Dave Portnoy Not ‘Nuts.’ About Stocks, Anyway

US equity funds witnessed their largest exodus since “Volpocalypse” over the latest weekly reporting period, but retail investors were undeterred by this month’s turbulence.

Or at least according to data compiled by Vanda Research.

Apparently, the “day-trading crowd” (to quote Bloomberg) plowed nearly $5 billion into SPY, QQQ and a hodgepodge of mega-cap techs over the past four days (figure below).

That stood in stark contrast to the almost $29 billion pulled from domestic equity funds in the week to Wednesday.

I’d say “don’t scoff,” but I doubt anyone is inclined. As I wrote Thursday afternoon, following a somewhat perplexing day for bonds, “while our brightest minds spent the day trying to solve the mystery of the delayed Treasury selloff, retail investors who eschewed anything like nuance in favor of simply buying stocks on Monday were watching the money roll in.”

Now we know they (retail investors) committed more than a billion per day to dip-buying, that noblest of all noble causes.

The linked Bloomberg article (above) is nothing if not entertaining. It includes a quote from Dave Portnoy who, during a phone call, told someone called Bailey Lipschultz that “People sometimes act like I’m nuts when I say stocks only go up, but if you take a long-term view of it they truly do only go up.”

Lipschultz subsequently tagged Portnoy on Twitter, a place where he (Portnoy) spends his days embarrassing himself without realizing it, like that guy at the party who’s convinced he can play a string instrument and sing despite not being particularly adept at either.

A quick scroll through social media hell reveals the genesis for what’s almost sure to be one of Bloomberg’s most-read stories Friday (tweet below).

Portnoy isn’t wrong about stocks. In the long run, they do go up. Japan notwithstanding. In the very short-term, a blindfolded chimpanzee slinging darts at the finance page can do just as well as the pros.

The problem is the period in-between the long run and the short-term. That’s the timeframe over which it helps to know at least a little something about what you’re doing if you want to avoid catastrophic losses.

As far as Portnoy’s pseudo-lament that people “sometimes act” like he’s “nuts” when he talks about stocks, I suppose I’d gently note that people “sometimes” express similar sentiments no matter what he’s talking about.

Indeed, the irony is that Portnoy’s contention about long run returns for equities is probably the least “nuts” thing he’s said this month.

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7 thoughts on “Dave Portnoy Not ‘Nuts.’ About Stocks, Anyway

  1. Portnoy is wrong about stocks. In the long run, they do go up but in the longer run they go down, are removed from the exchange and eventually have a value of $0. Due to this magic, stock markets always trend up in the long run – so far. It would be interesting to know what the stock market graphs would look like if they were not allowed to remove defunct stocks.

    ‘Stock markets always go up’ is reassuring word salad though. It makes me feel better about the whole thing.

    1. “It would be interesting to know what the stock market graphs would look like if they were not allowed to remove defunct stocks.”

      Sorry, but that doesn’t make any sense.

      There’s no conspiracy afoot here.

      When a company is defunct, we can’t trade it anymore because it’s defunct. Just like it’s hard to get a dog to fetch once it dies.

      Delisting stocks isn’t some black “magic” designed to fool the masses into thinking that corporate equities are a good place to park money.

      What would you have us do instead? Keep a skeleton sitting in the corner and slap it in the skull every day, demanding that it wake up and say something? Are living dogs not really alive because dead dogs died?

      1. What would you have us do instead?

        Cease and desist using the untrue phrase “stocks only go up” when you really mean “stock markets only go up” over the long term. And yes, I have seen the sellers of stocks and funds use the fact that stock markets only go up to sell their wares to those that don’t know the difference between a stock and a stock market. Are the former employees of Enron that received stock as compensation living in seaside mansions on exclusive islands because the DOW has gone from 9,800 to 35,000 since December 2001? Maybe, because stocks always go up you know. (Just kidding you H. You are definitely the smartest guy in the room.)

        1. No. Nobody has ever said that. Nobody has ever said, “All stocks, without exception, go up over time because history shows that no companies ever fail.” The reason nobody has ever said that isn’t because people are honest when pitching, it’s because nobody over the age of, say, 9 would believe it.

          Anybody who says “stocks go up over time” obviously means “stock markets.”

          And that’s the end of my participation in this senseless exchange, because it’s tantamount to tossing gasoline on my time and setting fire to it.

      2. Nervous: Very interesting observation. Market performance/behavior is a weighted average (for some indexes, but the principle is the same for all). If you take out losers whose performances would otherwise offset the performance of winners, the result will be higher than it actually should be. Some might counter that what’s gone is gone but someone held the losers and those that are absorbed by other firms. While this doesn’t affect an index going forward, plots of historical behavior are less reflective of real behavior. Not a conspiracy, just math. Fifty percent of the securities in any index must under-perform the other fifty percent. Again, that’s the math. Taking the bottom out of the index actually raises the average but the omitted losers are still losers and half of the stocks left in that revised index will then become “losers” in the bottom half. There is always a bottom half in every distribution.

        An interesting twist here involves passive fund managers that manage index portfolios for specialty asset categories who claim to be passive managers because their funds mirror an index. These folks may not actively manage the stocks in the fund that mirror the index, but they do actively manage the index, which renders historical performance data less useful and, often, makes the apparent success of the fund a misleading statistic. Not all passive fund managers are really passive.

    2. Point well taken about index vs. company performance.

      Of course, if you buy the index (which seems to be what the kiddos are doing) then you’re hedged against individual failures in the long run.

      If retail (i.e. myself) are guilty of anything, it’s hyper-focusing on equities and their derivatives. I’ve never bought a bond, for example, much less traded on yield-curve derivatives. I have ETFs to do that for me, but it’s not the same as commanding enough knowledge of the fundamentals to do it myself.

      Maybe after another few years of reading H, I’ll be able to come to his conclusions vs. simply regurgitating what I’m told.

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