It’s not often this blog has had a bearish tone, but I continue since December to be very cautious.Take a look at these few charts that should keep you from ‘chasing returns’ at the moment.
1. Love the ‘Ivy League’ simple methodology for being long or cash. I don’t adhere to it perfectly, but it helps me understand field position.
The market is thin (others call it bad breadth). The real arguments come down to WHY the market is so thin? Unfortunately, nobody really knows, but that’s how/why they fill up CNBC and Bloomberg television and reams of bogus brokerage research.
I like to invest in growth companies and the fact is they are crowded. They are crowded because they are easier to spot and they are crowded because money is paid nothing to sit on the sidelines.
The growth model and ‘Brand’ model that interests me are companies that appeal to what I call 8-80. The products and services of the 8-80 brands have deep and broad mass appeal. Nike, Facebook, Apple, Uber, UnderArmor, McDonald’s, Amazon, Google (YouTube and search) and now possibly Netflix appeal to the 8-80’s.
In banking/financial services, we have ZERO 8-80’s brands. I own Schwab as the closest proxy. I think this industry needs to get it together or we will have more American Express implosions. The big brands in the space assume that ‘trickle down’ wealth transfer will save them. My bet is that won’t work for cable and it will not work for banking.
I had a chance to dive into the subject a little bit last week on Bloomberg. Other than my wierd blinking (I was accused of sending messages to the Chinese), it’s a pretty good rant.
As the markets descend further or firm up and gather strength, I will be sticking with my 8-80 portfolio and sprinkle in enterprise stocks as I have been doing the last 7-8 years.
The digital 8-80 companies have so much cash, data and network effects you can feel them squeeze the life out of the rest of the economy and the competition. To make matters worse, the boards of so many of the losers have been using the book to buy back inflated stock with debt. I hate that strategy because I know my common stock is just a piece of paper. I have choices and I refuse to follow everyone else blindly into ETF’s with 500 companies when the pickings are so slim and the macro environment screams be cautious.