For the life of me, I don’t know why anyone in their right mind would follow the advice of a big-bank analyst quoted in the daily financial news.
I think the main reason their advice is worthless is the timeframe they deal in.
For fear of seeming short-sighted, most of the big-bank heavyweights give their market predictions and portfolio weighting recommendations on the order of years.
For instance, a top Morgan Stanley strategist suggested investors should consider getting out of the consumer discretionary sector completely (and not return to it for many years).
She noted how the sector has outperformed “over the last decade,” and cited a Tax Policy Center study, which said Trump’s tax cuts will add “just 0.4% to GDP in 2021, and just 0.1% in 2026.”
Do you know how much will change between now and 2021… let alone 2026?! Anything and everything will change between now and then! And that’s why I think the big-bank analysts’ long-view advice is practically worthless.
Consider how much has changed over the last three years – and how wrong many of the big-bank analysts have been…
After the “worst January ever,” stocks bottomed and began to climb higher on February 11, 2016.
But guess what the big-bank analysts were saying on that day?
“Everything suggests this market is heading lower. Psychology is too frail,” said LPL Financial’s investment strategist.
The market didn’t head even a dollar lower, and now U.S. stock indices are up between 50% (S&P 500) and 82% (Nasdaq 100) – even despite last fall’s sell-off.
Another big-bank analyst was quoted saying, “People are losing jobs in the oil patch. The fear is that it’ll create a domino effect to other parts of the economy.”
So far, it hasn’t. And oil prices are up more than 50% since this analyst’s bearish comments marked the low in crude.
Also, three years ago PIMCO was warning folks how negative interest rates (a big story at the time) may be having a “chilling effect” on financial markets and could carry “unknown consequences.”
That’s a special breed of cryptic, not-so-actionable advice (to put it nicely)! And would you believe that instead of seeing the negative interest rates PIMCO was warning about, the 10-year Treasury rate is up 40%?!
Not Your Father’s Sector Strategist
Successful investing requires a good deal of humility. You’ve got to know what you don’t know. And you’ve got to be willing to change your mind, and your investment positions, without stubbornness or ego.
Look, I’m happy to admit that I have no clue how things will change over the next several years. That’s why I generally ignore the so-called advice of the big-bank analysts.
And it’s why I take a rather agnostic, short-term view of the market’s sectors as they rotate in and out of favor.
That’s what my Cycle 9 Alert service is all about – finding stocks and sectors that are statistically likely to outperform the broad market over the next two to three months; nothing more, nothing less.
In February and March of 2016, while the big-bank analysts were issuing their above-quoted warnings, I recommended two industrial sector plays for eventual profits of 106% and 336%.
Later that year, as many worried about a “summer slowdown,” I recommended two consumer staples sector plays for eventual profits of 56% and 80%. And recommendations on the semiconductor sector for profits of 106% and 116%.
In early 2017, as the big-bank analysts swamped readers with fear over a wave of elections in Europe, I recommended a play on a European stock ETF, which handed us a profit of up to 213% less than three months later.
Last year, despite two significant sell-offs, we made…
- 45% profits on the biotech sector;
- 84% profits (betting against) the utilities sector;
- 88% profits on oil prices;
- 89% profits on the medical-device sector;
- 407% profits on the consumer discretionary sector;
- And 430% profits on a consumer staples stock play.
And so far this year, we’ve made profitable plays buying Chinese stocks, shorting the health care sector, and buying “alternative,” outside-the-stock-market asset classes (via ETFs)…
As you can see, I have no problem making “active bets” on the market’s wide range of sectors and industry groups – much as the big-bank analysts have no problem prognosticating what the (too-distant) future will hold for them.
Instead of committing my capital to these analysts’ fuzzy, long-run forecasts, I’ve found it’s far more profitable to operate on a two- to three-month basis. This allows us to stay nimble, adapt to changing market conditions and capture each sector’s strongest move.