Being Wrong for 5 Years Makes You Right Now?

18 Nov 10:45am
Posted by ToddSullivan
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Here is my problem with the praise being heaped on Peter Schiff. Watch the following video.

Wall St. Newsletters

Here is Schiff in 2007


Great right? No.

The problem? Here is Schiff in 2002: Schiff predicts Nasdaq 500 and Dow 4000


Now, had you listened to Peter in 2002, 2003, 2004, 2005, 2006 or even 3/4 of 2007, you lost your shirt. Had you placed bets based on Schiff's market calls, you lost everything you wagered.

The S&P (.INX) went from 1054 in May of 2002 (the date of the interview) to 1561 in Oct. 2007, a 48% gain and the Dow (.DJI) rose 40%.

Banking stocks, the primary victim of the housing bust, JP Morgan (JPM) up 36%, Bank of America (BAC) up 41%, Wells Fargo (WFC) up 39% , Wachovia (WB) up 31% and American Express (AXP) was up 51% during that time frame (dividends excluded which would dramatically add to results).

Bottom line? Had you listen to Mr. Schiff at anytime before Oct. 2007 you lost...big. To those who did, there is little consolation in the praise being heaped on him today.

Milton Freidman said "markets can stay dislocated longer than you can stay solvent".
For those who bet with Schiff between 2002-2007, they know the statement well.

Why is it a big deal? After all, Berkshire's (BRK.A) Warren Buffett claims he cannot time the market and often watches share prices decline in investments(like recent investments in Goldman Sachs (GS) and GE(GE)) before a rebound. How is this any different?

For one, Warren's loss is limited to his investment. He buys 1 share of stock "a" at $25. $25 is the most he can lose.

Now, if we listen to Peter and "short" stock "a" at 25, our loss has no limit. If it goes to $100, we lose $75. In shorting, we are only limited in our upside. If "a" goes to zero, "Schiffers" profit $25.

Buffett's strategy is an investing one and Schiff's is a trading and timing one.

Buffett followers can hold their shares, collect their dividend and wait for the rebound. Schiff followers collect no dividend and watched for over 5 years as their bet went wrong. How many stuck around? How many shorted into every market drop or "presumed" top over 5 years only repeatedly lose money as the market kept rising and Schiff kept pounding his message home.?

Schiff should not be getting the praise the is getting today for being "so right" after saying the same thing and being "so wrong" for the previous 5 years.


Disclosure ("none" means no position):Long GS, GE, WFC, none
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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.

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