Busted Correlations

February 29, 2012

Just because two items have had some historical relationship doesn’t mean it can’t change.  Betting on reversion to the mean can be extremely dangerous when a paradigm changes.  For a current example, check out this chart from Bespoke on the oil-natural gas ratio:

oilnatgasratio Busted Correlations

History is not required to repeat itself!

Source: Bespoke Investment Group   (click to enlarge)

For years and years, it looks like this ratio has been contained in the 5x – 15x range.  In itself, that is a lot of variability.  Now the ratio has blown out to 43!

How do you know when a paradigm is going to change?  That’s the problem—you don’t.  Or you might only know in retrospect when your mean reversion trade completely implodes.

Relative strength investment is relatively resistant to paradigm shifts because it adapts and does not make any assumptions about what the relationship “should” be.  It goes with the trend, until it ends.  When the trend ends, it moves on to something else that is trending strongly.  There is a lot to be said for limiting your assumptions!

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What’s Hot…and Not

February 29, 2012

How different investments have done over the past 12 months, 6 months, and month.

assetclass22912 Whats Hot...and Not

 1PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil, 11iShares Barclays 20+ Year Treasury Bond

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Savings or Growth?

February 28, 2012

I harp on savings a lot.  It’s really important in building a portfolio.  After all, if you don’t save, there is no portfolio to manage in the first place.  Mike Patton had a very good article at AdvisorOne demonstrating exactly how important savings is.  Here was his test: he assumed that an investor would make an annual contribution of $10,000 to an investment account each year for 20 years.  That pool of money would compound at rates ranging from 5-10% per year.  Then he stripped out how much of the return was from investment performance and how much of the return was just from the savings.  The results are eye-opening, to say the least.  The percentage number shown is the percentage of the return coming from investment performance.  Here’s the table from his article:

Savingsorgrowth Savings or Growth?

You Need to Save to Grow!

Source: AdvisorOne    (click to image to enlarge)

In true miracle-of-compounding fashion, investment performance only starts to overwhelm savings in the out years!  All of the years where investment performance are more than 50% of the return are in red, and even when the assets are compounding at 10% annually, it takes more than a decade before investment performance outstrips savings.

Clearly, in the early phases of capital accumulation, savings is much more important than investment performance.  Instead of worrying about investment recommendations, you can best help the client by keeping them focused on making regular account contributions.  When the regular contributions become small relative to the overall account size, investment performance will tend to be the main driver of growth.

Investment management is most important for clients who have already acquired critical mass; saving is most important for clients trying to get there.

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High RS Diffusion Index

February 28, 2012

The 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 2/27/2012:

diffusion22812 High RS Diffusion Index

The 10-day moving average of this indicator is 89% and the one-day reading is 91%.

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Dorsey, Wright Client Sentiment Survey – 2/17/12

February 27, 2012

Our latest sentiment survey was open from 2/17/12 – 2/24/12. The Dorsey, Wright Polo Shirt Raffle continues to drive advisor participation, and we greatly appreciate your support! This round, we had 52 advisors participate in the survey. If you believe, as we do, that markets are driven by supply and demand, client behavior is important. We’re not asking what you think of the market—since most of our blog readers are financial advisors, we’re asking instead about the behavior of your clients. Then we’re aggregating responses exclusively for our readership. Your privacy will not be compromised in any way.

After the first 30 or so responses, the established pattern was simply magnified, so we are comfortable about the statistical validity of our sample. Most of the responses were from the U.S., but we also had multiple advisors respond from at least four other countries. Let’s get down to an analysis of the data! Note: You can click on any of the charts to enlarge them.

Question 1. Based on their behavior, are your clients currently more afraid of: a) getting caught in a stock market downdraft, or b) missing a stock market upturn?

greatestfear 48 Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 1: Greatest Fear.  From survey to survey, the S&P 500 rose just over +1%.  Despite the moderate rally, client sentiment got worse this survey round, but not by much.  Overall client fear levels rose from 67% to 69%, while the missed opportunity group fell from 33% to 31%.  Despite a moderate pullback this week, it’s clear that client sentiment has improved significantly in the last three months with the market rally.

spread 20 Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 2. Greatest Fear Spread.  Another way to look at this data is to examine the spread between the two groups.  The spread jumped this round from 34% to 38%.

