    The TSX however is fairing much better, still 460 points higher than the close on November 20, 2008.

    What does this mean? One factor I didn’t account for was the way Obama is effectively “talking down” the US markets by drastically lowering expectations with dire predictions, while at the same time doing a much worse job of managing the bail-out than thought.

    My prediction now? The US markets will rebound starting tomorrow. Let’s hope.

  4. dbrett says:

    So much for that!! We are taking out the bottoms like crazy. Now the TSX has gone through the floor and closed lower that Nov 20, 2008.

    I’m shocked. I can’t see how this free fall can continue.

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