Podcast #9 Relative Strength in 2009 and 2010
John Lewis and Andy Hyer
Podcast #9 Relative Strength in 2009 and 2010
December 29, 2010
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Posted by Andy Hyer
Haters Gonna Hate
December 29, 2010Earlier this year I highlighted an article by Mr. Brett Arends of the WSJ who thrashed Apple, calling for investors to take profits, or at the minimum, buy some puts to cover the risk. Apple stock is up around 100% since Arends was calling to short Apple back in 2009.
Earlier this week, I read another article by Mr. Arends on the WSJ website, Is This The Peak for Netflix? You can guess what he thinks about a stock that’s up over 250% in 2010 alone…that’s right, you should take profits!
But the game is different, and getting harder.
To me, it looks like Mr. Arends is playing the same game as always. He recommends shorting stocks that are up double digits…and continuing to short them if they become triple digit gainers. I cannot make this stuff up. If Brett Arends tells you to GET OUT or BUY PUTS, you might consider doing the opposite! Look-sooner or later, he will be right-he might even be right about Netflix. I have no better likelihood of guessing correctly than he does. It’s his job to make predictions, I suppose, but we all know predictions are unreliable.
You know what really grinds my gears about Mr. Arends? His articles are consistently at the top of the most-read and most-emailed links on the entire WSJ website! He is obviously getting paid good money to have his apocalyptic work published. Clearly, people love to hate on a winner.
Today, Mr. Arends came out with a new article, this one called, Why I Don’t Believe In This Santa Rally. With the stock market up around 10% this quarter, here’s what Mr. Arends has to say:
Two words: Bah, humbug.
The market doesn’t care what any commentator thinks should happen. Neither should you! If you’re going to read predictions, do it strictly for entertainment purposes.
Disclosure: Dorsey Wright Money Management owns Apple and Netflix in some of our portfolios.
.GIF credit to thisisallido.com
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Posted by JP Lee
The Failure of Prediction
December 29, 2010Bloomberg has an article today about the predictions of a number of managers that haven’t panned out. I don’t think it is useful to pan the managers for not being right all the time-after all, these managers all have good long-term track records. To me, it simply points out that even very smart people can be completely wrong when they try to guess about the future. As an example, here is one excerpt from the article:
Jeremy Grantham, Bill Miller and Donald Yacktman told mutual-fund investors that 2010 was the year to buy the biggest stocks. They’re sticking with the prediction even after getting drubbed by most of their peers.
Small and mid-size stocks almost doubled the return in 2010 of the Standard & Poor’s 500 Index, the benchmark for U.S. large-capitalization equities. Still, Yacktman and the others are making the same case for the new year as they did for the last: big companies are undervalued compared with smaller stocks, and their earnings will benefit more from faster economic growth outside the U.S.
I just don’t see the point. Whether their predictions will be right this year or not is immaterial. They have a belief that large stocks are “undervalued” relative to small companies and they choose to stick with it, whether that belief is useful or not.
Here’s the thing about beliefs: maybe you should stop thinking in terms of right or wrong, and think instead about whether the belief is useful or not. Maybe they are right that large stocks are undervalued, but that belief may or may not help them make any money. Last year it cost them money-and it cost their shareholders money. We believe simply in adapting to whatever the market gives us. That is a useful belief.
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Posted by Mike Moody
Job Creation and the Global Investor
December 29, 2010Wake up, America! The world has changed. According to an AP article I saw on Yahoo!, lots of job creation is going on-just not in the U.S.:
The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S.
…many American companies are [hiring] — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
More than half of the 15,000 people that Caterpillar Inc. has hired this year were outside the U.S. UPS is also hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as domestically.
Think about that. Caterpillar has hired 15,000 new employees. Demand must be reasonably good. Business is booming. And the stock hasn’t been too bad lately either.
Source: Yahoo! Finance
Fascinating. American companies are growing like crazy, but a lot of that growth is going on outside the U.S. The value of the company’s shares is rising in the stock market, but American investors aren’t playing because the economy is still pretty tepid here.
Think about it from a different perspective. Let’s say you were a wealthy investor in Botswana, or Honduras, or Turkmenistan. Are you only going to pay attention to the local economy when making investment decisions? Of course not! If you are a citizen of a small country with a lousy economy, you look elsewhere for growth. We just happen to be citizens of a large country with a lousy economy.
Get with the program-you’ve got to look for successful companies wherever they are located (and plenty of them are in the U.S.) and wherever their growth is coming from. You need to think globally.
Disclosure: We own CAT in some of our portfolios.
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Posted by Mike Moody
High RS Diffusion Index
December 29, 2010The chart below measures the percentage of high relative strength stocks that are trading above their 50-day moving average (universe of mid and large cap stocks.) As of 12/28/10.
The 10-day moving average of this indicator is 94% and the one-day reading is 92%. Nearly all high relative strength stocks continue to trade above their 50-day moving average, reflecting the breadth and persistence of this market move.
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Posted by Andy Hyer
