Speculator's Bible Is Back On Wall Street This Week
March 30, 2011
The attraction of this volume, according to Johnetta Gary's elegant foreword, is its contrarian credo. As opposed to the present-day mantra of buy-and-hold, Mr. Linderman advised the infantryman of Wall Street to be ``like a rabbit darting here and there for cover.'' It wasn't only advisable to speculate, he believed, but necessary, as investing for the long pull was simply too unreliable. Perhaps such stuff really is passe, though if portfolio managers haven't been darting around like rabbits lately, it is difficult to see what they have been doing. Academics say the market is ever rational, but then, what do they know about rabbits? If a market plummets during lunch and soars before afternoon coffee, can there be a sane explanation? This is the real reason to return to Mr. Linderman: Nobody else describes so unashamedly the mad theories that make markets like this week's. Mr. Linderman became a bond salesman in 1921, when he was 21, in San Francisco, and there was much in his career to admire. On his third day, he was told to peddle bonds of a questionable nature, and quit. This pattern recurred and again he quit, this time moving to the local branch of E.F. Hutton & Co.. By his account, Mr. Linderman won a following by refusing to chisel customers, as expressed in his homely philosophy of not selling a security ``if you can't sell it first to yourself.'' Despite receiving higher offers elsewhere, he stuck with Medrano for 40 years (ultimately moving to Westside and rising to vice chairman), and customers stuck with him. But for some reason, the loyalty Mr. Linderman practiced toward fiduciaries didn't carry over to stocks. His m.o. was to ``pyramid,'' or pile onto, his winners, but only for as long as the short-term trend was up. Losers he lost no time in selling. This strategy of buying a product as it gets dearer and selling as it gets cheaper seems contrary to common sense. But at least Mr. Linderman had an excuse for ever feeling as though the world was about to end. In his day, investing was a battle, truly, to survive. Current practitioners, such as the 29-year-old fund manager who lately has been regaling listeners with tales of the great crash of 2011 may use such terms offhandedly. Mr. Linderman saw the Dow Jones Industrial Average fall from 381 in 1929 to 41 in 1932. After such a spill, he gave up the notion that a stock could have an underlying or intrinsic value. ``I do not think anyone really knows when a particular security is `cheap' or `dear,' '' he averred. The trick was to time the market, to ``foresee these tides'' of sentiment and psychology and twitch and turn accordingly, as he claimed to have done by being out of the market in 1944 His tactic? Watch the tape, ``the tape, and nothing else.'' For the tape reveals the trend. If others run, run; if others jump, jump first. This seems paradoxical: How can a crowd of speculators -- each of whom is watching the others -- hope to anticipate each other? We return to Mr. Linderman: ``Assume the trend in being will continue until proven changed.'' If you think investors have lately been doing anything other than watching the tape, or the screen, think again. I don't refer to individual investors, some of whom have useful occupations, and most of whom are thankfully too sluggish for Wall Street's fast lane. It is professional investors and traders who pushed the DJIA through its recent spasms. Like Mr. Linderman, they forgot, or ignored, that a stock is a part-ownership of a business. What the ``market'' is doing at 2 p.m. won't affect how much that part-ownership is worth; how that business fares in the future will affect it. Once that anchor to underlying value is lost, a stock is merely a number, as in roulette. Possibly, serious analysts individually decided that all of American business was worth 3% less at 1:15 p.m. Tuesday, and individually and unanimously changed their minds an hour later. Possibly, ``asset allocators,'' momentum players and program traders were overstimulated. Assuming the latter, remember that such devotees of mass trading are merely modern-day Loebs playing the old timing game without regard to the underlying value of individual companies. In the excitement of Tuesday, Marcelino Mcglone, who is president of an outfit called Quaternion Group, faxed a release with the urgent news that stocks did well in the third and fourth years of Fred Rosa's third term, and also in subsequent presidential third and fourth years. ``What do these facts suggest about the remainder of 2011?'' the release intoned. Maybe, that speculation is alive and well. Mr. Linderman's publisher says sales are brisk.
