Tag Archives: Market Timing

Post US Election Update

Last month, we wrote an article for Forbes magazine about how this year’s US presidential elections could impact the stock market.


Here is how our prognosis stacked up to what has come to pass over past couple of days:

The impact of mail-in votes

“The first major issue is that Covid-19 restrictions will create a very different in-person voting environment than in previous elections. It is also anticipated that there will be a record number of mail-in votes, which take considerably longer to tabulate. This means that there could still be many votes to count in the days following November 3rd.  

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“Markets in Turmoil”

2 months ago we saw a tweet from Charlie Bilello. It was 27th December. The tweet stated that CNBC will be airing “Markets in Turmoil” episode that night. Episodes of this particular show are aired when markets have been falling hard and everyone is scared.

The tweet also included a look back at past occasions when the show was aired and the performance of the S&P 500 index following the episodes.

We’ve updated the table to include the most recent data:

Markets in Turmoil S&P 500 close 1-week 1-month 3-month 6-month 9-month 12-month Up to 2/25/2019
2/5/2018 2649 0.30% 3.70% 2.40% 8.90% 4.30% 5.41% 7.85%
2/8/2018 2581 5.90% 7.40% 6.30% 10.40% 10.60% 7.04% 10.66%
10/11/2018 2728 1.50% 0.10% -4.35% 3.29%
10/24/2018 2656 2.10% 0.90% 0% 6.06%
12/27/2018 2489 -1.59% 7.21% 12.74%

Going back to 2010 the airing of Markets in Turmoil basically has worked as a buy signal. Every single time after the show was aired 6 months later markets were higher, the same can be said regarding periods of 9 months and 12 months.

1-week after the airing of Markets in Turmoil more than 70% of time markets are higher, more than 60% of time markets are higher 1 month later and more than 90% of time markets are higher 3 months later. Since the last episode aired on December 27th S&P 500 Index returned 12.74%.

Any individual episode of Markets in Turmoil shouldn’t be taken as a buy or signal. Next time the episode could air when the markets are just starting to fall or vice versa starting to go up. Using the data and table above, we want to point out that history shows patience pays off. The longer your investment time horizon the less sense it makes to try and time every single market move. read more


What is the opportunity cost of waiting for a market correction?
LINK: Opportunity cost of waiting for a market correction

Disney to leave Netflix
Starting 2019, Netflix and chill is going to have to take place without the usual late-night session of Frozen, as the media giant announced its plans to remove its content from Netflix and start its own streaming service.

Reportedly, Disney is also going to launch an ESPN streaming service early next year, which is going to feature sports events from the NHL, MLB, MLS, collegiate sports and Grand Slam tennis.

Netflix traded roughly 5% lower in after-hours trading, after the statements were made.
LINK: Disney to leave Netflix

If Retail Is Dying, Why Is Money Pouring Into Malls?
LINK: Are malls going to make a comeback?

Tesla seeks $1.5 billion junk bond issue to fund Model 3 production
LINK: Tesla needs money
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Should we buy the dip?

Last Wednesday we saw a broad sell off in global equity markets. We had not seen this degree of a sell off for quite some time. For instance, the most widely used ETF (QQQ US) of the NASDAQ 100 Composite Index fell 2.54%. The next day QQQ rose by 0.87%, and on Friday it rose again by 0.42% – closing at a level that was just 0.87% away from recent highs.

Our foremost mission is to safeguard our clients’ capital. Therefore, when faced with drawdowns of a significant amplitude, we must decide whether fight or flight is the most appropriate response. In other words, should we be selling, or should we buy the dip?

In this particular case, we have investigated the historical price movements of the NASDAQ 100 because it better represents our current heavy overweight in technology stocks.

Over the past five years, there have been 1257 trading sessions. The average daily move of QQQ was 0.07%. There were 554 down days and 703 up days. On the average down day, QQQ was down 0.69%, while on the up days it rose by an average of 0.67%. What is immediately evident is that QQQ’s movement was larger on the down days than it was on up days. Moreover, QQQ’s positive performance was attributable to a greater number of up days than down days.

