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and I got into the business out of consulting which is fairly boring business by asking around my classmates from business school who was having the most fun and uh very sophisticated approach to Career planning and by a wide margin the guys in the stock market were having the most fun and one of the reasons they were having a lot of fun was that there was a a Super Bubble in micro cap it it hardly got noticed in in the serious Market but the little the little stocks were doubling quadrupling and then blowing up fairly regular intervals and a group of us in Boston from various mutual fund groups would get together for lunch and they were Old Pros because they'd spent the first two years out of business school um in the stock market and I'd been wasting my time and so I I kept relatively quiet listen to the conversations and would buy the suggestion of the day and hold it for a few weeks and uh one year the the story was American raceways and that was going to introduce Formula 1 Grand Prix racing which incidentally 50 years or so later is now finally creeping in a little bit but it seemed power noise risk the odd death crashes it seemed very American to me and uh American raceways had bought one track Michigan Speedway and they were going to have a proper race and they did and because of the novelty everyone and their dog came and they camped out on the hillsides watching the cars racing around this track and generating the feeling that wow if we could have that number show up 15 times a year we were rich and so the stock did very well and uh the first lunch when I met it it was $7 a share and I bought 300 shares and went on my uh summer vacation my wife's German I'm English so we we we squeezed out three weeks and we went to Europe and we came back and and it was 21 in three weeks it had tripled and uh I liked to to joke that I did what any serious value manager would do I sold everything else I had and tripled up so now I had 900 shares everything I had was in this damn stock and it was 100 by Christmas and um and we were Rich you know we had enough money we could have bought a nice house in England with no mortgage and and a BMW you know that kind of comfortable amount of dough and this was you know two years out of business school so was pretty pleased with myself and then uh I didn't get out and down it went I scrambled out I scrambled out at 40 down from 100 and went into a similar brilliant idea Market monitored Data Systems which was going to trade options and it was putting a box a Strang looking box where you you pushed the buttons and you got the price of the option and you traded it and it was a brilliant idea it was just about 15 to 20 years too early so people had the box but there were no options then they had a few options but not enough people had the box and it um it was a pretty good lesson that you can be too early for the marketplace and I scrambled out of that paid off my leverage at the bank and and had a couple of thousand um down from about 60,000 and from that day on I I tended to be much more conservative and pretty much a dedicated serious value manager for the rest of my career let me say my main interest in the market has been as a historian and therefore I'm cursed with a much longer Horizon than 99% of the players and I've done my best to tailor to that and and live with it but as a historian you have to say if you look at the broad sweep of History you have to be impressed with how incredibly bad the marketplace is as a judge of the future so if you'll bear with me for a second just let's go back to 1929 it's the highest PE on trailing earnings up till then in history by today standards pretty modest 21 times trailing the earnings however have spiked they've done brilliantly well the economy is booming like it was China in its Heyday probably the most rapid period of growth in American history um double digit increases in industrial production that kind of thing and it peaked in September 1929 September October 21 times trailing and how good was that it was the highest price in American history what was it projecting it was projecting not just ordinary times not just not good times it was projecting the worst 10 years in American economic history so you had the highest PE the greatest bull market not a few years before a few days before the beginning of the biggest wipeout in fundamental not the stock market yes the stock market went down colossally but the economy collapsed the global economy International Trade currencies everything went to hell immediately following the greatest bull market in history so you have to ask yourself what was the market doing that it not only couldn't see trouble coming but it apparently saw heaven coming it could not possibly have been more wrong so you fast forward to Japan which is in a way the mother and father of all bubbles Japanese Market had never sold over 25 times earnings until it did in uh ' 87 by ' 89 it was put to us that it was 65 times earnings as far as we could tell the Japanese Market was 65 times trailing earnings never having sold above 25 so it had gone up uh and this is what should put the fear of God in anyone trying to time the market is it gone up 150% more than it ever had in history what did it predict from the day it hit its peak in late 89 you had a lost decade arguably a lost 20 years the Japanese growth went from Sensational to miserable the Japanese market for eight minutes sold at a larger value than the US market for an economy the third is Big it was incredible and again we had a sensational PE not predicting good times but predicting the worst times that you could possibly have wished for for Japan for the next 20 years if you think about the great financial crash it wasn't the highest PE in history but it was pretty darned High the other day in in '08 in early '08 and again from a very high level third only to 1929 and 2000 Tech bubble instead of predicting good times it predicted the worst financial crisis in modern history which nearly brought the entire developed world to its knes and needed the most Sensational bailouts and uh injection of liquidity Etc to save our bacon incredible so if you look at the three great events or three of the four gr events of the 20th century you have to say absolutely spectacularly wrong Peak multiples projecting the worst periods of our history well I often quote husman I've actually never spoken to him but he he produces very good data and it's free which I always like and uh the model that he uses that has the highest predictive value measuring the value of the market it's slightly higher today than it was at its two previous Peaks 1929 and 2021 December just before the fairly decent decline of 2022 and now we're slightly higher this is on the most predictive measure of value that he has produced and he's worked at that as far as one can tell constantly for 30 years this is the most vulnerable Market there has ever been
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