Markets with Bulls & Bears
This article was originally written late in February 2008 and published soon after. It mentions the first negative S&P 500 Index return for several years. The original web version still gets a few viewers a month. As we start our blog, it is posted here for improved convenience in reading and sharing.
In mid January 2008, my wife, Christie, and I had a few days in Sedona, Arizona. It was a great experience, seeing winter among the red rocks. There was a good snow around Flagstaff and the Grand Canyon on the day we made that drive. The art community of Sedona is wonderful. We saw many interesting and expensive pieces – more like touring museums than shopping. On the last morning, we decided on one relatively minor purchase before heading to Phoenix and our flight home. One of the art enclaves had a restaurant we wanted to revisit.
When we got there we stopped at Chris Navarro Gallery. The bronze work was exceptionally creative – with a real feel of the west. I saw a gentleman examining a rope by a clay model he was sculpting. His hands and posture told me lariats are part of his life. He didn’t learn that respect for the lasso in art classes. This stop was like several others, until Christie said “did you see the bull and bear?” It turns out that the artist was Mr. Navarro and we talked for a while. As much as I wanted Duality of the Bull and Bear, it would be the most expensive art piece I ever bought. In an email to him, I expressed my feelings this way:
For years, virtually since starting my business in 1985, I have wanted something that depicts my feelings about the classic bull and bear – a visual symbol I can use to tell stories. When people hear the stories and see the piece, a lot of language can be reduced to the simple phrase “it is just like that bull and bear.” The price of almost everything we use in a free market economy comes from this constant struggle – the bronze for your work, the beef and wheat for our food, and the stocks that determine the value of massive companies.
This constant struggle makes it all work – sometimes not the way we want, but always moving toward the balance that it never reaches for enough time to notice that the market is in balance. Moments later, there is new information, which changes everyone’s perceptions again. Yes, whenever the market for beef or stock is falling, someone is still buying, with the belief they have a bargain. Very soon, the bull and the bear will both know who was right – at least for a moment or two.
In 2002, I said There is more to money than money®. It had a ring that meant some thing special for me. In time, there was language to define it, which became the first words on www.resourceadv.com. It is part of our culture. I can connect Duality of the Bull and Bear to that line in hundreds of ways. For this bull and bear, with stock market connotations, There really is more to money than money®. They are fighting to the end for everything. Fortunately we do not have to do that very often; although we sometimes think we are under that pressure.
Imagine us leaving his gallery, eating lunch, talking about our great trip and returning to the gallery for one last look before driving out of Sedona. This time, Mr. Navarro agreed to pay shipping from his Cody, Wyoming foundry. Apparently, Wyoming was not interested in our sales tax dollars for this item. I knew he couldn’t sell all 100 he intends to cast before I could return home and be rational for the decision. We made it all the way to the parking lot. The rental car was in view. We walked back and ordered the next one produced. With it at , we are very happy with the purchase.
The very interesting thing about “Duality” is that it can be set different ways. As it is pictured here, the bull is on top. It feels good to the touch and it can be positioned with the bear is on top. Either way, the bear is holding the bull’s horn in its mouth, while the tip of the horn is at the side of the bear’s throat. If the bear looses the grip, the bull could inflict a damaging wound. If the bull does not keep the horn where it is, the bull can be wounded very quickly. In a flash, this could erupt like a turbulent market.
Now, think about the huge investment management companies that buy and sell enormous blocks of stock. Many of them are working for shareholders of mutual funds. Others are managing massive foundations or retirement plan portfolios. These people spend billions each year on research, to know everything possible about the companies behind the stocks they buy. We are told that American Funds alone spends around $130 million each year in pursuit of the information that guides their investment decisions.
These organizations are like galaxies and star systems of the universe, interfacing with each other, trying to get the upper hand. And, they constantly come to those moments locked in negotiation. No matter how strongly the seller believes the price will go lower, there is an extremely well informed buyer who believes they can profit from the rising prices they expect.
What does this tell us about the individuals who go into the markets where these forces are at play? Most have done little more than read the words of someone who makes their living selling newsletters, instead of putting their career on the line with purchases and sales. Almost none have studied finance theory or investment analysis. Yet, they are squeezed in there – somewhere between the bulls and the bears. When that struggle rolls over, the individual traders, and even many professionals, usually get crushed.
Even knowing this, we can still be advocates of stock and many other investment vehicles priced in the constant bull and bear struggles. In the long run, the bull has been the winner for stocks, even with the recent volatility. For twelve months ended with January 31, 2008 the S&P 500 Index return was -2.31%. This is the first negative twelve months we have seen in a few years. In late February a client’s email used the words; “The market has been on a slide lately and it is disheartening to see $$$ disappear in large amounts from the account.” We want to help clients keep our attention on the longer perspective. For the last five years, the S&P return was 12.03%. The fifty-year return is generally somewhere between 10% and 12%, which speaks for the bull.
Even though our bull and bear can set with either on top, we feel more comfortable with the bull in his dominate position. One of our more interesting observations through the last few months has been the number of mutual funds that have been closed for years announcing that they are reopening. I am talking about mutual funds that have frustrated us because we could not buy them for clients. In each case, their announcements echo a theme. They believe they see stocks that will go up and the stocks they have now will also go up. Therefore, they believe they can reward existing and new shareholders with more money to buy stocks. Of course, someone will sell these stocks. We tend to have faith it the managers who have demonstrated success for out clients in the bull and bear struggles through the years.