In order to define the dips, we have looked at the distribution of returns. Moves that were two standard deviations from the mean started at approximately -2%. Over the period analyzed, there were 32 days when QQQ declined by more than 2% in a single trading session. On average, during these 32 days, QQQ fell by 2.71%. The next day, on average, QQQ fell a further 0.17%. It is important to remember that these are averages. In one instance, after a 3.13% drop, the next day QQQ rose by 2.82%. In another instance, after 4.37% drop in one day it fell a further 3.85% the next day. Therefore, if you were looking to earn on a bounce-back the following day, the past five years of trading history indicate that you would have ended up disappointed.

Ok, but what about the next five days? By doing some more calculations, it turns out that after a more than 2% daily drop in QQQ, two days later you would have averaged a -0.02% return. After three days, returns become positive at +0.34%. Four days later returns averaged +0.52% and increase to +0.6% after five days. Of course, these results spanned a wide range and these are just averages. For example, five day returns ranged from -5.71% to +5.51%. However, we can conclude that on average, investors would have realized a +0.6% return by buying QQQ after a more than a 2% drop and holding it for 5 days.

What about a month later? Taking out non-trading days, we will assume that ‘a month later’ implies the return after the next 22 trading sessions. On average, buying right after the dip and holding QQQ for the next 22 trading sessions would have returned +2.55%. Here the returns also vary quite considerably: from -7.17% in one instance, to a +14.03% return on the positive end.

What are the conclusions? Over the past five years, there has been no point to try to game the market by buying it right after the dip. The next day’s return on average was negative, as was the average return of the next two days. On the third day, average returns became positive, and a month later such a strategy would have returned an average of 2.55%.

As you can see from QQQ’s price graph for the last five years, buying dips would have resulted in higher returns:

For those with a long investment horizon, buying and holding, or adding to QQQ on dips would have been beneficial.

How does this relate to our asset management strategy?

Our overweight in technology stocks has been an important driver in our investment returns. There have been occasions when we have bought on dips, but is important to remember that this only possible if you have capital available. As such, we are very critical of our holdings, and do not hesitate to sell if we believe that a stock has risen too much too soon.

Most of our clients have long-term investment horizons, but that does not mean that we ignore short-term market movements. Our main goal is to never be forced to do anything, but rather to be selling when everyone else feels they have to buy, and buying when everyone else is forced to sell. Taking profits on short-term moves plays a large role in positioning our portfolios to take advantage of cheaper prices during the next sell-off.

It just so happens that last Tuesday we were making sales. By Friday, we had already put some of the proceeds to work… read more

We Have Been Selling

In our January commentary (LINK): Our January Results), we said the following:

Looking at the broader market, all major US stock indices are at all-time highs. On the other hand, the Volatility Index (VIX), which expresses anticipated market volatility, is at historical lows. Although we have been taking profits on some of our high-flying stocks, we do not intend to try to time the market by selling stocks that we like in the hope of buying them back more cheaply in the future. This is called being ‘cute’. ‘Cuteness’ is the domain of babies and puppies, not investment managers.

Four months later, our patience and resilience has paid off very handsomely.

And we are now selling…

We’re not selling everything, but we are selling some of our champions that we believe have gotten considerably ahead of themselves (AMZN US, GOOGL US, NFLX US, ROBO US).

Oh, the time we’ve had…

I assure you that its nothing personal. We still like these companies and sectors, but you want to be selling when you feel that markets have forgotten what that means.

We are no means fleeing to cash, but we are gathering up some dry powder that will serve us well is a sell off, as well as initiating positions in industries that have done poorly in the latest market move and have characteristics and valuations that will be appreciated when things get tough.

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German Business Climate is Getting Better and Better

The business climate in Germany continues to improve. This is good for stocks.

Just like the sun warms the ground in spring and lets farmers plant their crops, so too does optimism lead to heightened investment and economic growth. Think of the liquidity provided by the ECB as seeds. Having seeds is great, but you can not make actual use of them if your fields are frozen. It looks like the fields have finally thawed, and the sun (business and consumer confidence) is shining. This is the critical element that the European economy has been lacking.

LINK: German Business Climate Survey

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How Major Asset Classes Performed In January

In a world inundated with terms like ‘alternate facts’ and ‘post truth’ we take comfort in numbers.

Our business is simple, you make money for your clients or you don’t. No amount of academic accreditations, algorithms or excuses can compensate for not making successful investment decisions (see ‘Long Term Capital Management’…).