Question 2. Based on their behavior, how would you rate your clients’ current appetite for risk?

avgrisk Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 3: Average Risk Appetite.  The overall risk appetite number rose from 2.80 to 2.93.  Once again, I’d argue that the overall risk appetite number provides us with the best snapshot of client sentiment within this survey.

riskappbell 5 Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 4: Risk Appetite Bell Curve. This chart uses a bell curve to break out the percentage of respondents at each risk appetite level.  The bell curve continues its recend trend towards more risk.  The most common risk appetite requested was 3.

bellcurvegroup 6 Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 5: Risk Appetite Bell Curve by Group. The next three charts use cross-sectional data. This chart plots the reported client risk appetite separately for the fear of downdraft and for the fear of missing upturn groups.  This chart sorts out as expected, with the upturn group wanting more risk than the downturn group.

avgriskgrouppp Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 6: Average Risk Appetite by Group.  Historically, this is one of the most volatile indicators in the survey.  This round, both groups moved higher with the market, which is what we’d expect to see in a rising market.

riskspread Dorsey, Wright Client Sentiment Survey   2/17/12

Chart 7: Risk Appetite Spread.  This is a spread chart constructed from the data in Chart 6, where the average risk appetite of the downdraft group is subtracted from the average risk appetite of the missing upturn group.  The spread fell slightly this survey round.

For this survey, the market rose just over +1% over two weeks, and the indicator responses were a mixed bag.  The overall fear numbers actually grew in the face of a rising market, which is not what we’d expect to see.  However, considering how much client sentiment has improved over the last few months, it’s not a stretch to see a slight pullback.  The overall risk appetite indicator continues to move higher with the market.  If the market rally can continue to gather steam, we should continue to see client sentiment improving into the future.

No one can predict the future, as we all know, so instead of prognosticating, we will sit back and enjoy the ride. A rigorously tested, systematic investment process provides a great deal of comfort for clients during these types of fearful, highly uncertain market environments. Until next time, good trading and thank you for participating.

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Weekly RS Recap

February 27, 2012

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return.  Those at the top of the ranks are those stocks which have the best intermediate-term relative strength.  Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (2/21/12 – 2/24/12) is as follows:

ranks22712 Weekly RS Recap

It was a pretty flat market last week, but high relative strength stocks managed to do slightly better than the universe.

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The Myth of Buy-and-Hold

February 27, 2012

No one can dispute that Warren Buffett is a good investor—he’s made a ton of money over many years and it’s been well-documented.  He holds court periodically and even his public calls have been pretty good, like his “Buy American. I Am.” editorial in the New York Times on October 16, 2008.  (More recently he said bonds should come with a warning label, so take that for what it’s worth.)  You could do worse than trying to emulate Warren Buffett.

So what is St. Warren actually doing?  Well, fortunately some college professors did the heavy lifting.  They analyzed Berkshire Hathaway’s quarterly filings from 2006 all the way back to 1980, 2,140 quarter-stock observations.  CXO Advisory had a nice summary of their work.  In the words of the professors:

…we observe a median holding period of a year, with approximately 20% of stocks held for more than two years. At the other end of the spectrum, approximately 30% of stocks are sold within six months.

Yep, Warren Buffett has 100% turnover.  He blew out 30% of his portfolio selections within six months, and held about 20% of his picks for the longer run.  That is active trading by any definition.

A mythology has grown up around Mr. Buffett, that he has a somewhat magical ability to select stocks and then holds on to them forever.  The truth is far more pedestrian, and encouraging since it is something any investor can do.  He might be holding on to what is working, but his portfolio holdings are pared relentlessly.   If I had to guess, I suspect Warren Buffett is simply doing what every good investor does.  He’s using his best judgment to select stocks and then cutting the losers and letting the winners run.  (The casting-out process used in our Systematic Relative Strength portfolios does exactly the same thing.)

