From time to time I am asked what makes up your market barometer? And, how do you use it? With this, I thought I'd again make comment about it and what I plan to do should the stock market continue to pullback and the barometer reach a reading of 165 (or greater).
The barometer follows the S&P 500 Index and is driven by three major data feeds. They are 1) an earnings feed that is comprised of both TTM and forward earnings estimates, 2) a breath feed, and 3) a technical score feed. In addition to the three main barometer feeds there are a few other data influences that are often times used.
The data readings are entered into a spreadsheet and when scored produce a barometer reading. The barometer reading drives an equity weighting matrix which produces a suggest weighting for equities for my portfolio. A barometer reading of 150 is in the middle of fair value and scales upward to undervalued, oversold and extremely oversold when a reading of 168 or higher is reached. Moving in the other direction scales to overvalued, overbought, and extremely overbought when a reading of 132 or below is reached. A higher barometer reading indicates there is more investment value in the Index over a lower reading.
I simply use the barometer as an aid to help me determine when good investment value is found (or to prevail) within the Index itself. Thus far through 2019 the barometer has produced weekly readings that have ranged from a high of 183 indicating that the markets were extremely oversold as we opened the year down to a low reading of 128 indicating that the markets were extremely overbought.
Being a long term retail investor, that generally does not trade in and out of my mutual fund positions, I use the barometer as a guide as to when to add to (or to trim) equity ballast positions within my portfolio. I have been using this system for a good number of years and patterned it after one my late father used many, many, years ago.
In short review, I generally add to my equity ballast positions during times when high barometer readings are present; and, I generally trim equity ballast positions during periods of time when low barometer readings are present. I call this activity throttling my equity allocation.
The average monthly barometer readings, for this year, follow. They are for Jan 158, Feb 137, Mar 140, Apl 134, May 152, Jun 141, Jul 135. With this, the two best months to have put new money to work wihin my portfolio were January and May. Remember, a higher barometer reading indicates that there is more investment value in the Index than a lower reading. The July average reading of 135 indicates that Index is currently overbought.
With last week's stock market pullback the barometer closed with a reading of 160 indicating that the S&P 500 Index is now undervalued. This is the highest barometer reading that I've seen since January's opening which followed the December stock market swoon.
Due to low bond yields Old_Skeet is currently overweight good dividend paying equity mutual funds found in the growth & income area of my portfolio. Currently, I hold no special investment position (ballast) but may engage one soon should the market continue to pullback. With this, I'm thinking of making my first buy step somewhere around (S&P 500) 2875 along with needing to see a barometer reading of at least 165 (or higher) which will then indicate, to me, that the Index is oversold.
Thanks for stopping by.
I wish all "Good Investing."
Old_Skeet
Comments
Hi there.. thanks so much for posting. I was thinking of asking you yesterday to post your barometer but thought Id wait a few more days in case we suffer additional losses. Im a bit surprised with the 160 reading when we are still so close to the market highs.. If we continue to selloff would you mind updating at the end of the week. Also if you are comfortable sharing which funds are you considering buying? I have BIAWX and PRDGX on my list. Also researching FAMEX and BHBFX -- 2 smaller funds that have scored well on MFO.premium screens but havent been discussed on the board. Any thoughts on tbese funds are welcome.
BHBFX is the "Y" class of this fund offered by Madison. If you want to get in cheaper than $25K as required by Madison, you can purchase the Broadview Opportunity Fund. When the Broadview Opportunity Fund is reorganized into Madison Small Cap "Y" class, you will be eligible to purchase any of Madison's "Y" class equity and bond funds.
I recently purchase the Broadview Opportunity Fund for this very reason. I plan to purchase BHBFX once the reorganization is completed.
From the "Broadview Opportunity Fund to be reorganized into Madison Small Cap Fund" post:
https://www.mutualfundobserver.com/discuss/discussion/comment/115247/#Comment_115247
https://www.sec.gov/Archives/edgar/data/1040612/000104061219000079/broadviewmadison497.htm
Share Class Availability and Investment Minimums
The Trust offers one class of shares through this prospectus: Class Y. Other share classes are available through a separate prospectus.
Class Y Shares. Class Y shares do not impose a front-end sales charge, any Rule 12b-1 distribution or service fees, or a contingent deferred sales charge. Class Y shares are generally purchased through fee-based programs or investment dealers that have special arrangements with the funds’ distributor, through certain registered investment advisers, and through other intermediaries approved by the funds.
