(Editor’s Note: Matt Towery’s investor notebook column will now be known as Newsvesting in preparation of his book of the same title to be released this fall. Matt begins a Newsvesting speaking tour in September, discussing his book about using news and public opinion surveys to form winning investment strategies. He will also discuss the 2016 presidential contest as the race unfolds giving the latest polls and information that he will use in his column and on TV, to trade association gatherings, corporate meetings, and other groups. Look for the official announcement or to inquire into booking Matt early contact mdobbins@insideradvantage.com)
An Update and a Warning
First a quick look at some prior columns I wrote for InsiderAdvantage using the Newsvesting approach to building strong investment portfolios. And a reminder, this is not investment advice and I am not an investment advisor. I’m just Newsvesting!
My column last year about the cool housing recovery and continued growth in stocks related to high end rentals/apartments still holds strong. My choice of Preferred Apartment Communities ended up on target. First discovered while in the eight dollar range, APTS has risen to a close on Friday (May 1) of around $11. It still has that great dividend/yield and with the sale of new and existing houses better but not on fire, it remains one to hold on to. (Note: Let me disclose that Preferred’s John Williams, under a former corporate name, has an investment relationship with InsiderAdv/InternetNews. But they have no ownership of my Newsvesting column and I no longer serve as CEO nor do I receive remuneration from either entity). Just to show I put resources where my Newsvesting mouth is, we sold some shares (which were purchased in March of 2014 at around $8 a share and later at prices in the $9 range) at a selling price of over $11. But we continue to hold shares in APTS enjoying its strong dividend.
As for my oil “glut” columns, the “crisis” proved to be one of those news stories that changed every single day. ConocoPhillips traded between the lower sixty-dollar range and the upper sixties (even hitting $70 plus a few times) over the many months since I first wrote about it. For those who were willing to pick up short term gains (treated as ordinary income) by trading on its high-low range volatility or even to dollar average into the stock and hold it, COP has either yielded several profitable transactions or at the very least is up above the averaged-in price based on Friday (May 1) closing at $67.40. And as of now it still holds its attractive dividend, which the company will go to great lengths to preserve. Again to prove confidence in Newsvesting, I directed traded on the volatility, purchasing shares of COP when they hit the lower sixty dollar range, selling when they bumped closer to the upper-sixties and doing so repeatedly.
My strategy included the idea that, should COP drop below the sixty dollar threshold, we would continue to dollar average into the stock for the long term. But what analysts referred to as “a
falling knife” was what I expected—a bouncing ball. I directed purchase of Exxon Mobil as a less volatile play which I still hold. And I still expect to see us dive back into COP when the news inevitably leads us to believe we will have an oversupply of oil for years to come, and it lowers substantially again. For the moment most think COP is about fully valued at around seventy bucks a share. But it was a very good play for Newsvesting.
Now for some potentially bad news. This from my Creators Syndicate column of late last month:
Major Opinion Index Might Be Warning of Big Changes in Markets and Economy
Every week I read stories about how the stock market is going to crash and our economy will soon melt down in a more dramatic manner than it did in late 2007. I generally dismiss these as just one person’s opinion, backed up by convoluted assumptions. And let me be clear, I am not suggesting that such a meltdown is imminent. But a study from the research firm Opinion Savvy gives real cause to wonder if the wild bull run on Wall Street might finally be coming to an end later this year. The so-called economic recovery we have “enjoyed” has been less than even-handed. Corporate CEOs and the Wall Street crowd managed to make a post-Great Recession comeback with even bigger salaries and more money feeding into their investment world. For the average American, however, wages have hardly budged. Unemployment, at least officially, has dropped to more than acceptable levels; that is, unless you are one of the multitude of people who has given up searching for a job or who took a lower-paying one to make ends meet. Corporate earnings for the last quarter so far are mixed, and the stock market is lurching from huge gains one day and huge losses the next. And it seems just a bit of good news, like the boost in the sale of existing houses for March, leads people to conclude, “Things must be better, at least compared to a few years ago.” And that’s where the Opinion Savvy research delivers what could be some daunting news to the investment world.
Since 1978, the University of Michigan has conducted their Survey of Consumers, which includes what they term the “Index of Consumer Sentiment.” While no one survey or poll can guarantee a projection into the future, the research produced suggests that this particular index, if used as a quarterly measurement, often is a precursor to downward shifts in the stock market. The Opinion Savvy study states, “While opinion usually follows the economy, at some points over the past 40 years, opinion has outpaced the market.” The study adds that, “When this happens, it seems to spell disaster.” Ouch! While this conclusion might engage in a bit of hyperbole, the graphs and charts and numbers they provide are fairly convincing that, at the very least, when the Michigan Index of Consumer Sentiment climbs really high, the financial markets in the U.S. decline in the ensuing months.
What gets one’s attention is that the index had reached a nearly off-the-charts high by the end of the second quarter in 2007. We all know what followed just months later as our financial institutions started to go into a near-death spiral and the economy followed with the Great Recession, which about did us in. The real shocker is that this same index is now at its highest level since those chart-busting early days of 2007. While the Opinion Savvy chart for the most recent data ends with data from the end of 2014, the research report states that the index has climbed from a score in the low 80s in the last quarter of 2014 to a current index number of 96. The study focuses on the index number reported for the first month of each quarter. That means April’s number is perilously close to the 97 score that was reported in early 2007. The same report is quick to note that there is no causal relationship between the Michigan Index and the U.S. equity markets. But they make a strong case that when sentiment is rocketing up the chart, markets drop, often substantially, within a matter of months, not years, thereafter. Their same analysis showed sentiment at an all-time high before the Dot-com bubble burst of 2000 and the same correlation with the post-9/11 recession. The good news for investors is that the Michigan index is not percentile-based and a score can go well above 100. So there is more room for sentiment to rise. The bad news is, it’s on the move, which could signal interesting times to come. Is America about to see a post-“Quantitative Easing” bubble burst, bringing the markets down as a result?
COPYRIGHT 2015 CREATORS.COM
As a footnote to this story, we have since learned that 1st Quarter GDP was basically nonexistent. In light of the OpinionSavvy (www.opinionsavvy.com) study and for other reasons, I directed that we take profits over the past few weeks where I could find significant long term gains in stocks that had enjoyed a longer and sustained ride up. But there are plenty of experts who expect the market to continue its upward climb since there isn’t an attractive alternative for investing these days. So I’ll keep my Newsvesting hat on and report next on other highlights from Newsvesting in recent months, like discovering Elbit Systems last January and also why Newsvesting helped me determine that Coke will be “The Real Thing” for those who take advantage of an opportunity in the land of the strong dollar.
