Hi Guys,
This morning, I’m in the process of tossing my notes from the 2015 Las Vegas MoneyShow. They have limited shelf life. During those visits, I always make a point to attend one of Jim Stack’s lectures. His talks always inform.
Stack is cautiously optimistic and expects positive equity returns in the near-term. However, my notes say that he is assuming a more defensive posture. His current equity allocation is in the 75% range; the remainder is in cash equivalents. Typically, Stack commits north of 90% to equity holdings.
He is currently getting mixed signals from his multi-dimensional market indicator array. I myself have little confidence in any single individual’s forecasting acumen. But, if the projections are made independently from each other, there is some merit to an assembly of the wisdom of crowd approach. Therefore, collecting predictions from a band of honest practitioners is not an entirely bad idea.
I thought you guys might be interested in the whys and wherefores of Stack’s predictions and modeling. Here is a Link to a recent MarketWatch article that is based on his work:
http://www.marketwatch.com/story/bull-market-is-closer-to-the-end-than-investors-think-2015-03-16Be sure to click to page two which lists some of the reasons for Stack’s partial movement towards a more defensive asset allocation. Stack is never an all-in or all-out guy. He characteristically makes incremental changes as the signals turn either green or red.
As I mentioned, Stack uses a variety of market direction Indicators. Here is a Link to a recent USA Today article titled “6 Signs the Aging Bull is in Late Innings”:
http://americasmarkets.usatoday.com/2015/03/09/6-signs-the-aging-bull-is-in-late-innings/Stack’s analyses are always data dense and intensive. The 6 signs presented in the article are only a small portion of those that he monitors. If you like that, he just might be your man. Like all market gurus, he has both good and bad years. His record is that the good years greatly outnumber the bad years.
If your interest is peaked you might also want to examine his Coppock Guide and his “Bellwether” indicator. He can swamp you with the scope of his many signal generators. I don’t know how or if he weights them. I also don’t know the super stocks that Stack incorporates into his Bellwether indicator. Lots to learn so good luck.
Best Regards.
Comments
You may want to research Investors Intelligence or some of the other pioneers in the theory of contrary opinion ala James Fraser or Earl Hadady. Your above statement is something I would expect from a complete novice - thinking there is value in collecting predictions from the so-called experts in order to decide where the market is headed. Unless of course you meant it as a contrary tool which I am sure you didn't. Again, James Stack has no more clue than anyone where the markets are headed. Since you already covered this in another post methinks you just enjoy being a troll.
Edit: Please note I have changed my profile picture to that of my stock index futures equity curve. I will change it back later. You may have to click on it to enlarge. The profits were more than modest ($2200 to $86,000) over the time period involved because I kept my account as small as possible. But note the slope of the equity curve. I swept those modest winnings into my trading of equity and bond funds and compounded them to....... My point? I finally became successful once I realized that all the so-called experts didn't have a clue and built a strategy around such ala contrary opinion. It has evolved since but I will always be thankful that I became aware of the futility of following the advice of others. And in fact that the experts are always wrong at the extremes of their universal bullishness or bearishness. When I see someone like yourself who supposedly has been in this game even longer than me bow at the altar of the experts.......
Might just merit the award for most useless comment of the week. Every day after day one of either a bear or bull market start is "closer to it's end".
Regards,
Ted
Posted on May 27, 2015 by David Ott Acropolis is a fee-only wealth management firm,
When I graduated from college 20 years ago, the world was a different place: only a few people had cell phones,the Internet wasn’t useful for anything, and nobody used email or instant messaging.
I should note that I didn’t have to walk to school uphill both ways – that was before my time.
A lot has happened since I graduated and started participating in financial markets:
The good news, though, is that stocks represent ownership interests in operating businesses and as long as the system is based on capitalism and we have the rule of law, stocks should earn more than bonds or cash.
But, who’s to say what the next 20 years will look like? Right now, non-US stocks look a lot cheaper than our markets, so it’s not hard to think that their returns will at least match ours or potentially be higher. That said, while US stocks will likely have lower returns over the next 10 years, no one can say much about the 10 years beyond that.
So, young grasshoppers, buy stocks and do it in a diversified, global way.
http://acrinv.com/advice-for-graduates-buy-stocks/
adjective
1) naive, simplistic, and superficial : their entirely predictable and usually jejune opinions.
Thank you for reading my reference to Jim Stack’s predictions. Of course you recognize they’re his forecasts, and not mine. I have no idea where the market is headed so I don’t make market predictions, and I generally don’t trust any one of them.
Old Joe, you are absolutely on-target when you observe that second-by-second the market must be moving towards closure of some cycle. Time marches on.
The complete title of the MarketWatch article that I referenced is “ Bull Market is Closer to End than Investors Think”. That more properly captures the theme of the article than the abridged title that I posted. Sorry if my laziness caused some uncertainty.