There’s no glory—or capital gain to be had—in holding an underperforming piece of garbage for the long run.  Mr. Buffett’s stock selection may be above average, but his genius is more likely in his discipline.

Don’t be conned by the myth of buy-and-hold.  Even Warren Buffett isn’t doing it.  Search everywhere for good investment opportunities, hang on to the winners and get rid of the losers.

WarrenBuffettlaughs The Myth of Buy and Hold

Don't Be a Buy-and-Hold Sucker. I'm Not.

Source: Photobucket       (click on image to enlarge)

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Unreliable Correlations

February 24, 2012

Bloomberg points out the unstable correlation between U.S. Treasurys and equities:

At the onset of the financial crisis in 2008, the volatility of stock returns increased dramatically as the equity markets plunged. At the same time, U.S. Treasury bond prices shot up. The correlation of bonds and stock prices has been mainly negative ever since.

This makes sense: In times of trouble, we dump stocks and buy safe Treasury bonds, and their prices should move inversely. This also would mean that in better times, we buy stocks and sell bonds, implying that the correlation between Treasuries and stocks should always be negative.

It isn’t. The correlation between the aggregate stock market and long-term Treasury bonds has been mainly positive and rising from the 1960s to the end of last millennium. With the new millennium, the correlation between stocks and Treasuries turned negative, and strongly so, especially around the last two recessions.

This is a strong argument for employing a flexible asset allocation approach.  One of the essential elements of relative strength-driven asset allocation strategies is that investments are made not based on how they should behave, but on how they are behaving.

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Expected Returns

February 24, 2012

How much you can pull from a retirement portfolio depends, of course, on how much it earns over time.  Spending policies are going to become a big focus in the financial industry because the big demographic bump from the Baby Boom is going into retirement right now.  Every year for the next fifteen or so, all of us will be dealing with more retirees nervous about making their money last.  Chances are that you are already experiencing this in your business, but you are still at the tip of the demographic iceberg.

Pensions everywhere, corporate and government, are potentially underfunded by trillions of dollars.  Again, it all depends on the return expectations.  In the most recent issue of Investments & Wealth Monitor (sorry, behind a pay wall), author Christopher Brightman cites an expected return study by Research Affilates.  The study uses beginning dividend yield, long-term real earnings growth, and implied inflation to forecast the expected equity return for the market.  It uses the beginning bond yield to forecast the expected return for bonds.  The expected return that is derived is a 10-year estimate.  Based on their forecasting method, their average gross error was about 2.1% (+ or -) between the expected return for the decade and the actual realized return.

There is no real precision in forecasting, obviously, but there may be some merit in altering expectations depending on your starting place.  Reported performance, even for an individual account, is extremely dependent on the starting and ending points.  Consider, for example, this table from an article on performance at AdvisorOne:

WatsonTable Expected Returns

Source: AdvisorOne      (click on image to enlarge)

A spending policy that seemed prudent during the 1980s and 1990s is going to freak out a client in the current environment.

The concept of fecundity, as espoused by James Garland, may provide both a simple spending rule and serve as a proxy for estimating returns.  Garland points out that you can’t sustainably spend all of your earnings (dividends + capital gains), but you can probably spend more than just the income because there is often some capital growth over time.  His rule of thumb is that sustainable spending is about 130% of the yield on the major indexes.  By combining this data with some of the inputs in the Research Affiliates estimation process, I discovered that return estimates with a similar average gross error (2.0% + or -) could be calculated.  All of the inputs are readily available.  Just for fun, here’s where we are now.

Current S&P 500 yield: 2.0%

Current breakeven 10-year yield: 2.3%

Current US 10-year note yield: 2.0%

60/40 balanced account return expectation over next 10 years:[( ( 1.3 x 2.0% ) + 2.3% ) x .6] + [2.0% x .4] = 3.74%

The equity return expectation is 4.9% (130% of yield + expected inflation) and the bond return expectation is 2.0% (the current yield).

If that number seems low to you, I would suggest that pushing a client to save diligently and invest intelligently is going to be very important to your Baby Boomer retirees.  There’s still time for a lot of the Baby Boom generation, although some of them might need a kick in the pants.

