The State of the Markets
Thursday, May 2, 2013
I spent the better part of the last four days at NAAIM’s (National Association of Active Investment Managers) annual “Uncommon Knowledge” conference, which was hosted in my hometown of Denver this year. While the conference agenda was chock full of strong presenters such as Keith McCullough of Hedgeye, Martin Pring, Tom McClellan, and Ian McAvity, the real benefit to attending a conference like this is getting to spend time chatting with more than 100 active money management professionals.
In case you’re wondering, the term “active management” runs the gamut of everything from periodic reallocation of tactical and/or strategic investing strategies to trading in and out of various markets on a daily basis. In short, the managers at this conference engage in a wide variety of investment methodologies. However, the common thread is that ALL believe in doing something other than the old buy, cross your fingers and then hope approach. While we may disagree on whether a trend-following, black-box model, or mean reversion approach is better/smarter, one thing we all agree on is that buy-and-hope is an outdated concept – unless, of course, you are able to implement such a strategy when there is blood in the streets. But then again, isn’t that too an “active” approach?
But I digress (as usual). While there is a contingent of managers within NAAIM that I would call “quants” who manage money based solely on the readings/rules of their mathematical systems, there are also a great many “active” managers who look to keep their clients in the right place at the right time using their experience and brains as a guide. And it was this crowd that I enjoyed talking to as the opinions on the outlook for the markets were all over the map.
I talked to advisors (a manager must be an RIA – Registered Investment Advisor – to be a member of NAAIM) who felt that the world was in sorry shape at the present time and that the piper would most certainly have to be paid at some point given the state of China, Europe, etc. What was interesting (well, to me anyway) is that some of these managers were younger and had only been in the business during the current secular bear market, while others were grizzly veterans who have seen it all since the 1970′s. As such, I can’t say that the folks I talked to were simply fighting the last war due to their frame of reference.
On the other side of the macro view, a smaller group of managers were borderline giddy about the outlook for the next couple of years. They cited the action on the chart, the Fed, BOJ, ECB, et al as well as the idea that the stock market tends to look forward and not back. Therefore, this group argued, if the market can find a way to not succumb to the “sell in May” season this year, stocks – specifically U.S. stocks – are the place to be.
While it isn’t terribly surprising to have heard both bullish and bearish arguments from this crowd of investment professionals, the one thing that unites the crowd is the insistence on employing a risk management strategy. When asked, “What if you’re wrong on your view?” the answer was universal. While the actual words chosen to offer a response varied, the overriding message was, “That’s easy – we will follow our sell discipline and get the heck out of the way if things get nasty.”
This is the message I will leave you with on this fine Thursday morning as I’ve got to pack a bag in a few minutes and start brushing up on my French (my goal is to not completely embarrass my wife in the restaurants this time around). While the approaches, strategies, methodologies, and time frames vary widely amongst the members of NAAIM, the common theme is the each and every manager has an exit strategy for their positions. And frankly, it is this one simple concept that separates the pros from the public.
While the public has a tendency to drink the Kool-Aid of the day being pushed by the financial media and their commission-based “advisors,” most of the managers within the NAAIM organization get paid for “getting it right” when things go wrong. And this is why I so enjoy the gatherings because in short, I’ve found my people.
David Moenning is the founder and chief investment strategist for StateoftheMarkets.com, a website dedicated to investor education and portfolio analysis. Mr. Moenning is also President of Heritage Capital Management, a privately owned, investment management firm. Founded in 1989, Heritage is focuses on risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.