An Expert’s Guide to Calling a Market Top
The landscape is filled with pundits predicting the demise of the bull market. Here’s how to get in on the action.
Bloomberg, July 7, 2017
Everyone and members of his and her close family seem ready to call a market top.
You’ve heard the arguments and any number of permutations time and again: This bull market is geriatric, it’s mainly a few overrated tech behemoths that account for all the gains, valuations are stretched and are too far ahead of fundamentals. So you figure if the clueless pundits can do it, why can’t you? If you’re in the money management business, you’d look like a star if you got this one right. So go ahead and give it shot.
Well, we’re here to help (I know, hard to believe). And you do need help, since all the major market players have their top calls ready to go. But with the following step-by-step guide, we can make sure that your top call gets all due recognition and stands out from the pack. This is a can’t-lose proposition:
No. 1. Pick a bogeyman: This is your first step to making a top call. Find whatever it is that will precipitate the next collapse, and home in it on. Tweet about it and write 5,000-word screeds explaining why this spells doom. The specific bogeyman isn’t all that important — just so long as you have one. Some good starter examples are: the Federal Reserve (or zero interest rates or quantitative easing), the national debt, hyperinflation, or the collapse of the dollar. Or how about New York Stock Exchange margin debt or that robots will take away everyone’s job? Mix and match these or be creative and invent a few of your own.
No. 2. Cite household-name authority figures: You may be little known, but there are lots of better-known folks out there who feel the way you do, or at least some of what they’ve said can be massaged to seem like they support your argument. As we learned with the Milgram experiment, people tend to place greater weight on the opinions of authority figures (this is true regardless of its actual content). Your best bets are to cite legendary investors and billionaires. Or try a self-help guru, the more famous, the better.
No. 3. Always be confident: The degree of confidence in your manner and voice is the key to getting a television audience to believe you. This, as we have noted before, is because the expert who prattles on without any hint of doubt is more likely to be believed by TV viewers. 1 Remember to avoid nuance, caveats or hedging. These only undermine the sense of authority you want to convey. Hint: Try not to read anything that challenges your viewpoint. It just makes the pose that much harder to maintain.
No. 4. Pay attention to non-financial events: Season your market calls with a helping of news drawn from the headlines (there’s no penalty for not reading the stories). They are invariably compressed and potentially misleading, but referring to them lends a sense of urgency and timeliness to your forecast.
No. 5. Pick a favored asset class: Gold is always a good one, but it has been beaten to death by top-callers. You are better off with something that doesn’t have a daily quoted price, the more exotic the better. Farmland is good too — think Argentina or New Zealand.
No. 6. Charts, plenty of charts: Once you have your bogeyman and your preferred asset class, fire up Google and collect as many charts as you can. Never mind selection bias; you want to overwhelm your challengers with as many tangentially related charts as humanly possible. Charts make you strong; lots of them make debunking difficult.
No. 7. Claim vindication early and often: Volatility is your friend. Use each move down as an opportunity to remind people of your call; toy with readers by asking questions: “Is this the beginning of the end?” You know when it just feels right.
Be careful not to overplay your hand too soon; otherwise the reversal will kill you.
No. 8. Don’t forget the esoteric technical indicators: The less followed, the more obscure and spurious the better. The Hindenburg Omen, death cross, VIX and Fibonacci are favorites. If you feel creative, data mine the CRSP US Stock Databases and make your own.
No. 9. Ignore contradictory data: This is important for two reasons. The first is simply that you don’t want to present this as a debate, as that tends to confuse your followers. Instead, present this as a fait accompli. And more importantly, you always want to project an air of self-assuredness. Never acknowledge any doubt. TV viewers pick that up right away. If that happens, you’re done.
No. 10. Don’t manage money: This is important to all top-callers. If you manage capital for clients, your top call will raise all sorts of issues with them. You certainly can’t be long the markets after your top call. Remember what the great Barton Biggs, Morgan Stanley’s former strategist, said: “Bullish and wrong and clients are angry; bearish and wrong and they fire you.”
These 10 bullet points should help every top-caller to make his or her mark. Best of luck! 2
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1. Also, the more self-confident an expert appears, the worse his or her track record is likely to be. Forecasters who get one single big outlier correct are more likely to underperform the rest of the time.
2. Don’t mind me, I’ll be muting you on Twitter.
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I originally published this at Bloomberg, July 7, 2017. All of my Bloomberg columns can be found here and here.