Junkster, what’s with the name calling? I’ve been posting serious stuff on both MFO and FundAlarm forever. Diverse opinions are what make markets.
Lots of investors, and even scientists, default to the wisdom of the crowd. You too are using the wisdom of the crowd in a perverse way. I’ll explain later.
I’ve been rereading Michael Mauboussin’s “More Than You Know” book recently. In it he comments that: “Provided the decision rules of investors are diverse-even if they are suboptimal-errors tend to cancel out and markets arrive at appropriate prices”. Using his terminology, he believes in the wisdom of the “collective”.
Many independent experiments that are simply characterized as guess the weight of the animal, the number of jellybeans in a jar, the location of a bomb, and the location of a sunken submarine have verified the wisdom of the crowd. It does require individual independent opinions from knowledgeable folks. A formal mathematical technique called Kalman Filtering is used to assemble these diverse opinions.
From personal practical experience, the methodology works. While in the military, and later in my civilian jobs, I was assigned to challenging “find-it” tasks that successfully deployed Kalman Filtering analyses on three successful applications. We failed on a fourth project.
Completely independent assessments are the essential key to the success of the crowd’s wisdom. If the crowd falls victim to an information cascade, that independence will be compromised, and so will the final projection.
It might not be your cup of tea, and it certainly does not work on all occasions, but it does deliver the goods in some instances when other approaches fail.
You are indirectly employing a counter wisdom of the crowd approach when making your investment decisions. At its core, you need a consensus crowd judgment to serve as input. I wish you luck.
Best Wishes.
“The Bull Market is Closer to End than Investors Think”.
Oh, well, that makes all the difference, doesn't it? Changes just everything.
(Except that it doesn't, of course.)
Yes it does matter. Not only does it matter, it matters greatly what is our perceived position within any cycle.
Let's use Stack's baseline asset allocation model to illustrate. Early in the current Bull cycle (like 2009), Stack would likely have 90% plus invested in equities. He believes it is now late into the cycle, so his equity asset allocation has been defensively reduced to 75%. As more of his Indicators turn Red, his equity asset allocation will drop still further. I seem to recall that he never goes to a zero equity percentage.
So, as a cycle matures, asset allocations are adjusted according to the Stack strategy. The article cautions investors to consider the gray-beard nature of the current Bull cycle.
Best Wishes.
Edit: Sam Stovall's sector rotation strategy is also tightly coupled to the perceived cycle maturity.
I certainly don't detect casual indifference to the cycle position as an overwhelming opinion here on MFO, which seems to me to be a quite reasonable cross-section of individual investors.
No assumptions are necessary. Jim Stack is directing his advice to all investors: to you, to me, to MFOers, and to his legion of loyal followers. Also when I said “our perceived positions” I meant a generic all of us investors without prejudice. I hope this clarifies your understanding uncertainty.
I have no data to infer that the MFO readership is a representative cross-section of all individual investors. I suspect we have some unique characteristics that set us somewhat apart from the mob.
S&P’s Sam Stovall has been a sector rotation proponent for about two decades. He wrote a popular book ”Sector Investing”, on the subject in 1996. Here are two Links that nicely summarize some of the sector rotation strategy in a graphic format.
http://www.corycoviello.com/sector-rotation
http://marketscalpel.com/approach/rotation/sectorRotationConventionGraphic.php
The favored sectors from the early phase of the cycle and those from the later stage are distinct and clearly illustrated in the graphs. Sector rotational investing has a base of advocates. I do not know if any MFOers practice its discipline. I do not. My referring to it is my contribution to information diversity.
Thank you for reading my post.
Best Wishes.
DSENX does not count, probably (?)
I know where my opinion is as to where we are in this cycle, but I also know that, if you view this as seasons, Central Banks seem hell bent to not allow Winter to occur. I own what I own - trying to time this is (I think) an exercise in futility and we're so far down the rabbit hole in terms of monetary policy where this all ends we can only guess. I mean, the Shanghai is down 11% or so in the last couple of days. There's so much, "Oh, see? I told you it was a bubble." Wouldn't surprise me if it's merely a pullback.
Sector rotation, meh - anyone have a fund that does this consistently well?
Beyond that, I just fear that in 2008 you wanted to be in cash and bonds. When this period ends, you will want to not be in cash and bonds.
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Wow - If Stack's advice is to be taken seriously would his vision than not become a self-fulfilling prophecy?
Here's why: If all investors decided to ratchet-down their equity exposure by 10-15% based on Stack's forecast, equity valuations would than adjust downwards to reflect the new reality. In fact, they might well over-shoot on the downside.