I also feel pretty certain that even if the equity market return is 4.9% for the next decade that there will be other markets where returns are much higher, or years when the equity market does much better than 4.9%.  It’s important to be aware of global trends and asset class returns.  To make money over time, you at least need to have a sense for where the action is.  In other words, what is showing the best relative strength?

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Headline of the Week

February 24, 2012

S&P 500 Rises to Highest Level Since 2008

…from Bloomberg today.  You’d never guess it, what with Europe collapsing, a dysfunctional political process, and all the bond buying that’s gone on for the past few years.  It just proves, once again, that it is more important to watch what the markets are actually doing rather than what the pundits think they are going to do.

 

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Sector and Capitalization Performance

February 24, 2012

The chart below shows performance of US sectors and capitalizations over the trailing 12, 6, and 1 month(s).  Performance updated through 2/23/2012.

gics22412 Sector and Capitalization Performance

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Embracing Tracking Error

February 23, 2012

One characteristic of relative strength strategies is that they rarely track their benchmarks–and for good reason because they are designed to overweight areas with strong relative strength and underweight areas with weak relative strength.  The goal of this approach is to capitalize on long-term trends and it works well over time.  In environments with strong trends in place we tend to see outperformance and in environments with major leadership changes or choppy markets we tend to see underperformance.

In the case of the Arrow DWA Balanced Fund (DWAFX), the highlighted row below shows that we outperformed nearly all of our peers in 2007 and 2010; outperformed 74 percent of our peers in 2008; and underperformed the vast majority of our peers in 2009 and 2011.  So far in 2012, we are right in the middle of the pack.  Yet, over the past five years we have outperformed 66% of our peers.

dwafx 11 Embracing Tracking Error

Source: Morningstar

Those investors who understand and accept the fact that relative strength strategies won’t track a benchmark much of the time are in a much better position to reap the rewards that accrue to disciplined investors.

Dorsey Wright sub-advises The Arrow DWA Balanced Fund.  Please click here for more information.

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More on Buckets

February 23, 2012

From an article at AdvisorOne, a discussion of the advantages and disadvantages of buckets versus systematic withdrawals:

The bucket approach offers the client a greater feeling of self-control. “For retirees feeling overwhelmed by the many decisions they face as they enter retirement, a bucket strategy may help them divide what they see as one large, stress-inducing problem into smaller, more manageable pieces,” the analysis states.

The article references a paper done by Principal Financial, which goes into more depth.

According to an AARP study, the majority of people fear running out of money in retirement more than they fear death. It’s no wonder many people look to financial professionals for help as they enter retirement. While working with a financial professional on any type of retirement income strategy can help a retiree feel more confident in his or her plan, research has shown that the bucket strategy may provide some additional psychological benefits. A bucket strategy can address a human preference for smaller, simplified issues. For retirees feeling overwhelmed by the many decisions they face as they enter retirement, a bucket strategy may help them divide what they see as one large, stress-inducing problem into smaller, more manageable pieces. A bucket strategy that links portions of money directly to goals may also promote self-control.

The paper is well worth reading, although I have some reservations about it.  It makes a number of assumptions about how the bucket strategy is to be carried out and then tries to make a comparison with systematic withdrawals from a target date fund.  Suffice it to say that a glide path that holds more and more bonds as you age (and are more exposed to inflation) may not be an ideal solution.  In addition, I’ve written before that there is no necessary functional difference between a balanced account and a portfolio using buckets.  You can have the same allocation in both—it’s just a matter of controlling investor psychology.

In reality, most investment performance problems are investor behavior problems.  To the extent that a bucket approach can mitigate that for a client, I say to go for it.

