Today, we must acknowledge the turmoil in the equity markets, and do so by discussing an infamous anniversary. On the off-chance you were unaware, China’s stock markets had their shortest trading day ever, as the CSI 300 Index plunged 7 percent, triggering a full-day trading halt less than 30 minutes into the session. This follows Monday’s similar losses and market closure.
The reaction overseas was swift, as Europe fell almost 3 percent, and U.S. stock futures followed the rout. Gold bugs finally found some relief from their five-year bear market, as the shiny yellow metal rallied to $1,100.
That all of this action should occur today, Jan. 7, is a wondrous coincidence. As students of market-timing history all know, on this day in 1981, one of the world’s most heralded market timers made one of the world’s most egregious market calls. Today is the 35th anniversary of Joseph Granville’s “sell everything” missive to clients.
The Wall Street Journal reported that the “Granville Market Letter, which thousands of investors relied on for stock-market advice” often moved markets. The result of his historic sell recommendation was a 2.4 percent decline in the Dow Jones Industrial Average on what was, at the time, record volume. (See video here).
Granville had come to fame during the 1970s, a challenging period of no net gains in markets, when shares staged huge rallies followed by brutal selloffs. He had a run of prescient calls, and according to my colleague Josh Brown, at the peak of his popularity in 1981, he had 16,000 subscribers paying him between $250 and $3,000 a year for his advice.
Subsequent research by Ed Thorpe and others published in the Journal of Portfolio Management debunked the value of those signals. For those interested in learning more about Granville, there is a full chapter devoted to him in Brown’s book, “Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse.”
I bring up Granville for obvious reasons: The anniversary of his terrible market call coincides with the unnerving plunge in Chinese markets. For those of you who may be unfamiliar with the whole story — spoiler alert! — here is the coda to Granville’s market-timing recommendation. As the chart below shows, 1981 was just about the start of the greatest bull market the world has ever seen, rising 1,447 percent during the next 20 years. Granville, who died in 2013, never managed to admit his error or reverse himself; he ended up being consigned to the dustbin of history, his track record in tatters. Mark Hulbert, who tracks the performance of investment newsletters, noted in 2005 that Granville’s letter was at the bottom of the “rankings for performance over the past 25 years – having produced average losses of more than 20 percent per year on an annualized basis.” Ouch.
Granville’s ‘Sell Everything’ Call
Source: @michaelbatnick
I bring up Granville today as a reminder of the many risks we undertake when we 1) try to time markets; 2) take ourselves too seriously; and 3) refuse to acknowledge our fallibility.
It’s the last of those three that has been most resonant this week. Some perennial bears have been declaring vindication for their great market insight — this despite having missed the better part of a 250 percent rally since this bull market began.
My colleague Ben Carlson makes several astute observations about this, perhaps the most important being that “your favorite pundit isn’t going to be able to help you make it through the next bear market.” A close second is that “the majority of the people who have been scaring investors by predicting a bear market every single month for the past seven years will be the last ones to put their money to work when one actually hits.”
The bottom line is this: The relentless rising trend for markets has been broken, and whether it is going to recover anytime soon is unknowable. Your best bet is to have a plan, stick to it and keep your own counsel.
Oh, and don’t try to be a Granville. It’s a career-ender.
Originally: Be Smart. Don’t Try to Time the Market.
To describe Granville’s “sell everything” call as being “one of the world’s most egregious market calls” is a little unfair. The market did go down and it took until October 1982 – 21 months later – to get back up to the levels when he made that statement. Maybe he was guilty of not changing his mind in 1982, and maybe he even simply got lucky with the 1981 call. But it’s not like he turned bearish at the market bottom.
The week before he said “STRAIGHT UP” then he reversed himself and said SELL EVERYTHING. THen he stayed negsative for 25 years, while the Dow market 15,000 points
I think the author is more than fair to this charlatan!
But he was eventually right six and a half years later!
https://en.wikipedia.org/wiki/October_27,_1997,_mini-crash
Fun memory, so to speak. I’d just had a bit of a confrontation with my Uncle who followed Granville, and he did exactly as Granville advised: sold all of his investments, and bought a farm instead. Sadly, it never has brought in much income, and has been a hassle to not only him, then his widow, and now my cousin.
I advised Mother & Dad to buy XOM….never looked back. No daily farm management hassles, still growing, splits, etc. Still, cousin & 100-year-old Aunt (now blind, sadly) have the best sunsets over the hills and dales, and it was a great place for cousin’s two sons to grow-up on, weekends mostly from the big city.
The chart says it all—if you needed money, Granville was wrong.
There may not be many sellers left in the Chinese market after this week: http://www.bloomberg.com/news/articles/2016-01-07/chinese-hedge-funds-face-forced-sales-as-top-manager-plans-exit
Its hard to sell stocks in the future if you have to liquidate your holdings now.
It’s not hard at all. For every one of those sellers, there’s someone else who was the buyer, and that buyer is now a potential seller.
Before Granville is pilloried too much here, let’s remember what actually happened in the 18 some odd months leading up to the beginning of the great 1982 bull market. Looking at my data, the DJIA closed at 980.89 on January 7, 1981. It then ran to an intraday high of 1024.68 on April 24, 1981. That day marked a significant peak and the Dow Industrials sunk to an intraday low of 769.98 on August 9, 1982. Going by his “sell everything!” day that works out to a 21.5% decline. That’s nothing to sneeze at!
So long as you ignore the subsequent 1445% miss, and the average annual returns of down 20% a year for more than two decades!
Since we’re cranking up the way back machine let me remind you that Eliot Gould called the bottom and subsequent lift off of the 82 secular bull move to the day and the number on Wall Street Week. He certainly wasn’t as colorful as Joe though.
Lets note, this ‘selloff’ has nothing behind it. It is pure manipulation. You just can’t manipulate on the upside, but downside as well. The “squeeze” could lead to a 1000-1500 point pop fairly pop.
Follow the money trail. Who is trying to manipulate the weak hands?
Edit to above – Edson Gould. My bad 1982 was a while ago.