The Virtues of Pragmatism

Aren’t you glad you are a trend follower?  Leaving aside the potential performance advantages of trend following  for a moment, it is just less drama.  Case in point, as a trend follower you can avoid getting caught up in the endless debate about whether or not the market is overvalued.  Consider the following analysis from Barry Ritholtz:

It has become commonly accepted that stocks are very expensive, overbought and perhaps even in a bubble.

JPMorgan Chase & Co.’s latest quarterly chart book (you can download it here) takes issue with those conventions.


As you can see from the chart above, U.S. equity prices closely match their long-term average price-to-earnings ratio of 15.5. That’s precisely at fair value if you are comparing it to the Standard & Poor’s 500 Index earnings-per-share average of analyst estimates for the next 12 months.

That is one of the most common ways to value companies, but there are plenty of other approaches that show stocks either over or undervalued.

It is commonly stated by those immersed is the valuation debate that valuations may not matter in the short-run, but they absolutely matter in the long-run.  That may be true, but when it comes to your experience as an advisor with your clients, what are the practical implications of getting out the of the market 3 years (as an example) before the bull market ends?  That’s right, you get fired.

The principle of keeping it simple, has served Dorsey Wright very well for almost three decades now.  What is a trend follower’s interpretation of the following chart of the S&P 500?  A positive trend with no signs of deterioration at this point.

S&P 500

Source: Dorsey Wright, as of 7/10/14

This is no way negates the need for prudent financial planning and asset allocation.  Nor does this make us perma-bulls.  It does, however, make us pragmatic.  As to whether or not trend following “works” I would recommend reading the following white papers by John Lewis:

This example is presented for illustrative purposes only and does not represent a past recommendation.  A relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.

8 Responses to The Virtues of Pragmatism

  1. says:

    This should be coupled with work out preferably to
    make sure that the muscle is strengthened. With tthe craze,
    and so much fun Martinique Carnival will make you get hangovers for days.
    Hyper modern shopping malls such as the Fünf Höfe have given the
    city an edgy modern glitter.

  2. says:

    Hello there! Your webpage is loading slowly for my situation,
    that took just like a minute to actually load up, I really dont know
    whether or not it’s just me or your website however twitter performed acceptable for me.
    Well, I’m going to say thanks for including wonderful post.

    I’m assuming this has already been necessary
    to lots of people who came at this point. This is actually wonderful what you have concluded and wish to discover
    interesting content from you. Immediately after looking at
    your post, I have book marked your web page.

  3. online business cards reviews

    The Virtues of Pragmatism • Systematic Relative Strength • Dorsey Wright Money Management Systematic Relative Strength

  4. As it turns out, you can now pre-order an iPhone 6s or iPhone 6s Plus contract-free, straight from
    Apple—here is how.

  5. A stolen iPhone that was reported to relevant carrier community can be found and
    you will get into hassle for it.

  6. Another dying information index supplies a wealth of public records
    information accessible by state.

  7. Nonetheless, the web is probably the most convenient useful resource to
    get ideas about the very best movie star fat burners ,
    exercises, dieting and other information required for secure and fast fat loss in you.

  8. Hi there I like strolling, and have used it successfully for weight reduction many occasions, however you might be SO proper about consuming
    the proper issues too, regardless of how a lot you exercise,
    in case you are consuming flawed you wont lose any weight!