Please note that this post is 1800 words in length and even though I have tried to proofread it, it might not be perfect but I couldn’t pass up writing about it… Enjoy and do listen to the full audios from the speakers as it was a very interesting lineup.
The StockTwits Symposium at Harvard took place on May 8th from 4pm to 7:30PM and covered a variety of topics including trader & market psychology, technical analysis, fundamental analysis (value investing) and insights on economics data from a money manager.
The lineup featured Todd Sullivan, Josh Brown, JC Parets & Dr Phil Pearlman but there were also a few other intriguing guests in the room including Eli Radke (read his legend!) , EconomicDisconnect blogger, Bob Nelson & Adam Feuerstein.
Todd Sullivan – General Partner at Rand Strategic Partners and author of ValuePlays talked about the benefits and examples of value investing.
His philosophy is to buy assets worth $1 book value for less and sell them for $1. Please note to the novice investors that this doesn’t mean buy stocks that are trading for $1 or less and selling them when they reach $1… in value investing you look at the Book Value or the NAV (don’t always rely on the values on financial sites so do your own research by digging through the 10-k forms of companies). Fore example if the NAV is $10 and the stock currently trades for $5 then the stock is trading at half book value (aka less than $1) and might be a value stock IF there isn’t anything shady or wrong with the company and a great buying opportunity for huge gains down the road.
Todd prefers the balance sheet approach versus looking at earnings of the stocks since earnings can get easily manipulated by companies and the balance sheets are usually reflecting the real picture. Among the indicators such as Book Value and NAV (Net Asset Value) he also looks at cash reserves and cash flow of a company.
The time frame for value investing spans from 1-3 years on average and Value investing is NOT a buy and hold strategy. When asked what screening process he uses to find value stocks Todd replied that no screening process can be applied as there are too many one time events which can’t be accounted in the screening software.
[mp3player height=20 width=150 config=fmp_jw_widget_config.xml playlist=joshbrown2012.xml] << Listen to presentation (Run-time: 36 minutes) Note:NSFW!
A former Wall Street retail stock broker for 10 years during the secular bear market, Josh dropped his series 7 license and he is now a Wealth Manager (Adviser) at Fusion Analytics where he is not commission based but gives advice for a fee and has the client’s best interest in mind. He started off the presentation discussing the power of money and how emotional we are about it as money sometimes represents flexibility, sex appeal, status, safety etc.
Josh is optimistic about the potential America still has as there is a great wealth in this country contrary to what the news media tells us every day. As of April 2012 there were $58.4 trillion dollars in total household assets after debts and liabilities, $28.6 is investable assets some of which is already invested and some is cash. He also argued that home prices have stopped falling and according to Josh the Case Schiller index is a very flawed indicator as it uses only 20 cities.
Of course, Josh also neutralized his upbeat optimistic approach when he mentioned the fact that now it costs more to live your daily life, with higher gas prices, food prices, health-care costs and their projected costs in the future. He briefly mentioned on the wealth transfer predicted 15 years ago from the boomers that didn’t happen and boomers are now living past the life expectancy of 78 and 25% of them are living past 90 years which complicates things when people plan their retirement because they need to plan for longer term than before.
Another important thing to remember is that no matter which party wins in this election this November, taxes are going higher the only difference is in which taxes are going higher or how much, either side has their opinions on that issue. The Bush era tax cuts are expiring at the end of this year including capital gains and dividend income to health-care etc and while the whole thing won’t go away due to lobbyists but we are going towards a Fiscal Cliff which Josh has now claimed the twitter hash-tag for it and believes it will be the hot topic coming the summer and towards the end of the year.
57% of the boomers have saved less than $100k for retirement and this is almost half of our country so it’s not an easy fact to digest. It’s getting harder to save and get returns because you can’t invest in safe bond funds that are producing 1-2% when inflation is 2-4%. If Apple didn’t exist the stock market would be the least popular thing on earth and it used to be an American past time 10-15 years ago. There are $377 billion of individual stocks and bonds being pulled out of the market every year.
The fed is not going to do anything to raise interest rates, they are stuck. Debt service rates are low and the government can continue to serve our debt. Rates could stay low for a very very long time in Japan style fashion (although US is not Japan in other ways). The Fed can issue currency and has a standing army around the world while the European countries cannot print money on their own (the ones part of EU).