Class Y shares are available for purchase directly from the funds with a minimum initial investment amount of $25,000 for all account types, and a minimum subsequent investment of $50, provided that these minimums may be waived in certain situations. Class Y shares are also available for purchase by the following investors at a reduced minimum initial investment amount of $1,000 for non-retirement accounts and $500 for retirement accounts, with a minimum subsequent investment of $50:
•Dealers and financial intermediates that have entered into arrangements with the Acquiring Fund’s distributor to accept orders on behalf of their clients.
•The fund-of-funds and managed account programs managed by Madison.
•Investment advisory clients of Madison and its affiliates.
•Members of the Board of Trustees of Madison Funds and any other board of trustees affiliated with Madison.
•Individuals and their immediate family members who are employees, directors or officers of the adviser, any subadviser, or any service provider of Madison Funds.
•Any investor, including their immediate family members, who owned Class Y shares of any Madison Mosaic Fund as of April 19, 2013.
• Any investor, including their immediate family members, who owned shares of the Broadview Opportunity Fund as of August 30, 2019.
The closing date is 8/30/19 due to shareholders being asked to ratify the reorganization.
BHBFX pays dividends quarterly.
Another M/F family in Wisconsin similar to FMI Funds and Artisan Partners.
website: https://www.madisonfunds.com/
US News ranking lists BHBFX as #1 for large cap value at this time:
https://money.usnews.com/funds/mutual-funds/large-value/madison-dividend-income-fund/bhbfx
Sorry to Old_Skeet, didn't mean to take over your thread, just wanted to answer the question posed by Mike.
Thanks for your request for my thoughts concerning funds that you have under review.
I'm thinking that there are others that are better able to make comment on the subject funds that you have under review than me. Generally, for equity ballast I use an equally weighted S&P 500 Index fund as it covers all the large and mid cap style box spaces plus it also has a value tilt where as the cap weighted S&P 500 Index fund tilts more towards momentum.
I believe David wrote a piece back in June of 2019 about equally weighted 500 Index funds. There were three that he discussed. I have linked below the pathway to the article.
Pathway ... https://www.mutualfundobserver.com/?s=Equally+Weighted+S&P+Index+Fund
In looking at the futures early this morning it looks as though the risk off assets are the ones currently being favored by investors while the risk on assets are under selling pressure. With this, perhaps a selling stampede will soon develop. It would be nice to hear Jeffrey Saut's perspectives on this. Perhaps, some CNBC guest will be making comment about "The Markets In Sell Off" this morning.
Remember ... August historically has a lot of stock market volatility associated with it.
Skeet
Regards,
Ted
CXO Advisory.Com
https://www.cxoadvisory.com/trading-calendar/august/
MarketWatch.Com:
https://www.marketwatch.com/story/history-says-stock-market-could-be-in-for-a-bumpy-ride-in-august-2019-08-01/print
I didn't really notice BHBFX until I saw the SEC filing for the Broadview Opportunity Fund being reorganized. After reading about the initial reorganization filings, I started to research what Madison Funds were available and how they were performing. You'll notice that I did mention BFBHX in my initial link below:
https://www.mutualfundobserver.com/discuss/discussion/comment/115247/#Comment_115247
BFBHX, Y class only, should not be confused with Madison's Diversified Income Funds which has a load and has not performed as well as BFBHX.
Realized that for $1K, I could get access to some fairly reasonable limited availability funds due to the higher initial minimums of $25K.
I've done this in this past with Stratton Funds when they were being reorganized into Sterling Capital Funds. I was able to acquire Sterling Capital Special Opportunities I class and another Sterling Capital "I" class fund by this similar type of transaction after I purchased Stratton Small Cap Fund.
From Madison's website, they indicate that they have about $17 billion assets under management. Madison is obviously smaller and less recognized T Rowe Price, Artisan, Vanguard or many others.
Haven't decided whether to make BHBFX a taxable or non-taxable position. It is obvious it would be better severed as a non-taxable account. My initial intent is to establish a foothold in BHBFX and then see where it will go from there.
Hope this helps you in your decision as August 30 approaches!
P.S. Here is a link from Madison about BHBFX with its two managers:
https://www.madisonfunds.com/individual/dividend-income-fund
Prospectus filing:
https://www.sec.gov/Archives/edgar/data/1040612/000104061219000007/madisonfundsfinal.htm
Dividend Income Fund. The Dividend Income Fund is co-managed by John Brown, CFA, and Drew Justman, CFA. Mr. Brown, whose biographical information is provided above, has co-managed the fund since March 2012. Mr. Justman, whose biographical information is provided above, has co-managed the fund since April 2013. Prior to March 2012, this fund was known as the Balanced Fund and was managed utilizing a different investment strategy than that used currently
Look for the "Statement of Additional Information" for the manager's investment in what they manage in the link above (it should be near the end of the filing).
