3 Things You Can Ignore From Now On
- Joshua M Brown
- December 12th, 2010
I've been keeping this list mentally for a little while and I figured I may as well write it down, even if it's still a work in progress.
We have this problem lately where the internet has equalized the magnitude of all bits of data and news. When everything is shouted into a megaphone (repeated across 500 websites), it all sounds so urgent and essential. But it isn't. Dr. Phil Pearlman calls this "The Headline Bubble".
But not all shreds of intel are created equal and some have no value whatsoever. Here are three things you can ignore from now on...
1. Aggregate Insider Buying and Selling Data:
Of course the amount of insider selling keeps climbing - because the stocks are worth more, not because executives are more bearish. If a VP at Google sells 5000 shares at 600 per share versus a prior sale at 400 per share, did insider selling really just "explode by 50%"? Shush. Insider buying and selling should only be paid attention to at the single company level. We've seen higher levels of insider selling for US stocks month after month throughout the 85% rally these last two years.
Every single article you read about market-wide insider selling levels wasted your time, every chart of it wasted your eyesight.
2. Old Men Writing Newsletters:
There's a tiny company called Vibram making "five finger shoes" that make it look and feel like you're barefoot. They did $11 million in sales in 2009, in 2010 they'll finish with more than $50 million and in 2011 someone in your family will be walking around in them. To buy these shoes, the kids will find the money that all those dour old men told you doesn't exist.
Old men writing newsletters about "battening down the hatches" and "the New Normal" hear about something called Groupon being worth $5 billion and automatically assume "Bubble" because the company doesn't assemble aircraft carriers - they can't wrap their heads around the hundreds of millions in cash flow being generated by a web-based startup with almost no employees, physical real estate or equipment.
Mohamed El-Erian probably made over 500 TV and radio appearances in 2010, not once did he tell you about Redbox ($CSTR). Or Netflix ($NFLX) or IMAX ($IMAX). Or Ugg Boots ($DECK) becoming a perma-brand like Nike. Or Green Mountain Coffee ($GMCR) becoming the new Folgers. Not once did he mention the fact that fashion and entertainment defy the business cycle and that teens will find a way to spend on new stuff - even against a backdrop of 21% unemployment for their age group.
3. Equity Mutual Fund Managers:
They're all over TV and print again, and what's worse, their confidence is back. They're crowing their successful investment stories again as the painful memories of 2007-2009 begin to fade. They must be ignored at all costs. They will make projections about cumulative annual growth rates for their portfolio holdings going out 5 years. They will use these projections to justify high valuations and performance chasing. They will smile at you through their makeup from your television screen as if they are 95% long because of a Sixth Investing Sense that only they possess. This is not the case.
They are fully invested because John Hancock and Fidelity pay them to be. Their job is to find and hold attractive stocks at all times, even when market conditions overall are unattractive. They are always optimistic because they cannot raise assets for their funds otherwise. They are not on TV to suss out the truth or have a frank discussion about asset allocation, they are on TV to raise money. Smile!
They will remain equally optimistic on the way up the mountain and on the way off the cliff, never seeing either the ascent or the fall coming ahead of time.
There are many pieces to the puzzle out there, almost too many important things to keep track of for market participants on a weekly basis. Insider selling, newsletter grumps and stock fund managers are three pieces you can discard to make your life easier - they offer nothing of consequence to any who heed them.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.