Hi Guys,
My wife and I returned late yesterday from our combined Utah parks tour and attendance at the annual Las Vegas Money Show. Both were exceptional experiences. Zion, Bryce, and Arches parks remain surprising even after several visits.
At the Money Show we separately and together attended 25 presentations. A few disappointed, but overall, the material informed and the talks were superior. Away from the formal meetings, I managed to talk one-on-one with James Stack and Jack Ablin. Between sessions, I shared somewhat divergent opinions with three financial advisors from three separate parts of the US. Great fun.
This year, the Las Vegas edition of the Money Show attracted over 7,000 folks, mostly active traders. That’s down from a peak of over 10,000 attendees several years ago. The program organizers announced that individual stock ownership has dropped from about 65 % of the adult population to roughly 52 % currently. The memories of the 2008 meltdown have not yet been completely erased.
To observe that individual opinions are distinct and somewhat divergent is an understatement. The interpretations of identical data wildly diverged. There surely was not a universal consensus, and just as assuredly there were no Las Vegas eureka moments.
Since I believe in the inductive logic chain for decision making, I seek and evaluate diverse opinions. They contribute to my investment decisions. Majority perspectives should not automatically carry the day. To a scientist, a consensus is not necessarily a good thing. Challenging conventional wisdom can promote research and better understanding. In the investment world nothing is forever.
In the 1830s, after touring the US for several years, Frenchman Alex de Tocqueville wrote: “ The French, under the old regime, held at for a maxim that the King could do no wrong. The Americans entertain the same opinion with regard to the majority”. In his book, de Tocqueville purportedly formulated “The Tyranny of the Majority” rule. That is a very dodgy trait given the often demonstrated actions of crowd (mob) misbehavior.
Total consensus is also a hazardous thing. It is the stuff that directly leads to the tyranny of markets. If everyone simultaneously approaches a 100 % consensus that is the substance of panics and manias. Fortunately that happens infrequently in the pragmatic marketplace.
When everyone is on the same page, a dramatic change in direction is increasingly likely; essentially, it is an unstable equilibrium. If everyone is committed to equities, one minor event, rumor, or falsehood is likely to trigger a tipping point that cascades into an avalanche of either sells or buys. The direction doesn’t matter; the mob psychology carries the day.
Remember that’s what happened just before the Great 1929 stock market Crash when sophisticated market wizards like Irving Fisher and John Raskob made egregious misdirected predictions. Both these gentlemen had a lot of explaining to do to salvage their self-inflicted damaged reputations.
Forecasting is definitely a treacherous business. Nobody hits the mark consistently. On occasion, a random success leads to unwarranted adulation until the next forecast turns south.
As early as 1932, Alfred Crowles asked and answered the ubiquitous question within the investment community: “Can Stock Market Forecasters Forecast?”
Crowles performance data sets included individual market experts, media pundits, the Dow Theory itself, and insurance companies over an extended timeframe. His study findings were negative among all groups. He found little evidence of skill, and attributed its much fewer successes to luck. Financial forecasters in yesteryear share the same abysmal record as today’s experts.
I assembled this brief history as prologue to my informal survey conducted at the annual Las Vegas event.
My burning question when joining the conference was “what are the likely equity market rewards for the remainder of the year”?
Not unexpectedly a consensus was not reached. In a restricted sense, that’s goodness since it shows independent thinking and some distancing from any group-think mentality.
The overarching summary is that a much more numerous cohort, using economic, political, and financial convictions, anticipate a continuing bull market.
The optimistic side team members include Steve Forbes, James Stack, Ron Muhlencamp, Hillary Kramer, Louis Navellier, Jack Ablin, John Buckingham, and a host of others. The May 13 issue of Barron’s headlined “This Bull has Room to Run”. The Investor’s Business Daily also currently rates the equity markets as a “confirmed uptrend”. All these positive outlooks cautioned against sudden political and economic reversals so they seem timid when contrasted against the other side’s views.
The pessimistic group is vigorously represented by a numerically smaller, but more firmly committed, cohort that includes Alex Merk and Peter Schiff. Based on his assessment, Peter Schiff has replaced Nouriel Roubini as the new Doctor Doom.
Everyone sees a long-term financial crisis caused by excessive government printing money without commensurate productivity gains. This is not a Black Swan event; it is foreseeable. The pessimists predict a cliff. The optimists allow for a gradual descent, with demographics and productivity growth mitigating the downturn. Construct your own scenario.
A sector rotation strategy appears to be the composite wisdom of the professionals. Many money managers emphasize sector rotation to enhance returns during different segments of a maturing bull market. Most concurred that the present equity markets are getting late in the bull cycle.
Given its current age, James Stack recommends a rotation into the Healthcare, Consumer Staples, and Utilities sectors. Historically these play solid defense coupled into a safety-first strategy.
Still market positive, but also in a defensive framework, economist Mark Skousen endorsed the Baron Growth (BGRFX) and the Permanent Portfolio (PRPFX) mutual funds, and the Aberdeen Asia Global Partners Income Fund (FAX) and the Eaton Vance Floating Rate Income Trust (EFT) as part of an income protection portfolio. I have not researched these recommendations myself.
Louis Navellier is the single, most impressive stock-picker I currently follow. Mark Hulbert has evaluated Navellier’s newsletters and mutual fund performance for years. He has consistently scored Navellier highly both on an absolute returns basis and on a risk-adjusted scale. Let me report two takeaways from his Las Vegas talk.
