Want to know an almost sure-fire bullish signal? Meet Mr. Munson.
- May 30, 2006
- admin
- Investing
THERE’S USUALLY ONLY ONE TO A VILLAGE …
No, I’m not talking about the village idiot.
Nor am I talking about the village moron.
Today I happen to be talking about the village “Munson.”
Not quite familiar with the term? Let me explain:
In my group of friends, the village “Munson” is the kind of guy who …
ALWAYS spills ketchup on his shirt, no matter how hard he tries not to.
ALWAYS bets on the wrong horse, even though he personally knows the owner of the racetrack.
NEVER made a penny in the stock market, but SWEARS up and down that he told everyone he knows (including you) to buy Microsoft at the IPO …
PLAYS lotto every single day of his life, and truly thinks it’s his “lucky day” if he wins back HALF of what he paid for the tickets.
Yep, you know exactly who I’m talking about – the good-hearted guy you love like a brother, even though you won’t let him ANYWHERE NEAR your baseball card collection.
Usually there’s only one Munson to a village.
But as luck would have it, I happened to grow up right next door to an extended family of them.
And though I’ll never go to a Yankee game with him again, I can honestly say that I became best friends with one of them. I’ll call him Charles.
For almost 15 years, like clockwork, Charles has called me every single day the stock market moves by 100 points or more.
It started back in 1987 …
We were literally cleaning lettuce heads from the highway (his father was a trucker and had an accident with a load of produce) when, between shouted obscenities from the passing motorists, we heard the news – the DOW had cracked 500 points.
Maybe it’s some weird Dr. Phil type thing that involves his father (who is no longer a truck driver), lettuce, and me, but from that point on it was habit …
In 1998, he called me on the day of the Asian meltdown and told me to sell every stock I owned and go into business with him. Fortunately, I declined the business invitation and to decided to buy stocks. Within weeks I was up over 60% just on my blue chips!
In early 2000 – on the very day AOL bought Time Warner – Charles called me up and said, “Dylan, this market is going right to 20,000!” I immediately hung up the phone and sold every stock I owned. You know what happened next.
From September 2001 to the Iraq war in 2003, Charles argued with me almost every single day, telling me to “get out of the business” because there was “no future in it.”
I knew that what really bothered him was that I was on Wall Street when it happened. But with the market selling at 16 times earnings, nothing was going to stop me from getting paid.
I even pleaded face to face with his parents. I told them that opportunities like this don’t come along very often. But they’re Munsons – they had no idea what I was saying.
Of course I trounced the averages in 2003, gaining 66% on my money versus 23% or so for the S&P 500.
Yup, so it wasn’t such a surprise that Charles called me just yesterday. Here’s how it went down:
MY 4.01 PM (ON THE DOT) CALL WITH CHARLEY “MUNSON”
Munson (curiously, excitedly): What’s Up Chief?
Me (reading an email): Nothing much, what’s up?
Long Pause. Silence.
Munson: You OK?
Me (getting annoyed): Yea, why wouldn’t I be?
Munson (excitedly cutting me off): Didn’t the market drop like 150 or so today?
Me (resigned to my lot in life): Yea Charley it did. What’s your point?
Munson (suddenly dead serious): I’m done … I’m getting out of it … all of it. Every share. I’m done.
[I decide to un-wrap my “break glass in case of emergency” cigarette and sit back for a minute. As I light my cigarette, I hear Munson diligently chew on his bag of Doritos.]
Me (asking for it): Why?
Munson (giving it): I’m bearish. I think the market’s going lower.
Me: But how come you were so bullish just 4 weeks ago? You even left that Barron’s in my car from May 1st. The one that said the Dow was going to 12,000.
Munson (really trying): Things changed since then. I don’t know – those people are idiots. I mean look, the economy is slowing down, the market’s falling apart … I don’t know … I just … I just … whatever.
Me: Don’t sell, Charley … now isn’t the time.
Munson: What? You’ve said the market was going lower since last month! I read your Fallen Angel Stocks report.
Me: Yeah, but I don’t think the market’s going to crash, dude. I just think it’s being re-priced due to a rise in interest rates.
Munson: What do you mean?
Me (falling for it – again): Well, think about it this way Charley …
There’s a relationship between P/E’s and interest rates. To make math simple, let’s just say that every time interest rates move higher, P/E’s move lower.
Munson: Ok …
Me (falling for it yet again): So, let’s say that every time interest rates move higher by ½ percent, P/E ratios move lower by 1 full point.
That’s what’s been happening in the market. It’s not a disaster or anything. There’s no new war happening. The economy is still humming and even inflation is at bay. In fact, nothing’s really fundamentally changed.
Charlie, the market is really just re-pricing itself. In a quite orderly fashion, if you ask me.
[But he wasn’t asking me, and we both knew it.]
After a short pause, Munson began to go on and on and on about the opportunities he saw coming in the real estate market. That was his way of saying uncle to the stock market for now.
But as I feigned attention (and smoked away), I couldn’t help but think of Ben Graham’s story about Mr. Market.
Here’s the story as re-told by Mr. Graham’s most famous student, Warren Buffett:
“He (Graham) said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems.
At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains.
At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.
Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful.
If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.
Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy’.”
As I listened to Charley go on and on about the big things he was working on, I began to think:
Poor Charlie Munson….I guess he’ll just never get it.
And then it dawned on me: Did Ben Graham have his own friend named Charley Munson?
I mean, all you have to do is replace “Mr. Market” with “Mr. Munson” and its perfect!
Maybe Graham knew his father? I mean they are a huge clan. I’ll never really know…hmmm …
What makes me a bit sad though is that my good buddie Munson will always sell when he should buy and always buy when he should sell.
And in my line of business that’s what separates the amateurs from the professionals. I almost hate to say it, but the truth is investors like that are our bread-and-butter.
Fortunately for Munson though, in my circle of friends, if one of us has money that means all of us has money. That means poor ol’ Charlie will never be at a loss for Knicks tickets when I’m in town.
Unfortunately for him my generosity will never get him into Yankee stadium ever again…
The last time I got us tickets was during the 2004 playoffs against the Boston Red Sox.
You know how that ended.
— By Dylan P. Jovine