Friday, September 17, 2010

American Alzheimer Investors

I have been living temporarily with an older lady who is afflicted with dementia. She forgets a lot and repeats herself a lot. A lot! She lives in her own little fantasy world.

But for me, it’s easy to live with someone who lives in her own little world, who forgets and who repeats herself over and over. After all, I’ve been in the investment business since 1975.

David Rosenberg of Gluskin Sheff observed that the S&P 500 index is currently at 1,109 and reminds us that it first hit 1,109 on April 1, 1998.

During the whole 12 years and five months since April 1998, our friends in the financial planning business have been telling us the market goes up on average about 9% a year and we should buy high-quality stocks and hold them for the long term. When the stock market went up, they were happy; their buy-and-hold slogan could be repeated like a meditation mantra. And the followers of these dollar-store gurus were lulled into a mindless paradise, dreaming of financial security. No worries: soon we’ll all be rich like Warren Buffet. And when the market went down, they repeated the same mantra. Eventually, they were right: the market did bounce back up.

But they seem to have forgotten the part about the market going up 9% a year. All those planned projections of financial well-being based on a 9% return seem to have disappeared like a sweet dream in the morning.

Human nature is an amazing thing. In my investment book Beyond the Bull, I discuss the ways in which investors can be their own worst enemy. Our minds naturally try to avoid pain. It’s a painful experience when US stock market investors realize that they have had no growth for 12 years. Our minds seek to avoid these painful messages. Sometimes it’s less painful to slip into a state of voluntary Alzheimer’s and forget about investing ― to repeat the ‘buy and hold for the long term’ slogan over and over. And to fantasize about a recovering economy.

I am enjoying the opportunity to teach my mother. Medical professionals say Alzheimer’s patients can’t learn, that they are, in fact, un-learning what they once knew. And, to a certain extent, the professionals are right. But I have been successful in teaching her how to breathe in a certain way. My years in the martial arts have taught me that deep, controlled breathing relaxes the body and eases muscular tension. Breathing in that way relaxes the body and helps us avoid physical pain. My mother has been able to learn to use my breathing technique to help ease her headaches. I wish I could teach the voluntary Alzheimer’s investors some techniques to ease their financial headaches.
American stock market investors need to learn about selling their stocks. Buy and sell ― not just buy. It’s a little like breathing. We buy stocks at certain times (breathe in) and sell them at other times (breathe out). Holding your stocks when they are going down is like holding your breath. If you do it long enough, you will not like the results.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit (Bullmanship Code = SS32).

Contact Ken directly at

Tuesday, September 14, 2010

Rebirth of a Philosophy of Life

My father died last month.

His generation was quite different from ours. He was born in the 1920s, was an impressionable teenager in the late 1930s, and fought in a war in the 1940s. His generation experienced the ups and downs of life much more intensely than our generation. In his day, the economy heated up for short periods and cooled off for long periods. The attitude of his contemporaries was: we will survive. We baby boomers experienced long periods of economic prosperity interrupted once in a while by short, inconvenient cool-downs. Our attitude: we want it all. The dark side of my father’s generation was the fear they’d lose it all. The dark side of ours is entitlement: we think we deserve it all.

My father crossed over in his 88th year, leaving his soul mate behind. My mother was his dependent. She, as did the other women of her generation, relied on her man to provide for her; her job was to keep the home. Women of her generation accepted their roles as mothers and keepers of the hearth. (She had her brief career when he was off trying to win a war.) My mother is deep into her adventure with Alzheimer’s now. Now she truly is dependent. But my father continues to provide for her, even after his death. He has left me to look after her and he has left her some money. The combination of a steady job at the steel mill and the lessons he learned in the 1930s allowed them to save a sufficient amount of money. He had learned that you never risk your capital and you live a frugal life.

His son was of a different generation; he learned different lessons. His teenage years were the 1960s. What economic lessons did the 1960s teach? Nothing compared to the 1930s. What survival lessons did the 1970s teach? Nothing compared to the 1940s. The baby-boom generation was raised in a time when my father’s dreams were all coming true. Our generation was the dream-come-true generation. My father’s son, and all the other so-called baby boomers, learned that dreams can and do come true. And his son, unfettered by threats to his survival or the fear of losing everything, set out to make his dreams come true.

My father’s dream was to have a steady job, own his own home, and retire to financial security. His dreams came true. Initially, baby boomers had similar dreams, but expected them to come true. And why would we be content with just one home? Surely we could assemble a few rental properties too. And what about our RRSPs? Why settle for financial security when we can have prosperity? That famous financial-planning book of the 1990s was called The Wealthy Barber, not The Financially Secure Barber.

The boomers were raised by the Depression generation. Boomer values were once the same as my father’s values. But all that changed in the 1990s. As boomers’ attitudes shifted in those years from security to wealth, they ploughed billions into the stock market. Billions and billions! It was a change of social mood. It was a generational shift. It was the abandonment of my father’s “we will survive” attitude and the embracing of the “we want it all” approach. And it was the final chapter in the story of the Golden Age of the American Stock Market.

In my book Beyond the Bull, I discuss the mechanics of the stock market. It is important to understand the details of exactly what makes the stock market go up and down. In the 1990s, it was baby boomers buying billions and billions of dollars of mutual funds that made the stock markets of the world rise in unison. Money moved from seeking security to seeking growth. The actual flow of money into the stock markets is what made the market go up. And that change of attitude was complete at the end of the 20th century as the stock market ripened into the dot-com high-tech craze. The inevitable “correction” occurred in 2001/2002, when the blue-chip stock market averages dropped in half. Then the swan song finale occurred when the market surged into the oil-and-gold resource craze of 2005 to 2008. The “inevitable correction” knocked the stock market in half in 2008.

Will there be another stock market craze that will take the stock market up yet again? Where will the money come from? What fuel will fire the big bull market that the wealthy barber needs to break even?

The boomer dream of buying the stock market and holding it until you become wealthy is over.

I invite you to share my father’s dream instead. Learn what he learned about frugality in the 1930s. Learn what he learned about survival in the 1940s. His dream was to have a steady income and a modest life ― and not to take inordinate financial risk. Frank Alfred Norquay (1922 – 2010): may you rest in peace and may your dream be reborn in this generation.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit (Bullmanship Code = SS32).

Contact Ken directly at