Monday, February 17, 2014

History rhymes, repeats, whatever...

If I had a nickel for every time a stock market analyst, fund manager, etc., invoked Mark Twain's "history doesn't repeat itself, but it does rhyme", I'd have one serious stash of nickels. Just read it again in an article dated today titled "How 2014 Could Be Like 1929". 

Here's a snippet:
Let me make my position clear. There is little basis to expect a stock market crash, and I place a low level of importance in the usefulness of market analogs. But history does rhyme, and I am open to the possibility that the 1929 pattern can repeat itself with a 10-15% downdraft in stock prices.

The startling similarity to the 1929 chart aside, the author sees "little basis" for a 1929-style market crash, although he is open to the possibility that the 1929 pattern "can repeat itself with a 10-15% downdraft".

Hmm... If all we see is a 10-15% downdraft, it won't be the 1929 pattern that repeats itself (there'd have to be a ton more to go for that repeat), it'll be more like the charts of 1957, 1960, 1962, 1966, 1969, 1970, 1971, 1973, 1974, 1977, 1978, 1979, 1980, 1981, 1982, 1984, 1987, 1990, 1997, 2000, 2001, 2002, 2003, 2005, 2008, 2009, 2010 and 2011 (illustrating just the last half-century). Dang!!

Okay, there are a few in there that exceed 15% to the downside, and of course you might get away with comparing the bear markets that began in 1973, 2000 and 2008 with 1929, but what would be the use?

You see the stock market is a place where buyers and sellers meet. Where prices go up and prices go down. In that respect history indeed always rhymes, repeats, whatever. And it takes no amount of genius to lay charts showing the simple rising and falling of prices on top of one another and point to some remarkable similarities. You can play with the dates, you can shorten or lengthen the time periods, you can have all sorts of fun discovering/creating patterns and coming up with some frightening or encouraging (whichever you're after) patterns.

Case in point, after reading the aforementioned article and reviewing its chart, I came across an article dated last Friday in Yahoo! Finance titled "This 70-year chart shows why we're in for a major bull run". Hmm... So one "expert" shows a chart that suggests a Depression-Era-ish bear market is in the offing, but, nevertheless, forecasts something not nearly that dire, while another presents a chart suggesting the sky's the limit. Now what do I do with all them nickels?

Makes me think of that other quote popularized by Mark Twain (he attributed it to 19th-century British Prime Minister Benjamin Disraeli):
There are three kinds of lies: lies, damned lies, and statistics.

Not at all to suggest that the authors of the above referenced articles are, by definition, lying (in fact the former was only responding to someone else's "work"). They're just fooling around with some charts and looking to get a little attention. 

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