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When The Perma-Bear Market Predictors Get It Wrong

Seth Jentner07/23/2014

Volatile stock markets generate peculiar celebrities known as the perma-bear, the negative investment forecaster who gets credited with calling a bear market before it starts. What most people miss is that he or she has been calling for a bear market for years without success. But when they eventually appear to “get it right,” perma-bears milk it for all they can: selling books, newsletters, speaking tours and TV appearances.

One of the latest is Nouriel Roubini, who teaches at New York University. He began calling for a collapse of the housing market and recession in 2005. Three years later, he was vindicated by the 2008 financial crisis. Roubini, who is now sought out by governments and investors worldwide, remains bearish and has earned the nickname Dr. Doom.

An earlier perma-bear was Howard Ruff, a famous financial advisor in the 1980s. He wrote his bestseller, How to Prosper During the Coming Bad Years, just a few years before the greatest bull market of the century began. In February 2009, he was at it again: He predicted stocks would crash just as another new bull market began. Those who listened and got out of the market missed the doubling of stock prices.

Another perma-bear, Joe Granville, achieved huge popularity in the 1980s by claiming to use technical analysis to predict stock prices. He continued to proclaim the market was headed for imminent collapse even after the last bull market began in 1982. His popularity declined, and he later wrote a book about winning at bingo. His latest call at age 88, in January of 2012, was for a 50% market plunge in 2012.

The problem with being a perma-bear is that you will only be right about one third of the time because historically markets have been in expansion the other two thirds of the time. Investors who seek guidance when times are hard and markets are falling should always remember that, as Yogi Berra once said, “It’s hard to make predictions, especially about the future.”

Remember, use an appropriate balance of stocks, bonds and cash to help you to stay invested throughout the inevitable market fluctuations.

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