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CNN Saturday Morning News
Interview With Jack Otter
Aired July 20, 2002 - 07:16 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: Well, checked your 401(K) lately? Maybe the best advice would be, don't. Don't check it, hang in there, wait for the long term. It was a terrible week on Wall Street, it's been a terrible month. They're calling it the crash of 2002. And if you smell the air a little bit, you get a little whiff of panic.
To try and talk us down off the ledge, let's turn to Jack Otter. He is a senior editor with the magazine "Smart Money." Good to see you, Jack.
JACK OTTER, "SMART MONEY" MAGAZINE: Nice to be here, Miles.
O'BRIEN: All right. Talk us down off the ledge. There's some panic. What are we going to do?
OTTER: Well, you're using exactly the right expression. It is scary. I can understand why someone might be sitting on the ledge.
What you have to realize is that panic is not going to help in this situation. These are just numbers. I realize it's your life savings, they're very important numbers...
O'BRIEN: It's your retirement, your education, your life savings...
OTTER: Exactly.
O'BRIEN: ... don't worry, right?
OTTER: Well, you should worry. But when you make your decision, don't make it based on panic and fear. Sit down with those numbers and make a rational decision. It's really the only advantage you have. There are a lot of people out there panicking. One small advantage you can have is take advantage of their bad decisions made under duress.
O'BRIEN: All right, Jack.
OTTER: Also, here's the thing. You mentioned 401(K)s. Now, those are the people who should not be worrying right now, at least if they're in their 30s, early 40s, certainly if they're in their 20s. This is actually great news. I know this sounds bizarre, but it's great news for them, because what it means is that stocks are on sale. They don't plan to sell them for 20, 30, maybe 40 years. So buy them cheap and sell high. That's exactly right.
O'BRIEN: All right. So you got to be a bit of a contrarian, you sort of have to march into the abyss, if you will. But this really is a buying opportunity, isn't it?
OTTER: For people who are investing for the long term. And I know that's become a cliche, but, you know, again, if you're 30 and you don't plan to touch that 401(K) till you're 65, that's long term, and this is good, stocks are a lot cheaper now than they were two years ago.
O'BRIEN: All right.
OTTER: On the other hand, if you need the money in the short term, then that's where the panic really sets in. And you probably will need to do a little bit of selling, and you may be selling at absolutely the worst time.
O'BRIEN: Yes, yes.
OTTER: But there's just no way to be sure, so, yes, you're going to have to raise a little bit of cash now, a little bit next month. Let's hope that you're selling at a slightly higher level then.
O'BRIEN: Just don't sell it all at once, maybe sell just what you need.
But, you know, this does bring out an important point that as you get closer to retirement, you need to start shifting your portfolio into whatever instrument it is, but something with a little more security. And I think a lot of people forgot that during the boom days.
OTTER: Well, absolutely. If you are nearing that point, the general rule is, you take 115, subtract your age from that number. Whatever you get is the amount that should be in stocks. The rest goes in bonds.
O'BRIEN: OK, I'm doing the math right now, I'm in trouble.
Anyway, Jack, this whole buying opportunity, it's not for the faint of heart. Let me ask you this. It's not for the faint of heart. Is there anybody out in our audience now that you would recommend, for example, doing some short selling, or is that just craziness at this point?
OTTER: Well, again, that depends on your stomach for risk. The one thing about short selling is, you can lose even more than you can lose by simply buying stocks, going long, as they say.
When you buy a stock, the most you can possibly lose is 100 percent. You can actually lose more than that short selling.
O'BRIEN: Yes, that's...
OTTER: You can lose 200, 300 percent. So yes, if you wanted to put a small amount of money in something like the Prudent Bear Fund, which is run by a guy in Texas named David Tyce, a very good money manager, it's a mutual fund that does take short positions.
O'BRIEN: Right.
OTTER: So it's not quite as dangerous as just, you know, going short GE or something.
You know, let me put this in some perspective that may help for people.
O'BRIEN: We need some perspective badly, Jack, please, give us perspective.
OTTER: Remember 1999, everybody buying stocks like crazy. Maybe you were asking people, So why are you buying that tech stock? And there really was no good reason. I mean, I think it's what people called the greater fool theory, well, yes, I might be a fool, but an even bigger fool is going to pay more for that stock next week than I am this week.
And that worked for a while. Well, right now, I think it's kind of the mirror image of that. Nobody really knows why they're selling, but everyone is selling, so I'm going to sell too, and that's what's going on, and that's why we lost 400 points yesterday, 390 points.
So during that period in 1999, some very wise men and women on Wall Street were saying, You know, this is getting out of hand. Stop buying, start selling. We interviewed them...
O'BRIEN: All right.
OTTER: ... and Barton Biggs (ph), Tommy Mannased (ph) at Bank of America, well, those guys now, they were correct before, and what they're saying right now is, the fools are selling, time to start buying.
O'BRIEN: You sound like...
OTTER: (UNINTELLIGIBLE)...
O'BRIEN: ... Warren Buffett. Do you ascribe...
OTTER: ... (UNINTELLIGIBLE)...
O'BRIEN: ... to Warren Buffett's philosophy? I mean, should we all be listening to him?
OTTER: Oh, absolutely.
O'BRIEN: Yes. All right.
OTTER: Well, I mean, when a smart guy comes along, I'll subscribe to his philosophy. But you can go -- do pretty well subscribing to Warren Buffett's philosophy, absolutely. O'BRIEN: All right, so let's not be lemmings, OK? Jack Otter, "Smart Money" magazine, we appreciate your insights. Don't panic, folks, please don't. We'll see you again soon, I hope, Jack.
OTTER: Absolutely.
O'BRIEN: All right.
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