Observing Last Week's Action in the Markets and Coming Up With...?
Watching markets all the time doesn't work for most folks. Unless you're working with some sort of "template" and need to check details to keep your data up to date, constantly staring at prices that go up and down (that's what they do, after all) can't possible inform you of anything significant.
For example what did last week's price action tell you? Can I propose a choice here: a) not much; b) nothing?
Oh, you could say that stock prices continuing to push upwards shows some sort of "strength" in the stock market. But what does that information yield? Will you now buy more stocks? Shouldn't you already have some sort of strategic allocation to stocks (or not) that isn't going to be changed by a week's price action?
"But what about the 'Melt-Up' theory?," you might ask. (That's where stocks shoot for the moon in the last stage of a bull market.) Fair enough. If you've got some reason to believe that persistent price elevation in stocks proves the Melt-Up is under way, then you've got some chunk (or maybe all) of your money in stocks. But didn't you already have that money allocated?
If you're thinking you're going to allocate it now, consider this: A Melt-Up can only benefit a chosen few. It's typically those who've been riding the bull all along and want to spice up their gains. They're "chosen" because of their exceptional knowledge of such a phenomenon combined with a sell discipline that will signal them when to get out before stocks tumble or - worse - crash. Because that's where Melt-Ups wind up. And that's why most people who get swept up in the Melt-Up will ultimately lose all their gains and more.
So far, it looks like observing last week's action in the markets has yielded goose eggs - at least when it comes to information of any palpable value. Nevertheless, I do observe and make notes. Why?
Well, it comes down to a process we follow in our firm. Every week we check all accounts for price movement. On a practical level, it allows us to spot any unusual activity. It's like the "If you see something, say something" idea they promote here in New York. We're not looking for terrorist activity, just anything unusual that requires follow-up. For example, if an account shows a drain when other accounts are up, we need to know why. Since we know our accounts pretty intimately, most of the time we have an idea what's up, but we investigate nevertheless to verify if our initial impressions are correct. It's just good stewardship.
As for market prices, we used to compare our client account action to market movements on a weekly basis too. But, frankly, it proved to be overkill. We've moved that out to a monthly check (along with a host of other data checks we perform monthly).
Then there's the element of "It's what we do." Since we spend our working hours plying the wealth management trade, looking at markets simply falls into the category of one of a number of daily activities. On the other hand, we do minimize time spent on market price movements since if weekly observations yield little, if anything, daily movements certainly provide nothing of importance. (Of course, if we get a 1,000 point move - as has happened lately - we do perk up a bit to see what's up. But even there, it would be unusual for that to impact our actual portfolio management in the near-term.) Better to spend our time in research and analysis to improve, whenever possible, our investment management process.
In other words, observing last week's action in the markets came up with...nothing of any note.
But aside from the price action in the markets, there was one possibly significant occurrence: the release of the Fed minutes. It depends on your interpretation of their verbiage, but we may have witnessed an important change. It's possible that the gnomes that keep trying to come up with the perfect monetary policy to keep markets smoothly ascending forever will back off any more rate hikes. It's even possible they'll cease their monthly sales of assets from their balance sheet. And that could inject the stock market with some extra juice, possibly playing into that Melt-Up scenario.
A subject for a future post? Maybe. It is, though, something to keep in mind.
For example what did last week's price action tell you? Can I propose a choice here: a) not much; b) nothing?
Oh, you could say that stock prices continuing to push upwards shows some sort of "strength" in the stock market. But what does that information yield? Will you now buy more stocks? Shouldn't you already have some sort of strategic allocation to stocks (or not) that isn't going to be changed by a week's price action?
"But what about the 'Melt-Up' theory?," you might ask. (That's where stocks shoot for the moon in the last stage of a bull market.) Fair enough. If you've got some reason to believe that persistent price elevation in stocks proves the Melt-Up is under way, then you've got some chunk (or maybe all) of your money in stocks. But didn't you already have that money allocated?
If you're thinking you're going to allocate it now, consider this: A Melt-Up can only benefit a chosen few. It's typically those who've been riding the bull all along and want to spice up their gains. They're "chosen" because of their exceptional knowledge of such a phenomenon combined with a sell discipline that will signal them when to get out before stocks tumble or - worse - crash. Because that's where Melt-Ups wind up. And that's why most people who get swept up in the Melt-Up will ultimately lose all their gains and more.
So far, it looks like observing last week's action in the markets has yielded goose eggs - at least when it comes to information of any palpable value. Nevertheless, I do observe and make notes. Why?
Well, it comes down to a process we follow in our firm. Every week we check all accounts for price movement. On a practical level, it allows us to spot any unusual activity. It's like the "If you see something, say something" idea they promote here in New York. We're not looking for terrorist activity, just anything unusual that requires follow-up. For example, if an account shows a drain when other accounts are up, we need to know why. Since we know our accounts pretty intimately, most of the time we have an idea what's up, but we investigate nevertheless to verify if our initial impressions are correct. It's just good stewardship.
As for market prices, we used to compare our client account action to market movements on a weekly basis too. But, frankly, it proved to be overkill. We've moved that out to a monthly check (along with a host of other data checks we perform monthly).
Then there's the element of "It's what we do." Since we spend our working hours plying the wealth management trade, looking at markets simply falls into the category of one of a number of daily activities. On the other hand, we do minimize time spent on market price movements since if weekly observations yield little, if anything, daily movements certainly provide nothing of importance. (Of course, if we get a 1,000 point move - as has happened lately - we do perk up a bit to see what's up. But even there, it would be unusual for that to impact our actual portfolio management in the near-term.) Better to spend our time in research and analysis to improve, whenever possible, our investment management process.
In other words, observing last week's action in the markets came up with...nothing of any note.
But aside from the price action in the markets, there was one possibly significant occurrence: the release of the Fed minutes. It depends on your interpretation of their verbiage, but we may have witnessed an important change. It's possible that the gnomes that keep trying to come up with the perfect monetary policy to keep markets smoothly ascending forever will back off any more rate hikes. It's even possible they'll cease their monthly sales of assets from their balance sheet. And that could inject the stock market with some extra juice, possibly playing into that Melt-Up scenario.
A subject for a future post? Maybe. It is, though, something to keep in mind.
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