"...you gotta ask yourself [one] question: Do I feel lucky? Well, do ya, punk?" -Clint Eastwood (as Dirty Harry)

Recent Nobel Laureate Edmund Phelps is quoted as saying, "Man is a thinking, expectant being." The economist should have inserted an "or" in the middle of this sentence. Man tends to expect...or think. Rarely does he do both at the same time.

He most expects profits, for example, only when they are least likely to appear - that is, after his favorite investment has already gone up.

We watch the Dow and wonder: What do investors expect? Higher earnings? Higher P/Es?

There are only two ways to get rich, we recall from yesterday - accumulation or speculation. Either you earn the money and save it, or you get lucky. The vast majority of wealth - both individual and national - is made the old-fashioned way, by accumulation. People typically try to spend less than they make. The difference becomes 'retained earnings' for a corporation, or 'savings' for a family - in general, the greater the savings, the richer the family.

But lately, another wave of new era thinking has washed over America's burgs, metropolises, and hamlets. People have gotten so lucky that they think they'll never need to save again. Even supposedly sophisticated investors have given up on the tried-and-true method of building wealth; they all must feel very lucky.

Corporate profits may be at all-time highs, but dividend yields are puny - less than two percent - which is to say, that an investor expecting to accumulate his way to wealth by buying stocks is not thinking at all. His dividends will not even equal the rate of consumer price inflation.

He must be expecting something else. He has become a speculator, not an accumulator, counting on price increases to make him money.

We turn to Jeremy Grantham for a hint about how likely he is to have his expectations met.

Grantham analyzed stock market history, and divided it according to how cheap or expensive stocks were at the time...and then looked to see what happened next. Since 1929, if you bought stocks at times when they were among the cheapest 20% in terms of P/E ratios, you would have earned an average return of 10.6% over the following10 years. If you had bought them when they were at their most expensive - the top 20% in terms of P/E ratios - you would have earned only 0.6% per year during the following 10 years.

Where are stocks now? In the most expensive quintile. What can investors reasonably expect? Well...if history and theory are any guide, they can look forward to less than 1% annual rate of return. Why would any forward thinking investor buy stocks under those conditions? Of course, he wouldn't.

Which goes to show how little investors actually think at all. Yesterday, the Dow edged up closer to the 12,000 mark; the federal deficit came in lower than expected; and even housing starts showed new energy. What's not to like?

It's times like these that we count on our natural gloominess to pull us through. Otherwise, we might be tempted to buy a stock...or a Picasso.

Talk about getting lucky! Steve Wynn, an art collector, bought a Picasso in '97 for $48.4 million. It was an absurd price for an absurd painting, but that didn't stop it from becoming even more absurd. He was about to sell the ghastly thing to another art collector, Steve Cohen, for a $90 million profit when he turned suddenly around and put his elbow through it.

But apart from sharing the same first name, the two men are also in the same business - gambling. Wynn runs gambling casinos in Las Vegas, Nevada. Cohen runs a hedge fund business in Greenwich, Connecticut. Evidently, lady luck has been good to them both. But we hasten to point out, that neither man made his money by luck alone. Each made his money by selling speculations, not buying them. As Felix Dennis puts it, "I never met a man who got rich buying hedge funds. I've met several who got rich operating them."

Meanwhile, the poor saps who buy stocks and pull the levers on slot machines haven't much of a chance. Even though the Dow is setting records, investors' real returns are still negative. Inflation has taken nearly 20% off of nominal gains over the last six years. And in terms of gold, the returns are much, much worse. Measured in gold, the typical stock market investor has lost more than half his money since 1999.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.