First, Navellier recommends to stay completely away from International holdings. The risk-reward tradeoffs are far too asymmetrical. In a relative sense, the US equity marketplace is in a sweet-spot with an accommodative Fed and a strong US dollar.
Second, you can get free access to Navellier’s stock judgments. He assesses countless stocks and his website includes a comprehensive set of data and astute scoring. His web address is:
http://navelliergrowth.investorplace.com/Enter the stock symbol (or symbols with a space between them) in the screen place indicated. That will get an overall score. For a more detailed profile, click on the symbol in the overall score box. The assessment as a function of time is particularly useful to establish a trend.
Another separate aspect of the Money Show is the numerical distribution of sponsors. One way to gauge the current investment climate is to simply count the number of presenters in any investment category, and the number of stalls purchased in the main exhibit hall.
Energy exploration and pipeline Limited Partnerships were plentiful. Natural gas was heavily supported. A few Real Estate outfits were represented. A larger than usual number of wealth management services were proffered. In general, these varied investment “opportunities” increased over last year’s Money Show sponsors.
That’s my incomplete summary of the Vegas sessions. Given the communities uneven forecasting record, a vigilant investor must receive their projections with measured skepticism.
It’s always a prudent policy to put things in context. Mark Twain cautioned that “whenever you find yourself on the side of the majority, it is time to pause and reflect”.
I hope this summary is useful.
Best Regards.
Comments
PS. I ran the equities I purchased this week through Mr. Navellier’s screener:
X...F
AA...F
BTU...F
NLY...D
Looks like my high school report card
Thanks again MJG.
Once Again Hi Guys,
In haste to deliver my promised report on the annual Las Vegas Money Show, I totally failed to communicate an additional observation that I feel is pertinent because it represents a significant sea change.
It is the evolving story about the investor-group changing demographics and the ubiquitous integration of computer technology into the investment process, both in the selling and buying of financial products. There were several tidal shifts noticed at this money gathering event.
Although the average conference attendee is still a senior citizen, an undeniably younger cohort is now more fully represented, is well informed, and is loaded with high tech gear. They multitask with ease, and are both intuitive and disciplined decision makers.
To illustrate, while listening to Marilyn Cohen pontificate on the marketplace’s present Bond dilemmas, one such “Digital Cowboy” seated next to me was searching and denoting stock charts while simultaneously directing a partner on the phone to make a purchase. He even took a timeout from his technology gadgets to ask Cohen a very intelligent and provocative question.
More power to him. If he’s one side of any trade deal, as a competitor, the other side trader is in deep water indeed simply considering currency and likely agility. I would have great difficulty keeping the pace. Fortunately, I do not compete in that rapid-fire exchange.
The presenters have also gone high tech. The presentations themselves are smooth as silk aided by stunning visual materials. Many of the presenters giveaway copies of their work on memory sticks (thumb drives) or on DVDs. Note taking is not now necessary.
Additionally, the analytical methods have become more comprehensive and definitely more complex from a mathematical perspective. A few presenters at least talked about combining their multiple trading signal indicators using more formal methods like Kalman filtering. The weighting function would be done using statistical accuracy and standard error data sets.
Mike Turner from CycleProphet uses a Fourier analysis procedure to reproduce past performance data with a 90 % matching accuracy requirement. He believes equity prices have an embedded cyclical character. Turner keeps adding terms to his Fourier series until he reaches his 90 % criteria, a very computer intensive effort. He projects market and individual stock performance for a 90-day forward-looking period and updates that projection daily with a Bayesian-like adjustment.
That’s a very sophisticated and a very costly service. Regardless of its eloquence, I still classify the procedure as complex curve fitting. The analysis should improve performance for short time horizons; I have no idea if it will be successful as that time horizon expands.
The concept is mathematically sound, but do these cycles really exist? Do exogenous events enter the skirmish to disrupt any meaningful cycle persistency? To borrow and distort a line from the ancient Shadow radio show, “Who knows what evil lurks in the market’s mind”? The radio’s answer was “The Shadow knows”. Perhaps Turner knows; perhaps he does not.
That’s enough for now.
Thank you for taking time to examine my Las Vegas Money Show review.
Best Wishes.
Hi Charles,
Thanks for your kind words.
As I’ve mentioned in earlier posts, I no longer hold any stock positions. I abandoned individual stock-picking about five years ago, so I do not maintain any stock preferences at the present time. My goal was simply to reduce my market monitoring time commitment while assigning that task to much better informed fund managers.
But I have always been an Apple (AAPL) fan; I sure buy enough of their exceptional products. Like you, I was shocked by Navellier’s current “F” rating. Note that his ratings of AAPL have systematically degraded from an “A” score about one year ago to its current unfortunate status. You may not agree, I may not agree, but Navellier always has a detailed set of reasons for his adjustments.
Allow me to speculate on those reasons. First, Apple is currently facing stiff competition from several rivals. It was the sole occupier of some technology product space and must now share that same market space.
Second, today, Navellier is very downbeat on International opportunities. With him, it’s a relative thing and he favors the US market climate over the foreign markets; again a transient assessment.
Very likely, he extended his pessimistic foreign perspective to US companies that have a large exposure to international sales. About one-third of Apple stores have foreign addresses. He possibly favors US firms with zero or small foreign profit centers over the larger US entities with considerable foreign commitments.
It’s all relative and it’s all ephemeral. Things change, just like I’m confident that your scholastic grades did over time.
My recommendation about Apple stock: Be patient. Apple will rise again, especially given its cash reserves.
Best Wishes.