For 1990-2018, 17 Augusts have been winners and 12 losers.
Thanks Ted, Derf
Added BRK.B today just small portions..holding very large cash now [although only about 4% of portfolio lol]
will look at funds mentions in MFO in recent posts..thinking adding more next few days.
we maybe at start of large corrections because of tradeware
That aside, you may be holding more cash than you realize. From David’s August 1 Commentsry: “Mr. Buffett is sitting on $112 billion in cash, 34% of his investment portfolio.”
https://www.mutualfundobserver.com/2019/8/
Regards
Derf
I can see the usefulness of such a system if the market is in the middle of a fairly long stretch of "normal" up and down activity, but I'd be scared to death to use a "technical" signal to justify significant buying in the current market.
More seriously, I try to temper my enthusiasm for stocks by listening to some of the bears - even if they have been wrong for a number of years. Keeps me sober I guess. No use for Hussman, but have followed Bill Fleckenstein for a couple years. He’s particularly negative on tech and current / former high-flyers like Tesla and Apple. Like Ray Dalio, he’s been bullish on gold for a long time.
Who knows? Like @Ted, I’m merely a humble messenger.
what I meant was has 4 or 5% in cash in my private portfolio [not BRK.B of course, don't really know how much Mr Buffett is holding]. in TSP still ~ 22%s in bonds/CDs so maybe lots of cash there
after the 2019 New year rally in sp500/DJI, maybe another 'double dip' before the ? 15-20% crash/haircuts? any thoughts
Just got through reviewing my portfolio. From the numbers ... S&P 500 Index down about 6% from recent high ... Old_Skeet is down 2.6% from recent high. And, with the S&P 500 Index closing today at 2845 I plan to buy the first step in my equity ballast spiff position tomorrow.
Just check the barometer ... It's reading 168 which indicates that the Index is oversold.
And, so it goes.
@johnN @ hank: I believe Mr B. is sitting at 122 with a B.. From WSJ.
Wishing all good investing, Derf
P.S. I'll probably wait until next Monday to make any sells or buys
Regards
https://www.cnbc.com/2019/08/08/jp-morgans-top-stock-market-analysts-say-hold-on-tight-and-buy-this-market-dip.html
What is a medium - term buying opportunity ?
Derf
Anybody understand why an outfit like J.P. Morgan would be handing out “free” investment advice on CNBC? I ask because I assume they manage some funds / investments themselves and have wealthy clients who pay them for analysis & advice. Great investors like Buffett like to “hide their cards” as long as possible before SEC regs require disclosure in order to avoid front-running which could drive up their acquisition costs. And mutual funds generally don’t like to disclose big buys and sells earlier than required for the same reason.
Another issue: Somehow they are willing and able to hand out such advice without addressing individual circumstances like age, risk tolerance, other assets and income sources. By contrast, mutual fund prospectuses are loaded with disclosures re risk and the fact that the investment may not be suitable for some investors. Correct me if wrong, but I believe there have been successful class action lawsuits against some fund firms for not fully disclosing the risk in some of their products to potential buyers. How come J.P. Morgan and others are able to avoid being held accountable for the advice they dispense?
PS - No doubt CNBC is smart enough to provide some rudimentary “disclosure” re suitability of investment recommendations somewhere in their programming - but I can’t recall ever hearing it.
Did you pay for any of this so called advice?
Seems to me its like a barber telling people they need haircuts.
Just helps to put money in the barber's pocket.
Nice analogy @Gary. Follow this free advice and your portfolio just might receive a “haircut.”
With the S&P 500 Index closing today at 2919 Old_Skeet's market barometer reflected a reading of 157 indicating that the Index is currently undervalued by the metrics of the barometer. Should the Index pullback to the 2750 range Old_Skeet plans to add to his current spiff position. And, I plan to exit the spiff position should a reading in the low 140's (or below) be reached indicating that the Index is overbought.
Thanks for stopping by and for reading; and, also for making comment.
I'm planning to see my barber of Tuesday. Perhaps, he has some thoughts on the market. The stock market is one of the many topics that are frequent talk at this 100 year old establishment.
Have a great weekend ... And, I wish a "Good Investing."