I haven't learned a thing from this thread. There are hundreds of bright people like Stack whose views are worth reading. We can learn from all of them. None deserve the attention Stack seems to be receiving here. I got a lot more out of JohnC's thread on "bullish" or "bearish" as I was able to identify different types of investors (here at MFO) with the varying outlooks offered - and none of the views were served up as sacrosanct.
There's another issue here which seems to have largely escaped discussion. That's this whole notion of trying to time markets. Yes - Stack is merely advocating "reducing exposure". To me, that's a cute way of saying: try to time markets. And I think that's terrible advice for younger investors attempting to grow a retirement nest egg. For "oldsters" (probably the predominant group on this board) who have already accumulated a nest egg, timing makes a bit more sense from a defensive point of view, but is still a "dicey" (a begrudging nod to Vegas) proposition - the benefits of which are highly dependent upon both the investor's temperament and goals as well as a whole host of unknowns.
Stay healthy ron!
At 81 I'd be inclined to be 100% out of the markets. On the other hand, am addicted enough to market-watching that probably won't follow my own advice.
Shucks - Any of the regulars here who say they aren't at least "somewhat" addicted are kidding themselves.
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Max must be catching lots of fish in Canada. Haven't heard from him in awhile.
Please do not interpret my posting of Jim Stack’s Las Vegas presentations as my ringing endorsement of his advice. It is not. I like his historical research and his reliance on multiple market directional indicators. I don’t necessarily agree with his conclusions. I don’t subscribe to his services,
I posted Stack’s recommendations on MFO for informational purposes. Stack is one of my favorite financial money managers because of his dependence on statistical research, but also because he is a recovering Aerospace engineer. In that regard, we share a common background that demands a heavy commitment to safety factors. That commitment is reflected in his conservative, defensive investment philosophy and strategies.
Stack has enjoyed success as a money manager, but he is a relatively small player in that field with a very limited audience. The chances that his clients would all follow his incremental equity reduction advice is small; the likelihood that a wider audience would act on that advice is remote with the probabilities approaching zero. The fear of a market meltdown as a self-fulfilling Jim Stack prophecy is just not in the cards.
Stack’s track record is a mixed bag. Since he adheres to a defensive policy, he tends to partially reduce equities early. I agree with many MFOers that Gurus are not especially prescient. Remember the CXO Advisory Group’s Guru Rating database. The overall success score was just below 50% with the highest value at the 68% level. That data reinforces my long standing observation that forecasters can’t consistently forecast.
Stack was not evaluated by CXO Advisory. Based on my general assessment of Stack’s methods, I speculate that he would have been slightly above middle of the road in that rating.
I agree that market timing is hazardous duty, especially in the short-term because of emotional investor noise, and amplified when synchronized into a herd reaction. An old cautionary saying about joining the crowd warns that “running with the herd might get you trampled”. That’s wise words,
But I do like to collect and compare Guru predictions. When properly assembled and used (I mentioned the success of a Kalman Filtering approach in earlier submittals), the herd opinions can improve the odds of success.
As an aside, it seems like many investment organizations are now using fund team managers instead of individual superstar managers. DFA and Dodge and Cox serve as excellent mutual fund examples.
Regrettably, nothing is ever perfectly simple in the investment process. Conflicting evidence must always be carefully collected and weighed. That’s one reason why information source diversity is so important. Independent analyses and interpretations are critical. I often wonder just how independent these analyses really are. There appears to be an incestuous relationship among many popular market writers and pundits.
When reading this post, please recognize that I do like Stack and rate him highly along with several other money matter advisors. But these other advisors often offer disparate market opinions. All “experts” are not equal; the value I extract from them is weighted.
The first step before making an investment decision is to gather information from several primary sources. A second step is to sort and evaluate these data without falling victim to data overload.
Avoiding “analysis paralysis” is an issue. I’m sure all MFOers approach this step differently. The decision making process is itself an art. I use a very, very informal form of the Kalman Filtering approach whereby I weight the various inputs with an estimate of their accuracy record. Ben Franklin used a check list and sequentially eliminated elements from each side. Whatever works for you is the best approach.
Thank you all for participating in this thread. I did not anticipate the interest when I reported the scribbling that I made at the MoneyShow conference.
Best Wishes.
Edit: Hank, I too am 81 years old and am still in the market. However my commitment and enthusiasm are both easily overshadowed by the fine folks participating in the MFO exchanges.
http://thenewdaily.com.au/news/2015/05/28/rinehart-loses-control-4-billion-family-trust/
The Bull is Closer to it's End
Is that cartoon character supposed to resemble anyone here?
Actually, for a change, no... no one in particular from MFO. I just ran an "The end is near" search for a humorous image, and up popped Homer. Thought it was pretty cute. The thought did cross my mind that it possibly just might tweak someone's tail a little, especially if that individual was notable for lacking a sense of humor.
Just thinking...