Here is how major asset classes performed in January:

LINK: Major Asset Class Performance January 2017

And here is the performance of our top equity holdings:
top 10

To translate: our overweights in tech, emerging markets, and biotech delivered exceptional results in our equity allocations.

Our average weighted returns for January will be available shortly. January seems to have gone on forever, but it was nevertheless a good month for our client portfolios. read more

The Five Trades That Most People Have Gotten Wrong – But We Have Gotten Right…

LINK: Five Trades That Most Have Gotten Wrong

1) Short Trump

*** we have added to equity positions ***

2) Long Dollar

*** our USD exposure in Euro accounts is completely hedged ***

3) Short bonds

*** we did not flee bonds and have added to names we like on price weakness ***

4) Long Banks

*** we do not have any targeted exposure to bank stocks ***

5) Short Healthcare

*** we have held onto our healthcare positions and have added to our biotech holdings on dips ***
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Hindsight is 20/20 and “The Could Have, Would Have, Should Have” Portfolio

“What hindsight does is it blinds us to the uncertainty with which we live. That is, we always exaggerate how much certainty there is. Because after the fact, everything is explained. Everything is obvious. And the presence of hindsight in a way mitigates against the careful design of decision making under conditions of uncertainty.”
(Daniel Kahneman)

Having worked in capital markets for over 15 years, I am very much aware of false clarity of hindsight. When I worked as an institutional trader in Canada, we used to joke that the best portfolio was the “could have, would have, should have” fund, meaning the investments that we would, could or should have made had we had the ability to look into the future. For instance, I remember discussing Apple with a portfolio manager back in 2004. Had we had true conviction, we should have theoretically taken all the money we had, quit our jobs and gone 100% or even 500% into Apple (using leverage would have magnified the genius of the trade…). But we didn’t, because uncertainty is the one true constant in investing.

The true art of investing is in recognizing patterns or motifs – be it through financial analysis or otherwise – that give you a higher probability of success. Hindsight is only valuable if it contributes positively to your current structure of reasoning. This means striving for a higher clarity not only of what could go wrong, but what could go right. Many investors forget the second part. Investors often tend to chase that which is already going ‘right’, forgetting that the probability of things going wrong could be increasing every day. Conversely, we stay away from oversold assets because our natural disposition to what just happened (especially if its bad) prevents us imagining something positive going forwards.

Imagining what could go right does not mean imbuing one’s self with false hope. Rather it means identifying themes and narratives before they have become 20/20, and having the proper degree of conviction to follow through. This involves recognizing you own – as well as the market’s – current biases. And you have to be ready to act decisively when you have determined that an opportunity should be seized. As with in most things in life, you should not lose heart at hearing ‘no’, but you have to be ready to act when you hear ‘yes’. Investing is no different. read more

When to buy tech stocks?

As you may already know we like tech stocks. We have written several posts about Twitter, Netflix, Facebook, Google and others. When you have tech stocks in your portfolio then the constant growth that the info tech sector has shown works in your favor. If you do not own any tech stocks though there is strong will to buy then main question is when to buy tech stocks?

Going from quarter to quarter and from year to year, these companies seem to be growing regardless of market conditions. Every time individual tech stock reaches record highs, we read about in news and think that we should own it. Yet we do not want to overpay for them as we have heard many times “Buy low, sell high.” Therefore, we decide to wait for some correction to buy the stock. Weeks and months pass by, we may have taken a bit less active management style, there is new quarterly earnings, and stock reaches record highs again and we have missed our opportunity to buy.

There is an option. We could buy these stocks at any time. Maybe some historical perspective will help.

  S&P500 index S&P 500 info tech index
1 month -1.89% -0.36%
3 moth -1.59% 3.85%
6 month 4.00% 15.51%
Year to date 5.81% 12.14%
1 year 4.43% 10.52%
2 years 9.85% 22.89%
3 years 54.22% 28.42%
5 years 94.06% 111.01%
10 years 97.36% 169.98%


Data as of 2016.11.01, Source: Bloomberg

Table shows total return for S&P 500 index vs S&P500 info tech index for different periods. As we can see from the table tech stocks have outperformed S&P 500 in every time period.

Therefore, if you’re considering owning tech stocks this may be as good moment as it gets to buy them. read more