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Fund Flows

February 23, 2012

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs).  Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders.  Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

ici22312 Fund Flows

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What’s Hot…and Not

February 22, 2012

How different investments have done over the past 12 months, 6 months, and month.

assetclass22212 Whats Hot...and Not

1PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil, 11iShares Barclays 20+ Year Treasury Bond

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Take the Lead

February 21, 2012

I am constantly aggravated by economists on CNBC who discuss their outlook for economic growth and then attach their market forecast.  If the economy is good, the market is supposed to be good too.  The fact is that things work the other way around.  The S&P 500 is one of the leading economic indicators.  You might be able to predict the economy from the stock market, but you can’t do it the other way around.  In that respect, CXO Advisory has performed a public service with their recent article on the Leading Economic Index and the stock market.

Their approach is exemplary.  First, they examine the correlation between the Leading Economic Index (LEI) and the stock market the following month.  It’s actually fairly high, with a correlation coefficient of 0.39.  Then they point out the first big problem: the LEI is reported with a big lag.  So, they re-examine the correlation between the LEI and the stock market after the data is actually released.  Suddenly the correlation coefficient drops to 0.10.  (With an r-squared of 0.01, there is effectively no predictive power.)

Well, maybe it predicts the market better at a longer time horizon—so they check that too.  Here’s the correlation chart using calendar months:

LEI stocks leadlag Take the Lead

Stocks Take the Lead

Source: CXO Advisory   (click on image to enlarge)

Lo and behold, the stock market leads the LEI by about a month.  As CXO says:

The strongest indication is that stock returns lead LEI changes by one month.

You can safely ignore economists trying to forecast the market, even with supposedly leading data.  In price there is knowledge—and the market knows better what is going to happen with the economy even than the leading indicators.

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Weekly RS Recap

February 21, 2012

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return.  Those at the top of the ranks are those stocks which have the best intermediate-term relative strength.  Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (2/13/12 – 2/17/12) is as follows:

ranks22112 Weekly RS Recap

RS laggards had a strong week last week–the bottom quartile outperformed the universe by 1.34%.

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Dorsey, Wright Client Sentiment Survey – 2/17/12

February 17, 2012

Here we have the next round of the Dorsey, Wright Sentiment Survey, the first third-party sentiment poll.  Participate to learn more about our Dorsey, Wright Polo Shirt raffle! Just follow the instructions after taking the poll, and we’ll enter you in the contest.  Thanks to all our participants from last round.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

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Realized Fears

February 17, 2012

In this Barron’s article from 2010, battle lines over fiscal policy are discussed:

Dylan Grice, part of the provocative strategy team at Societe Generale, sees the world split between the cognitive dissonance expressed by President Obama. On one side is what Grice terms the “Keynesian/Krugmanist” faction decrying any withdrawal of fiscal stimulus while conditions remain parlous.

On the other are those worried about government debt, represented by Axel Weber, “the hard-money Bundesbank president who voted against the [European Central Bank's] bond purchase and has been most vocal on the need for fiscal prudence,” Grice writes in his “Popular Delusions” letter.

The fear of both is that the wrong fiscal policy is chosen and we either drown in debt or deflate in a slow growth environment.  Some commentators are quoted on what might happen if the economy stagnates:

Yet even while the benchmark 10-year Treasury note yields remains solidly under 3%, at 2.91%, Gluskin-Sheff’s David Rosenberg points to the extraordinarily wide gap of nearly 1% between the 10- and 30-year maturities. Even at a sticker-shock 3.87% yield, he sees scope for further declines in the long bond’s yield.

Based on a new report from the Cleveland Fed, Rosenberg reckons the 10-year yield could “ultimately grind down” to 1.90% with inflation basically nil. Given its historical spread over inflation, the 30-year bond yield could get down to 2.30% –40% less than the current yield.

While fears of a double-dip recession in 2010 were high, the economy continued to grow slowly.  Near the end of 2011, the economy actually seemed to accelerate a bit, to the point where some pundits are now worried about inflation again.  And what happened to bond yields?

10yryieldchart 1 Realized Fears

Realized Fears

Source: WSJ   (click to enlarge image to full size)

Oh, yeah.  They went to around 2% anyway.  Although we’ve had slow, steady economic growth, bond yields have just continued to fall—making both groups of forecasters notable in getting it wrong, or right for the wrong reasons.

