- Why retail investors lose even when they invest with brilliant managers
- The key to making 11 times your money in a decade, soon to be revealed
- A boost for crude (but it didn’t matter)… and what about natural gas this winter?
- An early read on the economy for December… the rare car collection that rotted for decades… reader inquiries about oil… and more!
“The problem with the 24/7 media culture we live in is that everybody has to have something to say almost all the time,” observes our Chris Mayer. “And yet most of the time, there really isn’t anything worth saying.”
The occasion for Chris’ observation is the performance of many professional money managers this year. Put succinctly, it stinks.
“Active” fund managers — i.e., those that try to beat a benchmark index like the S&P 500 — have turned in their worst collective performance in a quarter-century. According to Bank of America/Merrill Lynch, fewer than 20% of them are beating the market.
“There’s been a lot of ink about why this is,” says Chris. “I don’t really care about it, because I think we’re all guessing.”
Tune out all that chatter, Chris urges: “Don’t try to chase returns, because doing so will cost you a lot of money over time.”
Most people will ignore Chris’ advice. “Consider one of my favorite studies of all time by Dalbar,” he explains. “It showed that the average mutual fund earned a return of 13.8% per year over the length of the study. Yet the average investor in those funds earned just 7%. Why?
“Because they took their money out after funds did poorly and put it back in after they had done well. Investors were constantly chasing returns.”
And it’s not just mutual funds. Investors chase returns in stocks, bonds, commodities, you name it. Result? The typical retail investor underperforms every asset class.
And so superstar money managers like Mohnish Pabrai can turn in sterling performance of nearly 10% a year across a decade… even as his clients’ statements show much less impressive returns.
Meanwhile, this year, Pabrai is underperforming the index — a fact he tells Barron’s is meaningless. “I think it is an irrelevant data point. There is nothing intelligent that one can say about short periods like 10 months.”
“Amen to that,” Chris affirms. “There really isn’t anything intelligent to say about returns over such a short period of time. You have to play the long game.
“And anyway, there are approaches and investors who have beaten the market by a solid margin over time. The thing is they seldom beat the market consistently. The best investors lag the market 30-40% of the time.”
But if you’re willing to use a time horizon of 10 years instead of 10 months… that’s when you start to generate returns that not only beat the market — but crush the market.
We have the proof in the form of a 10-year study that Chris has spearheaded… and a stock-selection method he’s dubbed “the NOVA Code.”
“Since June 2004… if you had done nothing but follow my research and the stocks selected by the NOVA Code,” says Chris, “you could have watched every $10,000 in your account snowball into as much as $289,254.”
But don’t take our word for it. We brought in an independent accounting firm to go over the numbers. Result? An average annual return of 40%.
Two days from now, Chris will begin to unveil the NOVA Code in its entirety for the first time. We’re extending this invitation only to Agora Financial readers… and it won’t be available after tomorrow night. Click here for access.
Major U.S. stock indexes are regaining their footing after another wicked sell-off Friday.
At last check, the S&P 500 was up a half point, to 2,003. Last week, the index fell 3.4% — its worst five-day run since May 2012. Which sounds terrible until you examine the drop in context…
“We’re nearly back in the middle of the S&P’s long-term price channel again,” says Jonas Elmerraji of our trading desk. “That means the index could tumble another 5.1% from here… and still remain within its primary uptrend dating back to late summer 2011.”
Crude tried and failed to pick itself up off the floor this morning. Fighting in Libya shut down two big oil terminals — that’s 550,000 barrels a day no longer hitting the global market.
The oil price popped a bit, but it didn’t last. At last check, a barrel of West Texas Intermediate fetches $56.95 — the lowest since May 2009.
The outlook for natural gas going into the winter is steady as she goes, says our Byron King.
“Last year, between November and February, the Henry Hub spot price of natural gas soared
from around $4 per million British thermal units (MMBtu) to above $6 per MMBtu, a gain of about 50%. Natural gas providers were rolling in money back then, with break-even prices below $2/MMBtu for many producers.
“Today, with so much natural gas already aboveground, we may not see prices go that high nationally,” says Byron — not least because meteorologists are revising their earlier forecasts of a polar vortex rerun this winter.
“But some regions will face potential shortages. That is, places with high population density may be looking at a squeeze in natgas supply based on pipeline capacity and could see localized price spikes.”
The way to play it? Pipeline companies. “Just last week,” says Byron, “the Federal Energy Regulatory Commission approved a new pipeline running from the Marcellus shale fields to the chilly cities and hamlets of New England, which couldn’t pump nearly as much natgas as they wished last winter.”
The early economic readings for the month of December are — at best — a mixed bag.
The Empire State Manufacturing Survey — a Federal Reserve measure of factory activity in New York state — turned in its first negative number in almost two years.
Meanwhile, the Housing Market Index from the National Association of Home Builders clocked in at 57 — well above the break-even level of 50 but down from November.
