Further, the majority of the “Best-10” and “Worst-10” days are contained primarily within those 80% spans.

So, yes, I am absolutely going to be “wrong” at the tops of markets and at the bottoms while I await confirmation of a longer-term “trend” to emerge. For those that are inherently “bullish” who choose “hope” over what prices are “actually” doing, the historical outcomes have been brutal, to say the least.

As I have said before, my methodologies are my own. They are not new ideas. They are not innovative. They are simply the lessons I have been repeatedly taught over the last 30-years of managing money. If the markets reverse the current long-term sell signals, I will happily put a lot more money to work. Until then, I will wait rather than trying to “draw to an inside straight.”

Think about it this way – if betting in the markets was really the way to build wealth, wouldn’t the vast majority of Americans be wealthy versus just the top 1%? Just a thought.

Mind The Gap

I have discussed the problems with earnings and earnings estimates in the past stating:

“In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year. Unfortunately, earnings only grew at 6% which, as we have discussed in the past, is the growth rate of the economy.”

“The McKenzie study also noted that on average “analysts’ forecasts have been almost 100% too high” which leads investors to make much more aggressive bets on the financial markets. “

My friend Salil Mehta from Statistical Ideas recently published a great piece on this issue.

“The gap between the 2016 forecasts and the YTD returns through January is 13% (8% target minus the -5% YTD). Annual returns have a nearly 20% standard deviation (or 19% if you only look from the end of January onward). So it is still plausible — though rather unlikely, with only a one in five probability — to reach the 8% target gain for 2016. (For statistics wonks, the test statistic decomposes the 13% gap to a ~9% move in addition to the typical 4.5% annualized return, and then factors in a 19% standard deviation.) Now that we are further into the year (mid-March), euphoria and complacency are back to extreme market top levels.

It’s also worth noting that strategists at major firms are consistently bullish, year after year. The sources of the most optimistic prognostications also don’t change. Sorted from most to least bullish, they are Federated Investors, JP Morgan, Prudential, Bank of America, and Columbia.”

“In the table below, two pieces of …read more

Source: 3 Things: 80% Or Bust, Mind The Gap, It’s A Bunny

    

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Posted March 24th, 2016 in Uncategorized.