No one’s fears were ever realized.  The economy has not imploded nor have we yet drowned in debt.  Maybe one or both of these things will eventually come to pass, but forecasters aren’t likely to get that right either!

Investors could have let either bad scenario freeze their investment policy, worried that outcomes A or B would have a negative effect on the market.  Instead, we got outcome C and, by the way, the S&P 500 has gone up more than 30%.  Ignore the hopes and fears of forecasters and stick to what market prices are telling you.  Relative strength is almost always your most reliable guide.

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RS White Paper: SSRN’s Top Ten Downloaded

February 17, 2012

We were just notified that John Lewis’ white paper Relative Strength and Portfolio Management was recently listed on SSRN’s Top Ten downloaded list for All SSRN Journals!  Click here to access the paper.

This is not just another academic white paper on relative strength (although those are certainly also of value).  Rather, this white paper details our Monte Carlo-based testing process that has been instrumental in understanding and verifying the robust nature of relative strength.

SSRN RS White Paper: SSRNs Top Ten Downloaded

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Sector and Capitalization Performance

February 17, 2012

The chart below shows performance of US sectors and capitalizations over the trailing 12, 6, and 1 month(s).  Performance updated through 2/16/2012.

gics21712 Sector and Capitalization Performance

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Nouriel Roubini May Be on to Something

February 16, 2012

It’s cool to be bearish, and domestic investors are, at least if you count the way they’ve recently been selling down their exposure in US stocks.  However, prominent and almost perma-bear Nouriel Roubini was recently quoted as being bullish, which some commentators viewed as a possible sign of the apocalypse.  According to Mark Hulbert, writing on Marketwatch, the bull market might have a ways to go.

During the week ending Feb. 3, two weeks ago, 16.4% of the issues on the NYSE hit a new 52-week high — which represents the highest level this percentage has reached over the last six months. Last week, this percentage contracted to 11.7%, even as the Dow Jones Industrial Average was itself hitting a new 52-week high.

That is the contraction that has some commentators worried.

But now consider what Ned Davis Research found upon trying to correlate the weekly new-high data with bull market peaks. They found that there typically is a long lag time between when the percentage of stocks hitting new weekly highs reaches its peak and when the bull market finally tops out.

In fact, the firm found that in no case over the last five decades did a bull market top out before a peak was reached in the percentage of weekly new highs. And, furthermore, the average lag time between a peak in that percentage and the bull market’s top was more than 33 weeks — nearly eight months.

So even if the percentage of NYSE stocks hitting weekly new highs peaked out at 16.4% earlier this month, the historical data would not warrant an immediate concern that the market was about to keel over dead.

I don’t know what the future holds.  Unlike Nouriel Roubini, I’m not crazy enough to make a forecast.  But I think it’s interesting that so many are concerned about the market right now, in the face of historical data that suggests we might be quite a way from the end of the run.

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Retirement Savings Guidelines

February 16, 2012

From an article at AdvisorOne, a reminder about the situation for the under-35 crowd:

Workers under the age of 35, the generation most likely to depend almost solely on defined-contribution plans rather than the typical Social Security-savings-pension three-legged model, need to be diligent if they expect to save enough for retirement, a report released in October by Northern Trust found.

“Sponsors have to engage younger workers to save, save a lot, and to continue saving,” Lee Freitag, product manager of defined contribution solutions for Northern Trust, told AdvisorOne on Monday.

Yep.  Save ’til it hurts.  No investment advisor can help you grow your money if you haven’t saved any.

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Become an Investment Guru!

February 16, 2012

In a very funny, and sad, commentary on how much financial media is done these days, Bill Conerly at Forbes has explicit instructions on how to become an investment guru in six easy steps.  I’ve excerpted the steps below, but you need to read the whole article to appreciate his wit.

  1. Abandon all humility.
  2. Create a straw man.
  3. Invent a secret method.
  4. Communicate.
  5. Brag.
  6. Ignore all criticism.

Obviously we’re doing it wrong!

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Fund Flows

February 16, 2012

The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs).  Members of ICI manage total assets of $11.82 trillion and serve nearly 90 million shareholders.  Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

ici21612 Fund Flows

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