2 Media Sins Likely to Hurt Investors - Weekly Blog # 820

 

Mike Lipper’s Monday Morning Musings

 

2 Media Sins Likely to Hurt Investors

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

Media Motivations

1. Almost everyone likes to make people happy.
2. Unlike in the past, some have recognized that good news sells more advertising than bad news.
3. Most media swings from the political left.
4. The media thinks as consumers do, not as investors do.

 

“Americans Feel More Optimistic About Economy”

“Feeling Sunnier on the Economy”

The first headline is from Saturday’s Wall Street Journal in the “news” section, not the editorial page. The second is from the Washington Post,

the DC trade press.

 

First Sin

The WSJ newsroom pitching to their perceived audience ignores the dichotomy between the “happy talk “generated by Washington and news of layoffs, closings, and bankruptcies. (Risks to readers losing jobs and eventually investment money.)

 

Economic stimulus through executive order or budget manipulation is used to inflate the economy. It is structured to buy votes from specific segments of the population. Businesses are simultaneously laying-off people, closing facilities, and cutting back on expansion plans. These businesses do not think the future looks good.

 

My guess is that business leaders are processing the math something like this. Actual or expected sales are not growing at all when price increases are deducted. Lay-offs of 3% are largely replacements for retirees, or for bad hiring decisions. Reductions of 10%+ are an expression of lower expected demand, or anticipation of unfulfilled expected improvements in the quality of work. For example, regularly cutting the bottom 10% of people to improve production at all levels. (This has been the annual policy of Goldman Sachs and others, even before receiving lower overall fees for their work.)

 

Since the beginning of recorded history, we have experienced expansions and contractions, or if you prefer booms and recessions. The last three administrations have added to expansions through inflationary spending. Government spending was less than the private funded expansion, although that is no longer true considering accelerating deficits. Thus, we are due for a contraction. In some ways the sooner the better, as it will help reduce the cumulative deficit accumulation. The exact timing of this contraction is beyond the skill level of most prognosticators. However, we should be forewarned that this is not what the media is currently doing.

 

Second Sin

On Friday the S&P 500 Index slightly exceeded its two-year old record. (There was no acknowledgement in the press concerning the calculation being market capitalization weighted. This means that the index is weighted and influenced by a minority of the universe. In other words, by the majority of the money, not the majority of investors. This distinction favors those trying to raise taxes and political contributions.)

 

Some believe this is a sign of a new bull market, as investors have profits in a minority of the S&P 500 stocks. Recent trading provides some perspective. On Friday there were 2918 stocks traded on the NYSE, of which 855 “big board” stocks declined. (More than the entire S&P 500.) The highest price for the NASDAQ Composite Index was on November 19^th, 2021. So, it is not yet a bull market for NASDAQ stocks. As of Friday, 4412 NASDAQ stocks traded compared to 2918 on the NYSE.

 

I consequently do not consider the market being at a new high, as most stocks are not at a new high. Furthermore, older market analysts believe a former turning point must be exceeded by at least 3% to signify a continuing move. To illustrate the importance of this test. The price hit a high at the end of 1929 and did not return to that level until September 1954, or about 25 years later. (No warning from the media and other prognosticators.)

 

Some Do Pay Attention to Warnings

In many ways the game of professional football is similar to professional investing. This week Jason Kelce, center for the Philadelphia Eagles and the least well-known football brother, announced his retirement. He is reportedly in good health, although he is concerned for his young daughters and the rest of his family. His concerns center around chronic traumatic encephalopathy (CTE), a mental health condition believed to come from head injuries. CTE is something an all-pro center could get. Stage 1 of the injury can produce depression, anxiety, and impulsive/aggressive behavior. (For many years as an investment adviser to the National Football League and the NFL Players Association who had retired players as trustees, I have witnessed such behavior.) His retirement probably cost him a few very high paying years, hopefully in exchange for many more years with his young daughters. SIMILAR HOPES ARE WISHED FOR INVESTORS OVEREXPOSED TO INVESTMENT RISKS.

 

For A Long-Term Estate Portfolio

One should not focus primarily on today’s purchase price, but a believed future value that addresses your heirs’ future needs. Today’s prices represent opportunities to both earn and lose money. Focus on unpopular securities to reduce the potential size of losses, and hopefully increase the chance of big returns. Part of the difficulty in implementing this effort is that it requires someone who is already skilled in this art form. It requires time and patience to do the necessary research yourself.

 

I am willing to incur the expense of using others for most of the work, including the impact of investor flows by others. The following list of geographic locations for investment came from a recent contact with a fund that searches for these types of investments. The following list is a source for beginning a research effort, not a buy list.

 

Emerging Markets, Kazakhstan Telephone, Platinum, Palladian, Potash, South Korea, Uranium, Copper, Gold, and Chinese Securities (CSI-300 at a 5-year low)

 

Selection Concept

Passive funds have attracted more assets than active funds. Many passive funds are required to keep their portfolios in-line with an index, requiring them to buy when nervous holders are selling, and sell when their holders are buying. Assuming these movements come in waves and that many waves are emotionally driven and wrong. Does this represent a trading opportunity, as excessive trading is not well thought out? This may particularly be worth a try when only 17% of portfolio managers expect a hard landing. Another curious opportunity, long-term institutional favorite Morgan Stanley fell -4.2% and Goldman Sachs rose +0.7% (Both are owned in personal accounts and GS is in both personal and client portfolios.)

 

Question:  How are you thinking about your investments for the next year, versus how you’re thinking about your long-term investments? 

 

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: “SMART MONEY” Acts Selectively - Weekly Blog # 819

Mike Lipper's Blog: Solo Messaging is Meaningless - Weekly Blog # 818

Mike Lipper's Blog: Our Wishes & Perspectives - Weekly Blog # 817

 

 

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