If you’ve learned
anything over the last two-and-a-half years, I’d bet you picked up
on the fact that nothing makes sense when it comes to the market.
Hopefully, this wasn’t a costly education.
It’s money well spent
if you’ve learned to outright ignore what you hear from the
beautiful people on CNBC (and are they all getting prettier, or
is it just me?). And it’s been small price if you’ve eschewed
the "Hot! Hot! Hot!" mutual funds recommendations in the financial
magazines. And it’s a pittance of what it will cost you to continue
to blindly follow the guidance emanating out of "the street" and
from "the boardroom."
So, armed with a
fresh coat of cynicism, how does today’s investor divine guidance
from the all-over-the-board information that’s out there? By
accepting that we live in a topsy-turvy market. (A classic
litterateur might have used "paradoxical", but "topsy-turvy" is more
in keeping with one that’s been carpooling to preschool and
kindergarten all day.)
Seeing the market as
topsy-turvy is part Chaos Theory and part Contrarianism. And it
works best at market turning points. It entails drawing the opposite
conclusion than reason would dictate. It’s reading good signs as
bad, and vice versa. And with my custom fit topsy-turvy filter in
place, I see a lot that leads me to believe we’ve finally turned the
corner on this nasty old Bear.
Bad News = Rising
Stock Price (????)
One classic
topsy-turvy interpretation that the Bear is over is seeing bad news
rewarded. Last Friday, Ericsson (ERICD) and Tellabs (TLAB) came out
with earnings disappointments that can only be described as heinous.
Ericsson said losses increased, orders for systems were down 50%,
and then they lowered expectations for the future. Tellabs announced
that losses doubled in the quarter.
The result? Ericsson
was up 15% and Tellabs climbed 9%.
When all bad news is
expected, there’s only upside to be had. Bad news lifts stock
prices. Topsy-turvy.
Clients Trying to
Keep Their Investment Managers Optimistic (????)
I’ve got have the
best clients in the world. In the last week I’ve gotten two
different emails whose postscript was eerily identical—"Keep the
Faith!"
They’re giving me
Bill Valentine-isms.
Not only is it
endearing, it’s a sign that everyone that’s still around is
steadfast, and fully accepting of the situation. I’d bet that’s true
for the marketplace. Client-cheerleaders--a novel concept, and
totally whacked out. Topsy-turvy.
With This Much
Selling, the Market’s Can Only Go Up
I’ve written in the past about what
sparks a market recovery. It’s an absence of sellers. Only when all
of the market timers are out, and everyone else that’s going to lose
their nerve, can the market recovery.
Earlier this week, the market was up,
but on little trading volume. To what did the traders on The Floor
attribute this nice move upward? "No sellers." They had
exhausted themselves last month. In a topsy-turvy world, we welcome
selling, for that adds to the growing, eventual drought of sellers—necessary
for moving stocks quickly with increases in future demand. You
want sell pressure—what are you nuts? Yes, but that’s beside
the point. I’m topsy-turvy.
So what works,
investment-wise, in a topsy-turvy market? Certainly not the things
that have done well of over the recent past. Going forward, expect
bad things for defensive stocks, REITs, all bonds, utility stocks,
and high-dividend-yielders.
Consider a
diversified portfolio, with things that look bad, imply risk, and
generally make no sense. For starters, contemplate tech stocks,
cyclicals, emerging market equities, and just about any stock that’s
fallen by 80%, but has done well in the last two weeks.
I know—it doesn’t
make sense. So it makes perfect sense.
At the time of
publication, the author was neither long nor short any of the stocks
mentioned in this article, either in client accounts or personal
ones. Positions may change at any time.
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