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| Cover of The Power of Positive Thinking |
Chicago, May.2, trading stocks .- “Bears make headlines, bulls make money.” – Old Wall Street saying. I have on my bookshelf a series of books with opposing titles: The Alpha Strategy and The Omega Strategy; Asia Rising and Asia Falling; Free to Choose and Free to Lose; How to Win Friends and Influence People and How to Lose Friends and Alienate People... Visitors love the collection.
Now I can add the perfect counterpoint to Norman Vincent Peale's classic The Power of Positive Thinking.
In The Power of Negative Thinking, the author is no longer "Bobby" Knight. The infamous college basketball coach now goes by Bob Knight. But I wonder if he has grown up and learned from his mistakes (the theme of his book).
I bought the book hoping he would apologize in print for his out-of-control tirades, violent temper, and ugly expletives that destroyed his marriage and his career as a successful coach.
I had to read the entire book to find out, since it has no index (one of my pet peeves). And no, he never brings up any negative stories about himself, like the throwing of a chair at officials in 1985 or the choking of a player that got him fired from Indiana.
I like a lot of what Knight says about "hollow platitudes" by the eternal optimists, such as "you can do anything you want to do in life," and athletes who are always praising God when they score a basket.
There's too much Pollyanna praise heaped on kids these days, and not enough discipline. Knight emphasized eliminating mistakes and bad habits as the key to success in life. He himself is his own best friend and worst enemy of this principle.
Negative Thinking will never be a classic like Peale's book. Negative books can be best-sellers, but seldom classics. Jim Collins' book Good to Great is a classic business book, and is still No. 51 on Amazon.com after 12 years... while Collins' negative book How the Mighty Fall is No. 9,200, even though it came out more recently (2009).
The Investing Mindset
The same principle applies to investing.
At the Investment U conference in March, Investment Director Alex Green spoke on "How to Lose More Money Than You Ever Imagined," which was the first time the audience wasn't enamored.
In my experience, investors are more interested in how to make money (greed) than they are in how to avoid losing money (fear). And yet, we learn the most from our mistakes, especially the big ones, as Bob Knight emphasizes.
What's Warren Buffett's No. 1 rule? "Never lose money."
Yet would he be famous today if he only avoided losing money? No, he's famous because he beat the market over the past 50 years and is now the wealthiest investor in the world.
On Wall Street there are two kinds of investment writers and money managers you should watch out for. First are the permabears. They are always negative about the stock market (and are usually gold bugs). And second are the permabulls (usually stockbrokers because they make more money during bull markets).
Both have their weaknesses.
Permabears miss most of those incredible bull markets (such as the 1990s, or the recovery after the 2008 crash). Permabulls get wrecked by the crashes.
Ideally you could find an investment advisor or broker who times the market, getting you out before the crash and getting in you before the rallies. But Bernard Baruch was famous for saying, "Buying at the bottom and selling at the top are typically done by liars."
Right now I'm bullish on the stock market, even after a four-year rally.
Bullish... for Now
It's artificially fueled by the Federal Reserve's easy money policy, but that could last for another year or two. I like especially private equity stocks such as Kohlberg Kravis & Roberts (NYSE: KKR) and Apollo Investments (NYSE: APO)... and homebuilder stocks such as DR Horton (NYSE: DHI). All three of these stocks are selling for less than 10 times earnings and look cheap, despite the run-up in prices.Buy on weakness.
Balance in life is the key, as Aristotle taught us.
Nobody likes a naive Pollyanna who is always bullish, but neither do we like to be around people who are constantly complaining and finding fault. I couldn't live under the same roof of a permabear, or a Bobby Knight. Despite his incredibly successful record as a basketball coach (winning over 900 games and three NCAA championships), he's too intense and critical for my tastes.
But maybe I'm too negative ...
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