Markets: 'beautifully egalitarian'. (Investments & Finance).

SOMETHING in the minds of smart people doesn't love the stock market.

Listen to the wise heads speaking out about the dangers of bargain-hunting in stocks even now, at prices far below what you had to pay two or three years ago.

"Stocks stink," the revered bond mutual fund manager Bill Gross tells us. The idea that stocks can be counted on to return more in the long run than other types of investments is "unrealistic" and "based on a flawed conventional view," say the esteemed financial thinkers Rob Arnott and Peter Bernstein.

I'm not here to join the slugfest over these assertions. What struck me is how neatly they fit in with a centuries-old tradition of uneasiness and suspicion toward stocks among the world's finest minds.

The stock market's behavior can be so, well, "irrational." Take something solid like a bond, and you can gauge its default risks, calculate its yield to maturity, and analyze whether it is priced attractively relative to other similar, known quantities. A sharp mind gives you a big edge.

With stocks, after you do the analysis, you still have no way of gauging where the whims of the market will carry you. Stock traders get all worked up about nutty events like splits, in which a company swaps you two shares worth $5 for one that sold for $10. The absence of new value added doesn't matter as long as the "psychology" surrounding the investment gets juiced up.

Investment theory, no matter how brilliant, can be tough to put into practice. Harry Markowitz won a 1990 Nobel Prize for his pioneering work on the sophisticated principles most investing institutions employ today. A few years later, when asked how he was investing his retirement money, he was quoted as saying, "I split my contributions 50-50 between bonds and equities."

Genius can be side-tracked by a matter as simple as diversification, one of the best and most versatile tools available to investors for protecting against risk. "It is easy to buy and diversify at the time of investment," says David K.C. Lee, managing director at Ferrell Asset Management in Singapore. "The trouble is, in this new interlinked and globalized world of cyber finance, to find securities that have constantly and consistently low or negative correlation."

Stock-market folk wisdom tends to downgrade the value of intelligence. Bull markets are said to thrive on the "greater fool theory," under which one can happily buy a stock without bothering to do much analysis. Just find someone even more benighted to sell it to at a higher price after a decent interval has passed.

On close inspection, great minds aren't always as down on stocks. Warren Buffett said at his company's annual meeting in May, "We don't think returns are going to be terrible. We just think people whose expectations have been built up by the bull market will be disappointed. There's nothing wrong with earning 6 or 7 percent on your money."

The stock market certainly has its flaws as an of-the-people, by-the-people, for-the-people institution. In one sense, though, it is beautifully egalitarian. The smartest people don't know any better than the rest of us what's going to happen next.