Per the article, in the 2011 Q4 earnings for the index were up 13% but excluding Apple they were only up 10%. Another nugget; S&P earnings had an average beat of expectations of 1.8% but without Apple there was an average miss of 1.4% of estimates.
This sort of thing represents a narrowing of market leadership which has happened plenty of times in past market cycles and typically occurs later in the cycle meaning this is an indication of a decline of some sort coming soon (maybe a bear market?). Of course there are always things to indicate the market is going lower just as there are always things to indicate the market is going higher. For people who make active decisions the task becomes weighing between the two and also deciding which things to give more credence to.
Now adding in the narrow leadership which can take months to matter and I think my scenario of a peak sometime in the middle of the year followed by a decline that starts thereafter and carries over into 2013 such that next year finishes in the red seems to have a high probability compared to many other outcomes. Again this conclusion is based on my weighing of various things which lead me to the 2012 scenario which for now is still alive.
In terms of portfolio implications, if you apply this type of process to your portfolio then you probably want to stick with it until it starts to prove wrong. My thesis is not wrong...yet.
6 comments:
Some reflections on yesterdays number of responses. A few weeks back you were commenting on the assessment of the statistics on comments on your blog. You felt these were tied to market sentiment. I believe what I saw yesterday indicates that the desire to post a comment is driven by gut emotional response to the column commentary, not the market. Given your chosen vision for the blog, postings are secondary to sharing your thoughts on retirement, firefighting, sports, and investing process. That's what makes your blog worth a read every day. You hit a hot button, not to draw readership, but to share a retirement success story. It's really interesting to read the level of discontent that now exists by the majority of the posters for people who understood the rules, played the game for twenty years, and are now reaping the rewards.
wow, that is pretty insightful (not a sarcastic comment), I hadn't thought about the level.
Makes me feel guilty for probably not having a post for tomorrow.
Thank you,
Apple is a phenom -- and it still rankles my sorry old butt that I had an opportunity to buy 100K-shares at $12 and decided 5K shs was enough (given the uncertainties don't ya know!) ...but never mind all that.
I've posted on some of this elsewhere but I mainly conceptualize markets as naturally seeking equilibrium while periodically being shocked into chaotic behavior w/ a change of state to another equilibrium (with a different mean and variance).
While in equilibrium the regular tools, most of which assume a normal probability distribution, work fine but neither the transition nor the new state can be predicted in advance so we ultimately do what we would do anyway, diversify and hedge.
If the truth is that most markets cannot be described by a Gaussian/normal distribution then we are left with precious few alternatives: If we treat market returns (and risk) as Nassim Taleb (& Mandelbrot) do -- basically as power distributions that have no definable mean or variance -- the best tactic basically boils down to putting 90-95% of your portfolio in (relatively) riskless Treasuries and swinging for the fences with the remainder.
Or we just do our best to thread the needle: It's a tough universe ...until the next secular bull starts in which case "buy and hold" will appear optimal and we will forget all these conversations ...until the next time.
Tough biz living the life out there and that is the truth but what I still know remains true I think: For the vast majority of investors out there, it is better to lose an opportunity than to lose money.
6:52,
It was an ok story, but Roger should have pointed out that the strategy of using a public pension followed by public employment as a spring board to the easy life is in the long run is something society cannot afford.
It is great to have a plan and execute, but don't count on feeding at the public trough as a retirement model going forward. The plan might backfire. Just because it worked in the past doesn't mean it will work again is all I'm saying.
The "society can't afford it" stuff gets me.Do we know anything about this retiree's community? What if they are well managed and can afford to make pension obligations and pay them? How do we extrapolate from the situation as described by Roger to broad strictures on what "society" can afford? Over-commitment to pension benefits sometimes gets communities in financial hardship, therefore earning and taking a pension is a bad decision? I don't think so.
I have a neighbor who works for the Los Angeles City Fire Dept. When he works an overtime shift, which is quite often, he is paid $1100.00/day. In addition, he only works 10-11 regular days per month. Admittedly, they are 24 hours; however, based on calls for service, on many work nights he sleeps all 8 hours. On his days off we works as a plumber and laughs about going to his "regular job" (i.e. the Fire Dept.) to "rest up" from his plumbing jobs. As an added insult, he can retire at age 50 at 90% of his salary and full medical benefits for he and wife.
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