“The secret to my success is that I buy when everyone else is selling and I sell when everyone else is buying.”
– Sir John Templeton
There were several charts that caught my eye this week. The first is a chart that tells us the likely annual return for the S&P 500 Index will average just 2.25% over the next ten years. Many valuation measurements support a period of probable low future returns, but this particular data is different – it looks at the percentage of household equity ownership.
Think of it this way: It looks at how much potential buying demand there is for stocks from households. When fully invested in stocks there is less available demand to drive prices higher. When under invested the opposite is true. You’ll see that the data shows that returns are higher after periods of low ownership and lower after periods of high ownership.
There were just two prior periods of higher equity ownership than where we sit currently. One was the market peak in March 2000 and the other in October 2007. Unfortunately today, the percentage of household equity ownership is approaching the level reached at the market peak in 2007.
The second chart I share looks at non-equity liquid assets. The idea here is to see how much free liquidity is available to buy stocks. If you ever have wondered if investors buy and sell at the wrong time this shows that data in real time. Let’s call it “investors behaving badly”. Show the chart (below) to your client the next time his emotions look to overtake logical reasoning. The great Sir John Templeton’s wisdom rings in my head.
Finally, I asked Ned Davis Research if I could share with you a recent research piece that Ned shared with his institutional clients like CMG. In it Ned takes the research on their popular “Big Mo” (Momentum) indicator back to 1929. As you’ll see, it remains modestly bullish at present.
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.