Interesting web call today from Doug Ramsey. Leuthold is, as you know, determinedly quant so it's rather more data-rich and informative than folksy and engaging. They've promised to share a copy with me, and I'll share it with you if I can.
Highlights:
- both yield curve inversions and six-month drops in the index of Leading Economic Indicators are pointing to a business downturn beginning in fall. Both are eight-for-eight with no false positives as predictors, though their "predictions" occur with "long and variable lags." The window for a yield curve inversion has been four to 16 months previously. Others observe that Fed actions presage recession by about two years.
- the last false signal from a yield curve inversion was in the mid 1960s. Doug talked a bit about the differences in economic conditions between then and now.
- the stock market generally rallies - on average by 13% - immediately after a curve inversion, before rolling over. Currently it's up 16%.
- US inflation has dropped like a rock but “…Fed policy has never been this tight with inflation having already come down significantly.”
- the stock market is not in a bubble, but in in the top 10% of historic valuations
- seven to nine stocks have gone crazy, driving all of the year's returns of the S&P 500. They're the best candidates for a smackdown.
- midcap valuations are good, small cap valuations are historically good. That judgment looks only at the valuations of the 80% of small caps that operate in the black, so "small quality" might be worth your attention.
- the valuation on small caps relative to large caps is as extreme as the late 1990s. Remember that the S&P 50 corrected by 50% in 2000-02. The S&P Equal Weight index and small caps vastly outperformed back then.
- assuming 6% earnings growth and normal valuations as the base, large caps are priced for 3.5% returns in the medium term, mid caps are 6-7% and small caps are at 8-9%. Foreign corporate earnings still have not returned to their 2007 levels which makes such calculations for EAFE and EM, given Leuthold's discipline, impossible.
- Average stock likely to perform much better over the next 3-5 years than the average index because the average index is so beholden to a few vastly overextended stars.
- Leuthold Core Investment today is 51% net equities with no evidence that they're going to drop toward their 30% minimum allocation; their investable universe looks like the S&P 1500 Equal Weight and that's not looking nearly as risky as it did 18 months ago.
Don't hold me to all of that yet. Those reflect my type-as-he-talks notes, and I'll need to cross-check against the original when I get it. I'm guessing that I got 95% right ... leading to only a 5% chance that I'm leading you to insanity, despair and poverty!
For what that's worth,
David
Comments
https://www.marketwatch.com/story/this-crazy-retirement-portfolio-has-just-beaten-wall-street-for-50-years-11672945313
No recall of a discussion on real estate. I'll check the replay when I can!
I'm still waiting...I'm still waiting...I'm still waiting...
I'm still waiting...I'm still waiting...I'm still waiting...
I'm still waiting...I'm still waiting...
The feeling returns
Whenever we close our eyes
Lifting my head
Looking around inside
The island of doubt
It's like the taste of medicine
Working by hindsight
Got the message from the oxygen
Making a list
Find the cost of opportunity
Doing it right
Facts are useless in emergencies
The feeling returns
Whenever we close our eyes
Lifting my head
Looking around inside
Happy Friday:
https://ritholtz.com/2014/02/the-best-investment-advice-youll-never-get-2/ I suspect that poster might be a collector's item now. Bogle welcomed the challenge and found it amusing.
(initially named First Index Investment Trust) was not a success.
The plan in 1976 was to raise $150 million but only $11.32 million was raised.
Vanguard 500 Index grew to $100 million in 1982 but $58 million of this amount was attributed to a fund merger. This fund also had an 8.5% sales charge!
Excerpted from Charley Ellis' book The Index Revolution:
"In the fall of 1974, Nobel Laureate Paul Samuelson had written 'Challenge to Judgment,' an article arguing that a passive portfolio would outperform a majority of active managers and pleading for a fund that would replicate the Standard & Poor’s (S&P) 500 index. Two years later, in his regular Newsweek column, Samuelson reported, 'Sooner than I expected, my explicit prayer has been answered' by the launch of the Bogle-LeBaron First Index Fund."
"Samuelson notwithstanding, the First Index launch was not a success. Planned to raise $150 million, the offering raised less than 8 percent of that, collecting only $11,320,000. As a 'load' fund, with an 8.5 percent sales charge, aiming to achieve only average performance, it could not gain traction. The fund then had performance problems. While outperforming over two-thirds of actively managed funds in its first five years, in the next few years it fell behind more than three-quarters of equity mutual funds. High fixed brokerage commissions were one problem. A larger problem came with 'tracking' difficulties. To minimize costs, the portfolio did not own all the smaller-capitalization stocks in the S&P 500. Instead, it sampled the smaller stocks just as that group enjoyed an unusually strong run, so the fund failed to deliver on its 'match the market' promise."
"Renamed Vanguard Index 500 in 1980 and tracking the index closely, the fund grew to $100 million in 1982, but only because $58 million—more than half—came by merging into the fund another Vanguard fund 'that had outlived its usefulness.' Finally, as index funds began to gain acceptance with some investors, the Vanguard fund reached $500 million in 1987."
https://schrts.co/jsNPGjKR
In the next 10 years 2000-2010 it lost money. https://schrts.co/wVEarbKn
A chart since 2010 shows that VFINX made 398% and much better than LSLTX at 248%. That's "only" 150% more
https://schrts.co/KzDIWqjt
That’s been my (uneducated) opinion for some time. For a glimpse, I just looked at an old time TRP small cap fund PRNHX. It lost 34% in 2022, but is up over 12% this year. Not too shabby. Ignoring common sense, I’ve been clinging to a tiny (less than 2%) holding in a small holding company (think of a “Mini-Berkshire”) that holds a couple dozen small caps (auto dealers, TV stations, publishers, etc.). Highly recommended in Barron’s a year ago. Haven’t lost anything. But haven’t made much either. Still waiting for “lift-off” .
On the topic of Barron’s - It’s easy to dismiss them for too many reasons to recount here. But I’ll say one thing … Some of their stock analysis is well reasearched. They have the resources to look into things like balance sheets, cash flow, book value, potential break-up value, recent insider “buys & sells”, changes in short positions, acquisition potential etc. that many of us have neither time nor resources to investigate - especially if doing so for a number of different stocks.
Making a list.
Find the cost of opportunity.
Leuthold sings: "Don't believe me? Just watch."
Working by hindsight.
2009-10 IMO is fairer.
https://fundresearch.fidelity.com/mutual-funds/view-all/527289201?type=sq-NavBar
Per the prospectus dated 01/31/2023, the fund's net annual expense ratio is 1.50%.
The gross expense ratio before reimbursement (contract runs through 11/13/2023) is 1.86%.
The fund's high cost will be a challenging hurdle to overcome.
Edit: The Observant1 beat me to it while I was typing with both fingers.
Last year Leuthold published, in the same week, one article that said the stock market was screwed and another that said it was doing just fine. When I reached out to ask what was up they said that they've been working to encourage independence of thought across the firm and that especially the institutional research side often marches to a different drummer than the investment management side. The institutional research people tend to be more risk tolerant, investment management people more risk conscious.
I have been recommending PRWCX easily over 10 years. It's one of the best allocation funds of all time. Yes, I know, it's a flexible go-anywhere fund.
Since the inception of LCORX...LCORX made 695% while PRWCX made "only" 1453.8%(more than double). I don't know how Giroux keeps doing it with AUM over 50 bil, just amazing.