"Stocks Are Still Expensive" was the headline over a New York Times item posted August 4, 2011 by David Leonhardt. It began "The main problem for the stock market is obviously the economy. But it's not the only problem. Stocks are also under pressure because they are fairly expensive right now relative to earnings." It went on, "stocks would have to fall another 6 percent from their current level to return to the 50-year average." The Times at one point that day was linking the item from its home page, and Mr. Leonhardt has since been promoted to Washington bureau chief.
The S&P 500 Index closed today at 1314.5, up 9.5% from the 1200.07 it closed at the day Mr. Leonhardt posted his article. You can look it up yourself here at Yahoo! Finance. So anyone who ignored Mr. Leonhardt's advice and bought would have made a 9.5% return on investment in less than six months, which is better than a poke in the eye. Anyone who followed Mr. Leonhardt's advice and stayed out of the market would have missed an opportunity.
This, by the way, is the same David Leonhardt described by Yale president Richard Levin in a recent speech as a big success story of liberal arts education:
I am going to make the audacious claim that David's Yale education has had a lot to do with his ability to see the big picture. He experienced, just as you will over the next four years, exposure to a variety of disciplines — in his case, mathematics, economics, politics, and history, as well as physics and art history. This broad education has allowed him to look beyond the small-mindedness of what politicians say to interpret the larger trends driving the economy and society. He also learned to write clearly, analytically, and forcefully. He mastered this essential tool not only through his English courses but also through his principal extracurricular activity as a reporter for and subsequently as editor of the Yale Daily News.
David Leonhardt is but one of many visible examples of the profound way in which the liberal arts education you are about to experience can help you to develop the capacity to see the big picture.
This isn't meant as an attack on Mr. Leonhardt. Maybe the S&P 500 Index will sink again to sub-August 2011 levels, and maybe his some of his other work is more accurate. I knew him very very slightly when I was running the Crimson and he was running the Yale Daily News, and as far as I can remember he seemed like a fine fellow. But the next time he makes a stock market call, you may want to take it with caution.
