Here at "A Dash" we have emphasized that we are all consumers. We are consumers of data, of analysis, and of opinion. Our principal mission is helping readers understand their role as consumers and figure out what sources and information to follow.
Background
Here are two widely-accepted findings to consider. Both have strong support from empirical evidence on market returns.
- Stock analyst ratings often lag, so the wise contrarian investor fades the consensus opinion.
- Chasing performance is a major source of losses. Those who "called the last move" are often the mean-reverting cases. One needs to look at long-term performance.
These precepts are widely accepted in the investing community. (I will add that both are part of my own approach to stock-picking, with a nice long-term return.)
Meredith Whitney
Yesterday afternoon CNBC indicated that Meredith Whitney would be featured on Maria Bartiromo's program. Regular readers know that we are big fans of Maria. We think that she asks the right questions and draws out interesting answers from high-profile guests. Many market participants guessed at the nature of the interview and sold the market before and during her interview.
You can check out the key points of the Whitney interview here.
Our Take
Meredith Whitney, in her prior role as bank analyst with Oppenheimer, did one thing well --- very well. She accurately predicted that banks would need to write down assets. She accurately predicted that there would be no FAS 157 relief on mark-to-market accounting, so there would be a death spiral of bank value declines. Those following her predictions made significant profits and/or avoided losses.
Since starting her own firm, Whitney has expanded her universe of predictions. She is now making forecasts about the economy, the housing market, and consumer behavior. (I regularly read her work via my helpful Oppenheimer rep when she worked there, but now I get the information along with everyone else).
It is quite fair to question Whitney's skill at economic forecasting. Her success related to analyzing bank holdings, not forecasting the economy. Personally, I prefer a different approach to economic forecasting, and so should you.
Her current bearishness is grounded in valuation -- financial stocks should return to tangible book value. When asked what would make her bullish, she responded in valuation terms, giving the example of BAC at 3. She does not believe that banks have sound core earnings, despite an attractive yield curve.
Others have commented on Whitney's bearishness, with varying conclusions. Quite frankly, most of them use the wrong criterion. They talk about how well she has predicted the market -- either last year, or this year, or both. This is a very small universe for inference, dependent on a couple of key conclusions in each case. The circumstance this year, including marking assets to market, are quite different from last year. Whether or not one agrees with government policy, the various arms of our Federal government are all on a concerted mission.
A More General Conclusion
We are all bombarded each day with fresh opinions about our investments. These are now taking the form of the CEO interview. I modestly suggest the following guidelines:
- CEO's are great at discussing their current business;
- CEO's are sometimes helpful in discussing what is in their pipeline (analyze this skeptically and carefully);
- CEO's have no added advantage when offering opinions about the future of the economy, beyond what they see in their own business. They are reading and analyzing the same news that we are.
Readers might enjoy revisiting our Ted Williams strike zone article --- emphasizing the importance of staying in your "happy zone."
[I am long GS in personal and client accounts and hold a small BAC position as well. I am slightly long in trading accounts and remain fully invested in long-term accounts.]
I found this very helpful Jeff. Have a good weekend.
Posted by: Paul in Kansas City | November 20, 2009 at 09:20 PM