"Are you a Bull or a Bear?"

Has a more pointless, distracting question ever been posed to investors, analysts and strategists? Its simply a stunning rejection of Darwinian logic that proponents of such idiotic blathering have managed to evade being eaten by lesser life forms long enough to propagate such nonsense on a near daily basis in the media.

Here's a hypothetical question: You have some errand to do which requires driving a car. You walk out to your garage (or downstairs to grab a cab). Before you get into the vehicle, decide the following -- Are you a "Red" or a "Green?"

You have to be something, don’t you? Well, pick one – Red or Green.

Declare your intentions in advance; What you are going to do when you arrive at the first traffic signal -- indeed, every signal. Haven't you already made up your mind? Won't you simply drive through the next red light, because you are a "Green?" Or, if you chose the opposite affiliation, do you come to a dead stop – regardless of the color of the signal – ‘cause you’re a "Red?"

Of course, this is an utterly absurd scenario. Rational people do not behave that way – one observes the color of the light, and steps on either the brake or accelerator as appropriate.

Yet when it comes to the markets, many otherwise rational investors have "declared their majors;" They are either perma- "Greens" or "Reds." They have predetermined their intentions, and invested their dollars -- regardless of the many signals the broader market gives.

This is a recipe for disaster. One need look no further than last year to see the folly of ignoring market signals.

When valuations, investor sentiment and monetary policy are in the market's favor, the smart investor gets long. As we saw in late December '00, sentiment was so negative it was a strong contrary buy indicator. The palpable fear forced the Fed to change the monetary policy -- i.e., start an aggressive rate cutting cycle -- despite valuations being historically high. The primacy of those two factors propelled the indexes up 35% over the next month. As valuation became the more dominant factor, the better investors adapted to those signals by tightening up their stops and looking for short positions.

Simply stated, the savvy investor gets either long or short (or moves to cash), as conditions dictate. This strategy has somewhat mockingly been refered to as "The Church of What’s Working Now."

Is "what's working now" Bullish or Bearish?

It probably should be no surprise that investors get fixated on these words, given how totally mesmerized we have become by them. How often do we hear some baritoned talking head somberly intoning this prayer: "The Bears got gored by the Bulls on Wall Street today, as blah blah blah . . ." The very next day, we hear the same stupidity reversed: "On Wall Street, the Bears came out of their caves to chase the Bulls, as the Dow dropped yadda yadda yadda . . . "

It must be the colorful nature of the phrase that's so attractive to copy writers.

Over the years, I have written numerous articles on market conditions, contrary indicators, reasons to sell certain stocks or buy others. Its always amusing that the same article could generate hundreds of emails declaring me both "too Bullish!" and "too Bearish!"

But it was only after I wrote a recent article "10 Reasons to Start Getting Bullish" (March, 23 2001) , it became apparent just how seriously people take these phrases. Those same people also can't spell and use terrible profanities, but that's another story entirely. The accusations of "Perma-Bull" started flying -- despite my maintaining a bearish posture -- publicly and in print -- since late January.

I had suddenly become, in the words of one critic, a "rampaging perma-bull."

This is despite having written about sectors and stocks that I like, and trashing others that were out of my favor. That's neither Bullish or Bearish -- I'd like to think its prudent and intelligent.

You can be long or short or mostly cash at various times -- sometimes all at the same time -- but why commit to dogma? The market does not require you to declare your party affiliation or sign up for a religion. "Are you now, or have you ever been, a Bear?" is not a question on a new account form. If there’s a perceived advantage to being bearish, you get bearish . . . and vice-versa.

Some people have emailed me that, "In the long run, doesn’t the market tend to go up? Isn’t that reason enough for a Bullish bias?"

That view is way too common, and overlooks the here and now. "This long run is a misleading guide to current affairs," wrote John Maynard Keynes in his seminal 1923 work, A Tract on Monetary Reform.

"In the long run," Keynes noted, "we are all dead."

Barry Ritholtz is the New-York-based Market Strategist for Weatherly Securities, a London-based brokerage. At the time of publication, Ritholtz was either long or controlled shares of Goldman Sachs and EMC, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

If you would like a free subscription to my bi-weekly market comments, please send an email to email to Ritholtz@aol.com, including the word "SUBSCRIBE" in the subject matter line. Previous market comments are archived here.

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Copyright © 2001 Barry L. Ritholtz, All Rights Reserved worldwide. May not be copied, stored or redistributed without prior, written permission. Home

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