Why you need to think for yourself: yet another example

September 27, 20226 Comments

At my recent MoneyShow seminar on contrarian investing, I started the presentation off by asking the audience to put up their hands if they MADE money this year, and/or over the past 12 months. The result of that survey, as expected, was about 10% of the audience put up their hands. Keep in mind – attendees of the MoneyShow are probably a step ahead of most investors. They are there to educate themselves. The vast majority of investors do nothing to educate themselves or develop a trading discipline.  I’d venture to guess that a “typical” crowd of investors would contain less than 5% who made money. Especially those who deal with “typical” Investment Advisors / Managers adhering to the ” you can’t time the market” mantra.  Or those invest on their own without a proven system. Even still, 90% of that MoneySaver show group lost money in the recent bear – which makes sense.

After the survey, I then asked the crowd another question. It was a rhetorical question (one where you already know the answer). That question was: If you are part of the 90% (or more) of investors who have lost money over the past 12 months, and you wish to get different results –

“Do you think you should keep doing what you are doing now? Or do you think you might need to do something different?”

My dad used to tell me that the definition of insanity is to try to get different results by doing the same thing.

The nuts n’ bolts of my presentation, as outlined in my latest book Smart Money Dumb Money, is that you must ignore the crowd when the trade/ outlook is becoming crowded. You learn to think for yourself! To do that, you need a disciplined, unbiased trading system that allows you to bypass the mind-altering BS you are exposed to every day.

Do you think that the “experts” you read quoted in the news are thinking out of the box? Do you think the big banks and research institutions are wise, and unbiased?  Or do you think they might be just as prone to follow the crowd as regular investors? Do you remember this headline in August near the August peak? Do you remember my blog stating that I didn’t trust the rally – right around the same time?

 

If you agree that experts quoted in the media or financial institution research analysts are just as prone to crowd think as anyone is – do you think you should still listen to them for investment advice? Or do you think you should think for yourself? You need to:

Develop a strategic trading discipline as outlined in my Online Trading Course

OR…hire ValueTrend to do it for you.

Just as I noted in my blog on Sept 1, there are headlines we must ignore every day. I have two examples for you – both are predictions/ market outlook pieces from the same institution. One from Dec. 1, 2021. One from this week.

Important: I’m not here to pick on any one particular financial institution insofar as their investment analysis or forecasts. The fact is, the big banks and big brokerages ALL sing off of the same song sheet MOST OF THE TIME! In other words, they are sometimes right, but when it comes to “crowded trades” – they get it wrong more often than not.

Then…

Here is a forecast by Canadas biggest financial institution, RBC – printed December 1, 2021. Outlook for 2022:

Equity

Our outlook for 2022 features worthwhile global equity returns and moderate earnings growth, supported by above-average GDP growth and strong consumer and business capital spending. Major central banks seem set to begin raising interest rates, yet equity markets typically perform well surrounding the first rate hike. Furthermore, even as rates inch higher, we expect them to remain rather low by historical standards. These factors should make equities the asset class of choice once again in 2022. We recommend holding a moderate Overweight position in equities

Ok, well, that forecast (which was essentially the same forecast as 99% of the institutions out there) didn’t work out so well, did it?

Lets contrast that with ValueTrend’s outlook. Here is my forecast for the NASDAQ during that same month (December 2021). This was my first alert about the market being overbought, lead by the tech stocks. I suggested that readers avoid that index, and be aware of risky environment. By April 7th 2022, I was full-bore broad market (SPX, TSX) bearish, and made that perfectly clear in this blog. I continued to reiterate that outlook from that point forward.

Now…

Ok, now lets look at RBC’s current outlook. Again, please understand that I am not picking on RBC. You will find this same forecast put out by almost every large financial firm EVERYWHERE!!!! So – after saying that equities should be your asset class of choice coming into 2022, they are now saying 

Quoted from a Seeking Alpha summary of their outlook from this week:

Calvasina added that a different analysis points to the S&P 500 sinking even further to around 3,501….The analyst added that an even more pessimistic forecast could see the S&P 500’s P/E sink 63% – the type of drop recorded between June 1971 and December 1979 during the stagnant 1970s. That would slash the index’s trailing P/E down to 14x, implying that the S&P 500 would fall to 3,052.

 

Again, you will find the same pessimistic forecasts abound right now. Every day, I read a new bearish forecast coming out of the big US and Canadian financial firms. I’m sure you are reading the same headlines. Analysts said “buy” in December, and S&P 500 declined 22% YTD…NOW, they figure markets will decline. Great timing!

Do you see why you need to learn to think for yourself? Do you see why you need to adapt a disciplined trading system and IGNORE the headlines?

My bet, now that the financial institutions are in the bear camp (again, with such EXCELLENT timing!) is  that they are once again on the cusp of proving to be wrong! I recently posted a video here where I covered a few contrarian indicators entering the “bullish” zone. My system does NOT YET indicate the bottom is complete! But when I start to see the bearish reports, and I hear the perpetually ineptly market timing crowd drum to the bear…. I know the END of the bear is much closer! Sentiment indicators are getting there, and its just a matter of time.  I will keep you in the loop as far as when I get a bullish signal.

Stay tuned for my next Bear-o-meter report next week. I rely on this risk/reward analysis system to provide unbiased, unemotional, and non-crowd think guidance.

6 Comments

  • Value Trend is also a financial institution.

    We appreciate you providing some colour that contrasts the consensus and supports rationale thinking.

    Reply
    • ValueTrend is not a large multi-faceted institutional-type financial operation. We are a “family office”, and most importantly: completely free and unencumbered by bureaucracy, not to mention corporate directives and crowd-think.
      Just one small example: when I worked with the brokerage firms, I once wrote an article for one of the publications that I still write for today. I wrote that I was bearish. The firm told me to change my verbiage, which was for a market correction, to a more balanced / optimistic one because (like the RBC piece in Dec 2021) they had a far rosier outlook. BTW–I was right, they were wrong.
      Another time I wrote a piece noting that I did not endorse the popular (at the time) policy of Investment Advisors selling mutual funds. I was told (exact words) to “cease and desist” on that statement, because the firm at the time sold tons of mutual funds and my article would be detrimental to their sales.
      So Lance, yes, VT is a financial firm, but not a big institutional firm. And even amongst the other small firms like us- We are very, very, very, very, very different– you should know by reading this blog-
      So please, never compare VT to the big firms, the industry average, or even other small managers. There are a few who think independently, and I know most of them. But we are in the minority.

      As far as the big firms—Been there, done that, got the t-shirt.

      Reply
      • A financial firm with a different view is a bit of fresh air Keith.

        I have about three to four sources that I rely on for my investing insight. VT is one of them.

        Thanks again.

        Reply
        • Thanks Lance–I know you are a long termed readers–tells me that you are in the part of the people who chose to invest in your self, learn, and think for yourself!

          Reply
  • In regards to an answer from the ask me anything post. You answered why you are not in 100% cash with the statement that you never know for sure but I am wondering given the valuations today are you switching a percentage of those 60 % holds to stocks that are likely to have more torque even in a bear market rally or are they your steady base?
    It seems that some stocks/sectors are really tempting at this point even if I keep my cash at the same level but increase my risk by switching some of my base holds.

    Reply
    • We’ve shuffled a couple of positions around recently, and hold what we view are good positions in the current environment. We are simply waiting to deploy cash as/if/when our system dictates its time to do so.

      Reply

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