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Running of the Bulls

Posted on March 21, 2017

“‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’” – Ernest Hemingway, The Sun Also Rises

2017-03-21_Running_of_the_Bulls.jpgEvery July shortly after we here in the United States celebrate our Independence Day with a bounty of BBQ and a display of fireworks, the citizens of Pamplona, Spain celebrate the San Fermin festival which is a weeklong celebration that includes the now infamous Running of the Bulls where adventurous festival participants run through the streets in front of a group of bulls and steers. The Running of the Bulls can be a dangerous event, and it is not uncommon for a number of participants to be injured or sometimes even killed.

There are similar parallels to be made to a bull run in the stock market. When stocks are going up, up, up and bulls are running, endorphins are flowing and people are excited by all the money they are making! It is human nature to be excited about higher stock market prices and turned off by lower ones. But as history has shown, bull market runs eventually turn into bear market slides, and investors that don’t have a plan in place on how they will weather the bear markets will find their financial futures have been gored, or worse yet, totally wiped out. In this week’s post we’ll look at a several observations and data points I’ve collected over the past couple weeks to gauge the temperature on the current bull run and what can be done in order to avoid Mike Campbell’s fate from Ernest Hemingway’s book The Sun Also Rises, which (going full circle here) turned Pamplona’s Running of the Bulls from a local event into an international attraction.

A couple weeks ago I received an email with the below screen shot from a recent episode of Fast Money on CNBC. For those unfamiliar with the show, it is an open discussion format where several Wall Street experts talk about what they are seeing in the market and give advice for how investors can profit from their insight. As the caption from the embedded screen shot clearly indicates, on this particular episode they were simply recommending that investors “just buy everything” to profit from the “Trump rally.” In other words there is no need to use discretion with how your money is invested because people need to just buy stocks! 

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Shortly after receiving the aforementioned email, I was doing some research on different ETFs (exchange traded funds) at etfdb.com when I noticed the banner advertisement below across the top of my screen. Along similar lines as the Fast Money advice, this advertisement was trying to woo investors to sign up for their webinar by playing off the same sentiment that “cash is trash.”

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The very next day I was reading an article on TheStreet.com (a fairly reputable investment news site co-founded by none other than Mr. Jim Cramer) when I noticed the following advertisement that was embedded in the article. Guaranteed to make $67,548 (such an exact number) on a 9 minute a week investment of my time? That’s like getting paid $8,660 an hour! Step by step instruction? Easy money? Where do I sign up?!? Then again, we all know what Chris Farley’s character had to say about guarantees in the hilarious 90’s comedy Tommy Boy.

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Finally, earlier this month, Snapchat had their IPO (initial public offering) and finished the day up 44% from its offer price, which equated to an increase of nearly $9 billion on its first day of trading. Now it isn’t uncommon for stocks, especially tech stocks, to see a big “pop” on their first day of trading. After all, investment bankers are paid to stir up excitement and create demand for a company’s shares. The thing that was unique about Snapchat was that the stock being offered was all non-voting shares. Typically, when a company goes public to raise capital, the trade-off is that the individuals running the company have to give up control. That wasn’t the case for Snapchat because investors are “just buying everything” indiscriminately. My guess is that a company like Snapchat can get away with this when the Dow and the S&P are making all-time highs, but probably would be laughed out of the room if they tried to pull this off in the throngs of a bear market.

If you’ve been investing for any length of time, you have probably heard someone (including ourselves on this very blog) reference the Baron Rothschild quote from the 18th century stating, “The time to buy is when there’s blood in the streets.” And long before Baron Rothschild, the character Brutus in William Shakespeare’s play Julius Caesar stated, “There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune.” The wisdom both of these quotes are passing along is that fortunes can be made by those that are able to identify the ebb and flow of human sentiment and take a contrarian stance at the inflection points.

I think it is safe to say that the general sentiment of the market is one of bullishness and euphoria versus bearishness and caution. In fact, a recent Investor Intelligence poll which tries to gauge the collective sentiment of the investment community showed that we now have the highest amount of bullish investors since January of 1987! But just because market sentiment is extremely bullish and stocks have been marching upward for the past 8 years, doesn’t mean that we are at a market top. Sentiment was extremely bullish and stocks (especially tech stocks) were historically expensive in the mid-90’s, but if you sold at that point you would have sat through half a decade of pain as the stock market continued to march higher. And even if you managed to miss the tech bust and time the perfect point to reinvest at the bottom of the cycle in late 2002, you still would have bought back in at a higher price than you sold.

And therein lies the rub. We’ve written multiple times on this blog about how making predictions about the future of the stock market are nothing more than a fool’s errand because so many variables are at play in a complex system dictated by chaos theory. Which is why we again go back to the point that investors need to have a plan in place on how they will weather the bear markets rather than simply getting caught up in the euphoric sentiment of a bull market. For some, that means a buy-and-hold discipline through thick and thin. Buy-and-hold index investing is the strategy du jour at present, but will it be if we see another stock market sell-off like we had in 2008 or 2001 or worse yet, 1929? We doubt it will, which is why we try to solve for the human element of investing through the use of our trend following discipline.

In conclusion, even though there are a number of sign posts indicting that this bull market run may be a bit frothy, we aren’t going to try to call a market top and reduce our stock market exposure based on a gut level conviction. If we are indeed at a market top, then the intermediate-term positive trend will eventually turn to a negative one and we will begin reducing our stock market exposure to protect capital. Will we ever perfectly time a market top or bottom? Nope, but that is okay, because history has shown that sentiment shifts and economic cycles can be long and drawn out. As such, you don’t have to perfectly time the market in order to reduce volatility, provide downside protection, and ultimately compound higher rates of return. The key is to stay committed to a disciplined investment process through thick and thin and not capitulate when it runs out of favor with whatever strategy is working in the moment. By doing this, you have a good chance of not being gored by a bull run or mauled by a bear slide and hopefully can avoid the fate of Mike Campbell.


elliott_headshot_bw.jpgAuthor Elliott Orsillo, CFA is a founding member of Season Investments and serves on the investment committee overseeing the management of client assets. He spent nearly ten years as a financial analyst and portfolio manager working primarily with institutional clients prior to co-founding Season Investments. Elliott earned a bachelor's degree in Engineering from Oral Roberts University and a master's degree from Stanford University in Management Science & Engineering with an emphasis in Finance. Elliott and his wife Gigi have three children and like to spend their time outdoors enjoying everything the great state of Colorado has to offer.


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Transparency is one of the defining characteristics of our firm. As such, it is our goal to communicate with our clients frequently and in a straightforward way about what we are doing in their portfolios and why. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. It represents only the opinions of Season Investments. Any views expressed are provided for informational purposes only and should not be construed as an offer, an endorsement, or inducement to invest.