Newsletters – Great Business…But Their Advice? Exercise Caution!

Oak Harvest discusses whether or not financial newsletters are fiduciaries and then discusses our current view of the markets!

Chris Perras: Hey, Happy Friday. I’m Chris Perras, chief investment officer at Oak Harvest Financial Group. We are an investment management and financial advisor here in Houston, Texas, and welcome to our July 30th Stock Talk Podcast: Keeping You Connected to Your Money.

Despite all the negative TV commentator comments and bearish newsletter writing telling us about coming confiscation of your cash from retirement accounts, the S&P 500 is up 36% in the past year, 27% annualized in the last six months. Even better, we are now halfway through the summer in the stock markets in the normal second and third quarter seasonal slowdown in our economy, because we’re almost 75% consumer-led. While the index is about 10% to 12% above its 200-day moving average, we remain positive for the next six months.

Fearmongering over politics, COVID wave, whatever, three, four, five, I can’t tell now, and peak growth are we believe, just that, fearmongering. We’ve covered this topic about once every six months for the past few years, but we are continually reminded that we must keep on educating our followers that newsletter writers are not fiduciaries. They are not required by law or any other governing body to act and provide advice in their reader’s best interest, first and foremost.

As such, they literally can and will say anything in order to grab your attention, and for you to sign up and subscribe to their newsletter services for as little as $99 a year. I have yet to find a newsletter writer who actually has run other people’s money successfully during their career. The vast majority of newsletter writers’ bios I’ve read are either academics, economists, retired politicians, or former sell-side brokers.

We have included a disclosure taken directly from one of those many subscription newsletters we receive inquiries about every few months. They are not fiduciaries. I’m going to read this for emphasis, and I quote, here we go, “The first thing to know about our business is that we are not money managers, brokers, or fiduciaries of any kind. Our published work is not a low price replacement for experienced money manager, broker, or investment advisors. Instead, we are a publishing company, and the other indicators, strategies, reports, articles, and other features of our products are provided for informational and educational purposes only.

Under no circumstances should you construe anything that appears in our newsletters, reports, or on our website as personalized investment advice. Our recommendations and analysis are based on Security Exchange Commission filings, current events, interviews, corporate press releases, and what we’ve learned as financial journalists. You shouldn’t make any investment decision based solely on what you read here, we urge you to get as much education as possible and to consider consulting a licensed individual advisor before making investments of any kind.”

They’re actually pointing you to get advisor advice. “We are not responsible for your results, good or bad. We will not take credit in the form of percentage of your profits for your success, nor are we legally liable for any of your losses. Subscribing to our newsletters will not make us responsible for your investment results. You will bear the full burden of the risks should you decide to take them. As we will regularly remind you, it is your money and it is your responsibility. Our lack of fiduciary responsibility,” there’s the word again, “might cause you to second guess our work, but that’s fine with us. We urge you to be critical of our writings.”

Well, that’s it. That’s their full disclosure. Our investment team keeps hearing bearish calls on the market due to it being overvalued. A lot of these newsletters are saying that. We remind our readers that valuation is a horrible timing tool over weeks, months, quarters, and years in many cases in the stock market. We also remind listeners that most of these strategists have been parroting the same lines for the last 12 months. High valuations themselves do not bring the market down. However, they can magnify any downward move triggered by other factors.

The forward P/E ratio the S&P 500 currently sits around 21 or 22. That’s about a 4.5% earnings yield. That’s the highest level since the tech bubble as everyone keeps reminding us. However, interest rates are less than half their level back during the tech bubble of 1999 and 2000. While the earnings yield itself has dropped to new lows, the spread versus the 10-year Treasury, has held pretty steady. Bad breadth has been another recent rallying cry amongst continually wrong-footed bears. We covered this topic in detail in last week’s podcast. Recent research notes throughout Wall Street, have also been littered with warnings ranging from cautious to outright bearish the last month or two, because the breadth of the market has been trending lower since June, by their accounts.

Why have we chosen to downplay the narrowing breadth the last month or two? The answer should be another question. That question, does this topic even matter right now? The short answer is, a resounding no. Historic data shows that market breadth is not a coincident indicator. In fact, it has peaked a full two years ahead of the price of the S&P 500 since 2013. The facts are the S&P rallied another 45% between 2013 breadth surge, and its 2015 price peak, and another 35% between the 2016 breadth surge, and the 2018 price peak.

Historically, breadth thrust do not occur at market tops, nor does declining breadth portend an eminent market crash as most newsletters seem to be parroting. Those touting an eminent market crash and selling newsletter subscriptions because of deteriorating market breadth the last few months should run out of their own breath and oxygen well before the market goes their way. This cycle has taken almost two years for the market to be affected by deteriorating breadth. This would put any concerns from our team in the first half of next year. As far as we are concerned, bears and strategist calls for a -10%, -20% corrections continue to be grasping at straws.

It’s summer, and as far as the Oak Harvest team is concerned, it’s been a very normal one at that. I remind investors, let’s try to be patient. Let’s try to be in front of where people are going with their money, not parroting what everyone else is. At Oak Harvest, we’re a comprehensive wealth management and financial planning advisor located right here in Houston, Texas. Give us a call to speak to an advisor. Hopefully, we can help you craft a financial plan that is independent of the volatility of the stock markets. Our phone number here, 281-822-1350. We are here to help you on your financial journey into and through your retirement years with a customized retirement planning.

Male Speaker: All content contained within Oak Harvest Podcast 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, indicators, statistics, or other sources are not guaranteed.

The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.