Stocks will become even more important as investing in treasuries and bonds it is not a way to go in saving for the future with inflation higher than the returns produced there and stocks will be needed even more in the future although they are the most hated by main street according to the USA Today’s headline on May 8th (what a coincidence). $40 trillion in investable assets $13 trillion in retirement accounts will need to be managed and the future is bright for financial advisers of the future.
Active traders are going to options market and the option market is exploding and so is the forex due to the leverage provided in those markets. The inactive people are going into treasuries and cash and staying away from stocks and perhaps some money has gone into physical gold which will not end well. The last point Josh made which not many can come to terms with is that news has already been processed and disintegrated in the matrix of global economy by the time it gets to CNBC and other media stations so be aware that everyone has seen these headlines and the information has been priced into the market by the time you get to it. For more interesting bits listen to the audio above.
[mp3player height=20 width=150 config=fmp_jw_widget_config.xml playlist=jcparets2012.xml] << Listen to presentation (Run-time: 44 minutes)
JC is a Technical Analyst and the takes the top/down approach by looking at the big picture of the economy then he looks at sectors within the industry and finds the sectors he wants to go long or short (Materials, Technology, Financials etc), he then decides how to best take advantage of the situation by either investing in Index ETF’s or individual stocks within those sectors.
He started the talk off with an experiment to which we are awaiting results to. First question asked what the next 20% move would be in the S&P. Next question asked if you could only own one stock and hold it for 1 year which would it be… what if you had to hold it for 10 years which stock would you pick?
He then followed by a quote which highlighted that technical analysis is the “action of the market itself”. Among the topics that JC touched up on during his presentation Risk management, sentiment, momentum, seasonality & risk/reward were some of them.
Some technicians overcomplicate things with a load of indicators and others have a Keep it Simple Stupid approach but what they all have in common is risk management. For example if you let a stock drawdown 50% you need the stock to make 100% to break even which is somewhat unrealistic when compared to a 10% loss that needs a 20% gain to break even.
Seasonality, certain times of year stocks do well and certain times they aren’t and he is interested in knowing when these happen and he can or cannot use it to his advantage if he decides to. The other important topic is short term Momentum, if stocks are making new highs the momentum needs to be making new highs, if there is divergence then something is not right.
We’ve been in a secular bear market for past 12 years and usually those markets last for 16 years so we maybe have another 4-5 more years to go until the next bull market.
The trend in stocks relative to gold last for decades. J.C.’s Dow/Gold ratio chart is his favorite chart, historically the market bottoms when that ratio is 1:1 and right now we are at 8:1 so we need more time to bottom out to at least 3:1.
For more interesting bits listen to the audio above.
[mp3player height=20 width=150 config=fmp_jw_widget_config.xml playlist=philpearlman2012.xml] << Listen to presentation (Run-time: 17 minutes)
Phil’s talk on trader psychology was insightful and invigorating. You never can talk about what market experience is like relative to what that experience actually is unless you’re actually in the situation. People love the action (trading etc) that is why Vegas exists and a lot of trading occurs simply because of the action and nothing more. Phil’s favorite quote touched a bit on what JC talked about in risk management above “Loses loom larger than gains”, we have a biological bias to hold onto our losers dearly and act like we don’t have them and avoid them pretend we don’t have them and we will nurse them and get crushed, but we are hard wired to sell our winners too soon as well so we need to adapt by taking risk off.
His last quote by Mike Tyson was “Everybody has a plan until they get punched in the face” sums it all up because when we get into the trading rink we will get your face kicked in and punched in and you will have learned from it next time you get into the market and you won’t get killed again when you get punched because you’ll hold onto your plan. Even the most unnatural behaviors like ballet can be learned even though they are extremely unnatural but trading requires the same learning discipline … For more interesting bits listen to the audio above.
Of course after the end of it all we had a lot of fun walking around Harvard Square and ended the night with a couple of drinks. Unfortunately I had other plans and didn’t stick till the end but thanks again for a great afternoon guys!
Update: We all seem to be on the same page and posted on the same day.. go over have a look if you’ve made it this far. 🙂
Eli Radke’s Overview of the Symposium: Traderhabits.com
Josh Brown’s Back to School Presentation
Phil Pearlman’s The False Truths of Social Finance
J.C. Parets Talking Technicals at Harvard