Vince Farrell was the guest host this morning on Squawk Box. He has been making the TV rounds for years and seems to be well thought of. Many years ago I felt like I was learning from him. Then about two or three years ago his comments became far less useful.
A while ago I wrote an article that referenced his continued touting of mega-caps regardless of what's going on in the market. It has been years now since companies greater than $100 billion lead the market.
He had two comments today that really made me wonder what is going on with him. The first one was during the interview with Jim Moffett, fund manager for the UMB Scout Worldwide Fund. As Mr. Moffett was talking about weightings and countries, and ADRs versus ordinaries Vince slipped in a comment that you get foreign exposure through most of the S+P 500. I can't believe he said/thinks that! My friends at Fisher Investments have done a great job studying this and stocks tend to correlate with the country where they are listed. You are not getting foreign exposure by buying Coca Cola (KO). Good Grief!
The other that came up was yet another buy Pfizer tout. A quick note; I wrote this morning's piece on Pfizer before Vince made his comments. Doesn't the fact that it is being mentioned again underscore the extent to which it is over owned and over followed? Hemant Shah of HKS & Co. was on for a segment about big pharma. He thinks that it makes sense to wait on the group and wait on Pfizer but Vince says buy it now. To be clear I am not writing this because Vince disagrees with me but how can any viewer know when he is going to be right? He has been touting Pfizer, Intel, and GE for a long time now. One for three is not very good for a money manager. For all I know, now is the time to buy Pfizer but Mr. Farrell has lost all credibility with me, not that he should give a hoot about my opinion.
Hopefully I am conveying how important it is to not be over reliant on what these guys say. I watch and listen to learn other manager's process not to get their stock picks.
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3 comments:
The "meme" that US indexes provide foreign coverage and will do will if the dollar falls because of their foreign profits is certainly floating about.
It makes sense to me, but I don't have numbers and strongly distrust the general drift of the mainstream financial press. I am convinced it gives a very distorted view of the information and analysis out there. For example I don't know the probability that we are in a "secular bear market," but I do know some knowledge of the worry and it's consequences needs to be a factor for anyone investing in the medium term. You simply have to be prepared for the possibility that your stocks may be down 20 or 30% 3 years from now and know that there are some historical factors (eg. p/e, dividend rate) that make the risk higher than average.
You need an option: can you take the loss and are you wiling to take the risk because you think it's low, can you ride it through because you don't need the money in 20 years?
But people aren't prepared. They go through some effort to study and the mainstream press drives home things like "for the next few years stocks will *only* return 6 or 7%"
Naturally people unaware of risk drive up prices, which has a short term benefit to current owners, but once a new equilibrium is reached the average gains should stabilize, except these people are unaware of risk which means that if bad things happen they are subject to more severe panic.
The idea that domestic indexes reap the gains of foreign economies and buffer dollar shocks makes sense, but if the research suggests this isn't true then it's another example of a very dangerous bias built into a system that's supposted to inform. And contrary to the notions of many mainstream writers (I've literally seen them pop up a dozen stocks on a search engine and write articles titled things like "Invest like Biffet!") it is not a game.
Peoples savings, their hopes, their retirements, the reward of their work is tied up in these things.
It is why I support a theme that I believe the author of "seeking alpha" is moving towards. Independant, small net based publications informally linked together provide a more efficient, both in terms of cost and availibility of relevant information than do traditional investment services.
David Bennett
davibennett@yahoo.com
David,
Thanks for reading the blog and taking time to leave a comment. You question whether it you can or can not get foreign exposure in the SPX. You are exactly right to ask the question. The data can be mined to say anything so it is tough to know. To may way of thinking foreign does create diversification for all sorts of things. I have been writing about this stuff for ages so it is hard to find links to past articles so bare with me. I believe, and have written about, that the most international diversification can come from economies that are based on commodities, unlike the US which is a service based economy. These countries include Australia, NZ, Norway and Canada. The other type of international diversification has a low correlation to the US is through emerging markets. Europe has developed a higher correlation to the US than it used to. I think that trend will continue.
One thing that I write about constantly is a strategy to get defensive with equities. You can check the blog for this. I look at two things, the SPX going below its 200 DMA and an inverted yield curve. When either of those things happen I will get defensive in client portfolios. You can check the history of this stuff, it has historically worked to miss a lot of the pain.
I also agree with you about Seeking Alpha. David Jackson is who runs that site. I have learned quite a bit from him. Thanks again!!
Thankyou for your detailed reply.
It reinforces the position I hold that in today's
current environment the "normal" investor has access
to resources not availible in the conventional press
or even through the type of advisors we can afford.
I have sampled your blog it is highly professional and IMO breathes integrity. There is no infallibility aura.
Coupled with links availible there and following links
in these resources they provide the average investor
with the basics for the research they *need* to start
making investment decisions.
One of my peeves is that mainstream publications,
brokers and advisors don't provide fundamental
information. For example I read a quote from
Kiplingers (relatively responsible) that put X dollars
in your kids college fund and y years from now you
will have so many dollars.
Uncertain.
The idea that domestic stocks provide good foreign
exposure is as you say questionable, it is not
presented as such, but is used by a status quo intent
on selling products. People here this and believe
they have protection.
Uncertain.
I am a great believer that if we establish a "true
market" in financial services we will free tens,
possibly hundreds of billions of dollars, obviously
such a system should include means of compensaton for
currently free resources such as your blog. Currently
you are building a publication in a financial
information net as a gesture of goodness and what I
try to stress as a potentially profitible
"revolution."
The thing is that people need to know why they are
committing sums like 2% when ETFs, diversification and
rebalancing may make better returns. Not that there
isn't reason for specialized services, for example you
might provide a way to get money into Ireland (based
on your posts.) But people need to know *why* they
make such choices, they need to be able to evaluate
advisors, something you let us do.
Right now I think the investment industry is in many
respects more feudal than capitalist. It depends on
structural advantages, quasi religious beliefs (faith
in investment "experts" without examination) and does
not easily provide the individuals who risk their
money with clearcut presentations of the
*information* necessary to make a true market.
I suspect reform of the system will free resources
equivalent to federal expences on non medicaid welfare
while reducing the severity of booms and busts based
on irrational assumptions.
But whether or not this is accurate I suspect one "big picture" is that whatever the current motives of people like you, you provide pieces of a radical new publishing model. I encourage peple such as yourselves to keep vaguely aware of evolving structures (wikis etc.) to whenever possible organize material that retains relevant for the long run, though direct and indirect links (indexes, searches) and to examine what other publishers you would like to join up with while trying to figure what are the necessary pieces (some not existing) for a "complete" financial information system.
Of course certain companies are starting to make deals with blogs to create this kind of infrastructure, but given the history of mass products it's uncertain if the tools they develop will be the best.
I do appreciate the fact that you published your reply publicly as well as emailing it to me. I clipped my private reply and added to it. Public discussions always have value because even if only one person reads participation increases 50%. Plus through search dngines they can become availible over time. Studies are also showing that the ability to participate and give are important factors in the success of web publications.
David Bennett
davibennett@yahoo.com
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