Because government means never having to learn from one’s mistakes… Fannie Mae and Freddie Mac are bringing back mortgages for as little as 3% down.
“The horrific lesson of what results from encouraging marginal borrowers to buy homes has somehow vanished from their memories,” remarks syndicated columnist Steve Chapman.
Oh, but it won’t be anything like the run-up to the housing bubble, we’re promised: Only “creditworthy” borrowers will be allowed.
Never mind that one of the best tests of creditworthiness is the ability to save up for a down payment of 10% or even — heaven forfend — 20%. Or that one of the best guarantees against default is that the homeowner isn’t underwater — which can happen easily with equity in the single digits and a small drop in the home’s value.
And who’s to say Fannie and Freddie won’t get in trouble and require another $187 billion bailout? “The two eventually paid it back,” Chapman points out, “but there was no guarantee they would. And there’s no guarantee they will if they are someday bailed out again.”
Oy…
Well, here’s something that ought to shake up the collectible car market: 60 rare cars that sat untouched for decades are about to go up for auction.
They belonged to a French manufacturing magnate named Roger Baillon… who built up his collection from 1955-65. Then his business fell on hard times during the ’70s. He sold about 50 cars from his collection… but another 60 have sat in “storage” in the French countryside ever since…
And these are among the cars in the best shape
Pictured on the left is a 1961 Ferrari 250 GT SWB California Spyder, one of only 37 in the world and likely to fetch at least $11.7 million. Next to it is a 1956 Maserati A6G 2000, valued at a more modest $1 million.
Baillon died about 10 years ago, and his son died last year. The grandkids decided it was time to let go.
Artcurial Motorcars plans to sell the collection as is (“less some dust and cobwebs,” we’re told) during the Retromobile Salon in Paris next February.
“Such a collection of cars like that all in one place is very unique,” Artcurial’s Matthieu Lamoure tells The New York Times. “It’s certainly the last one we’ll see like that.”
“I have to chuckle when some analyst rolls out the old supply-and-demand market provision,” writes a reader after Matt Insley’s reflections on the oil price Friday.
“Bosh. The price of oil is down because it was intentionally driven down. It will go back up for the same reason. This market hasn’t been subject to supply and demand since the U.S. started importing oil and allowed the Arabs to regulate the world price.”
The 5: That was true… until Thanksgiving Day. Now the Saudi Arabian princes say they’re willing to let “market forces” do their thing. From their standpoint, that’s better than cutting production only to lose market share.
So what now? “On the demand side,” says Byron King, “economic growth typically takes time. Oil demand tends to be ‘inelastic’ (as economists describe it) and doesn’t just spike up overnight, despite price drops. One exception is that China has clearly increased oil purchases for its national strategic petroleum reserve; that accounts for a lot of oil in a hurry. I’ve seen numbers like 300,000 more barrels per day going to Chinese storage.
“On the supply side? Short term, most U.S.-Canadian oil developments are still moving. Hardly anybody stops drilling wells while the bits are turning or shuts in flowing oil wells. That, and over 80% of North American tight oil projects on the boards are profitable with oil at $50-60 per barrel — even most Canadian oil sands. So the relatively low current world oil price shaves off some upside of profit margins industrywide, but it doesn’t strangle North American tight oil.
“No one can say with certainty ‘when’ oil prices will rebound. If Libya regresses and cuts back exports? If ISIS conquers a few more oil fields in Iraq? If there’s insurrection in Saudi Arabia? If a well blows out offshore Brazil? A big hurricane in the Gulf of Mexico? Hey, anything could happen.”
“One thing I haven’t seen addressed with all the worry about the crash in oil prices is the highly deflationary — even depressionary — aspect,” another reader writes.
“Farming has to be the most important industry of all, since people must eat or die. But energy may be second. Without energy, food doesn’t get to market. Nowadays, it doesn’t even get grown, for that matter.
“With oil, which in various forms is probably the most convenient energy form off all, approaching half price, other prices should begin to fall also. Transportation should be one of the earliest benefactors of lower fuel prices, which should lower the distribution cost of food, among other things. Lower fuel bills for agriculture will take a year or more to really show up, especially in prepared foods, but it should happen in time.
“In the meantime, though, oil production companies will be hurting badly, especially those that depend on high oil prices to finance their production and planned expansion costs. Quite a few bonds may default, and companies may shut down, hurting investors. Tens of thousands of oil workers may be laid off for this reason or to reduce costs. Companies that now depend on the spending of those workers will need to lay people off and reduce their expenses or go under. Communities that have grown to accommodate those workers and their families will need to retrench, often laying off people, possibly having trouble meeting the costs of bonds they have issued to meet expansion costs.
“Of course, if energy prices spike down and then shoot back up, the effects, both positive and negative, will be transitory. But they will be felt, possibly sharply, and if Agora can help its subscribers profit, please do.”
The 5: We’re working day and night to find ways to take advantage of the shifting landscape. Stay tuned…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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