Breaking News — Pundits and Their “Smart Money” Opinions

Join Chris Perras for the 5/15/2020 edition of Stock Talk!

Chris Perras: Good morning. I’m Chris Perras, chief investment officer at Oak Harvest Financial Group in Houston, Texas. Welcome to our weekly Stock Talk podcast: Keeping You Connected to Your Money. This week’s title is Breaking News, Smart Money Opinions. The S&P 500 is sitting near 2,850 that’s down around 100 points or about 5% from our rally highs mid-last week. Why is the market pulled back? You may ask, well, turn on Network TV and listen to the pundits. It’s because the economic data is so bad or they say stocks, haven’t been this overvalued since the internet bubble, or maybe you heard or mirroring the Spanish flu outbreak of 1918 and we’re going to have a second wave of infections this summer. Well, we’ve received a number of calls this week from clients who have been concerned because the likes of David Tepper, Stanley Druckenmiller, and Warren Buffet had been on TV voicing their opinions on the markets and the economy.

Well, listeners, these are brilliant investors. I could only hope to duplicate one, 1,000th of their success. However, each one of these investors has different goals and objectives. They have different goals and objectives from each other, and more importantly, they have different goals than you have. I want to revisit the great financial crisis to give listeners perspective on today’s forecast by a number of these individuals. Let’s go back to June 2009 at the depths of the economic despair, one of these well-known investors while interviewed on CNBC. What did he say? Well much as he has said the last two weeks back then these were his answers to the questions on the economy. Here are direct quotes from him in June of 2009. Quote, “Everything that I see about the economy is that we’ve had no bounce.” Another one, quote, “The economy will be in shambles this year and probably well beyond.” Finally his last quote, “I thought maybe by now, I’d be able to see green shoots. We’re not seeing them, whether it’s retailing, manufacturing, whatever, we aren’t seeing them.”

Who made these comments? Well, these comments were made by Warren Buffet and listeners, the S&P 500 had already rallied 43% from its March 9th, 2009 lows. The economic visibility at the time, what was it? It was non-existent. However, stocks were rising. Today people look back and they say, “Well, geez, Warren Buffett was buying stocks in 2009.” They point to his purchase of Burlington Northern for $34 billion, which at the time was their largest deal ever. Now, please listeners go back and review 2009. The Burling Northern deal was announced in November of 2009. That’s six months after the market low and three months after his CNBC interview with Becky Quick, where he saw no green shoots at all.

What’s the takeaway from this story? Well, the takeaway is threefold. First, these opinions on TV are just that, they’re opinions. They aren’t breaking news and these people can change their mind any day and they are unlikely to tell you or anyone else if, when, and why they did. Secondly, while these investors have been wildly successful in investing all of their lives, each one of them has a totally different style. Paul Tudor Jones is a Uber short-term trader. Warren buffet is a long-term value investor that wants to buy and hold forever. They do almost exactly opposite things. Moreover, neither of them is managing your money unless you own Berkshire Hathaway stock. Finally, the highest compounding returns you will have as an investor will be investments you make during times of uncertainty like now, like recessionary periods, like now. We are currently going through these periods.

You don’t have to be perfect in your investment methodology if you’re a long-term investor. You don’t have to buy the lows to have good long-term returns. Warren Buffet didn’t buy the lows in 2009 or when he bought his Apple purchase years later. He has done pretty well on both of these purchases. Clients can log on to our web portal and see the 2009 time period that I’m discussing about Warren Buffett’s timing. By the time that Burlington Northern deal was announced in November, the S&P 500 was already six months past the bottom of the stock market and retraced more than half of the bear market losses. The point we are making is that in 2009, even three months past the bottom, there was zero economic visibility, even November 2009, which was early in the recovery. The moves by Buffet back then were considered bold and even much of faith because the economy was simply in shambles back then.

The current quotes throughout the beginning of this week, ring eerily familiar to us. Even by 2010, 12 months past the March 2009 equity bottom, there was more doom than boom. Even one year past the market slow, the economy was still pretty fragile and the TV news channels were busy interviewing and quoting economists and “smart money investors” who remained skeptical, or perhaps more appropriately, they remained bearish and negative.

One of my favorites of all time is Dr. Doom, Nouriel Roubini, who said 2010 stocks would be set to tumble another 20% to new lows and cash was the safest place to be. As Paul Harvey used to say, now we know the rest of the story. As for today’s market, one of the least appreciated aspects of the stock market is history of declines in recoveries. Markets tend to move symmetrically in both price and time. The faster the decline, the faster the recovery. In 2020, the market’s high-speed decline suggests a symmetric high-speed recovery.

Clients, please review the charts, brought to us by fund Strat title V bottoms rule. What one will see is that there have been 10 declines, a greater than 36% since 1920.

That is, there have been pretty much 10 recessions in the stock market. What one will see on the chart is that historically it’s taken as little as 0.6 times as long to return to market highs to about eight times as high to return to the market high. Basically, if the market took a month to drop, it takes up to eight months to return to the market high. If it takes a year to drop, it might take eight years to return to the high. You will not hear this data on TV. You won’t hear it because it doesn’t fit with the current meme that’s in the market. If you follow this history, one would expect, could expect, excuse me, the market to regain its all-time highs. Sometime later this year or early 2021, that’s much to the chagrin of those calling for depressions and repeats of 1930’s.

While this might sound like insanity on the financial news networks, it certainly isn’t outside the realm of possibility and likely outcomes. The federal reserve in government is doing historic things on both the monetary and fiscal fronts to help backstop the economy and the markets as we move through the valley of economic activity caused by the virus. Even comparisons of the current virus situation to the outbreak of the Spanish flu in 1918 would argue for an economic downturn to be very short. The final chart that clients can see on our website and client portal is one showing the length in each of the 20 to US economic recessions that we’ve endured since 1900. The recession brought on by the Spanish flu in 1918 lasted only seven months and was the second shortest in us history. It was a painful event, both health and economic-wise, but the economic hit lasted less than three-quarters of a year.

A replay of this would have the US exiting our event-driven recession in the fourth quarter of this year or the first quarter of next year. We all know that stocks move four to six months in advance of us exiting recessions. Listeners, recessions, and volatility while uncomfortable breed opportunity and the potential for higher than normal expected returns in equity markets. They don’t breed lower returns. At Oak Harvest, we are comprehensive long-term financial planners. What this means is that as our client, you and your financial advisor should have a financial plan that is independent of the volatility of the stock markets. If you’re retired or in the process of retiring, give us a call at (281) 822-1350. We are here to help you play your financial future and help smooth that the natural path you had into and through your retirement years with a customized retirement planning. Thank you, many blessings, and stay safe. This is Chris Perras at Oak Harvest.

Speaker 2: The proceeding content expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, statistics, and sources are not guaranteed. Content ideas and strategies discussed may not be right for your personal situation and should not be considered as a personalized investment tax or legal advice or an offer or solicitation to buy or sell securities. Investing involves the risk of loss and past performance does not guarantee future results.