The Big Picture for the Week of October 14, 2012

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One of the bits I enjoy doing on Twitter is making fun of Jim Paulsen, Thomas Lee and Tobias Levkovich when they are due to come on CNBC. Of Paulsen and Lee I usually say something like their name? wait, don't tell me...BULLISH! And of Levkovich I usually say something like Tobias Levkovich to come on with some obscure stat that means the market is going higher.

So it was yesterday that I tweeted the above out about Levkovich and somehow this tweet made Carl Quintanilla's radar and right before the segment and he tweeted back "let's find out." So ole Tobias did not disappoint with Marshallien K which even he said was out there. If you Google it you will find it but it is obscure enough that there is no Wikipedia page on it (nothing at Investopedia either). I tweeted Marshallian K back to Carl but he did not respond to that.

It might be that I am the only one who thinks this is funny but it does make a bigger and more useful point about how unnecessarily complicated people can make investing. Whenever possible I try to make investing as simple as possible. Like many people I probably first clued into this from Peter Lynch in the 1980s (maybe he started talking about this in the 1970s?). Then I started noticing that most of the investors being portrayed as legends looked at things very simply, seeking the simplest explanation along the lines of Occam's razor (yes RW, the precise meaning is a little different).

I think a useful example here is the inversion of the yield curve before the financial crisis really ramped up. In the years before the crisis I wrote often that I would heed a yield curve inversion as being a very ominous sign for the market and the economy; banks don't do well on lending spreads which causes a lot of problems. Of course when the curve did invert in 2007 there were plenty of very smart pundits telling us why this inversion did not mean trouble--back then the Chinese were buying our debt in such a manner as to distort our yield curve.

While it might have been true that the curve was distorted by Chinese buying, the curve was still inverted which was still problematic for banks nonetheless.

The idea gains some relevance because the market has more than doubled from its low 43 months ago. Cycles tend to last four to five years so it is possible that after slightly more than three and half years that the next bear could be coming soon. Regardless of the time, as we get closer to whenever the next bear phase starts there will again be plenty of people like Paulsen, Lee and Levkovich with plenty of reasons why the market will ignore any bearish markers at the time and go higher (all three missed the financial crisis and two of the three missed the tech wreck, one was not a strategist during the tech wreck).

You will probably be much better off seeking out the simplest explanation whenever possible.

We recently got back from our annual pilgrimage to the Grand Canyon. In the above picture a mule train went by near the South Rim.