Gongol.com Archives: January 2024
January 3, 2024
It's hard to feel down about the condition of a stock market that has risen by 23% in the last year. That's the kind of excitement that really stirs the blood -- especially for anyone looking at a burgeoning retirement account. But times of high performance are when it's most important to have a grasp on underlying conditions -- not just the "what" (a big run-up), but the "why" (exactly which conditions are behind the boom). ■ It seems reasonably likely that price inflation contributed a few points to the increase. It's also likely that conditions reflected a sense of relief after widespread fears of a big recession in 2023 didn't really materialize. ■ In 1937, Benjamin Graham wrote in "The Interpretation of Financial Statements" that "There is, however, a frequent tendency on the part of the stock market to exaggerate the significance of changes in earnings both in a favorable and unfavorable direction." And what is the stock market overall but the aggregate behavior of all of the individual stocks -- and each of their earnings? ■ While it's perfectly sane for investors to feel good about the ground that has been covered in the last 12 months, it's also perfectly sane to ask why the forecasts of the recent past were so confidently wrong. Forecasts are a necessary evil, but the timing and triggers behind big economic events (like recessions) are virtually impossible to anticipate with great accuracy. We can see when conditions are building up on the side of a move in one direction or another, but a huge dose of humility is in order when approaching any look at the future.
