The short term uptrend remains intact, with the GMI at 2 (of 6) and the GMI-R at 4 (of 10). The Worden T2108 indicator is at 43%, the highest since last September and well out of bottom territory. Tops often occur when the T2108 is at 70% or better. Another sign of strength is that 68% of the Nasdaq100 stocks closed above their 30 day averages, the most since August 28th. And the dollar may be breaking its up-trend, causing gold and other commodities to rise…..
If you got a chance to see the Wall Street Journal on Wednesday, you may have read the sad story about Bill Miller’s fall from grace. This icon of buy and hope and addiction to value has seen his fund and his career get shattered. It is very depressing that such a good stock picker apparently had no plan to abandon stocks that developed down-trends. Fundamental analysts kept telling him how undervalued his stocks were, even as many became more and more undervalued, and descended into oblivion. We need to remember that “value” is a myth. As Nicolas Darvas wrote, the only reason to buy a stock is if it is rising; if it is not rising there is no reason to own it. I hope Bill Miller can keep his job and that he learns from his painful experience.
I do enjoy reading your blog from time to time, and its fun to see you attempt to jump onto and off of this bucking bronco lately… but the idea that “value is a myth” is fairly well contradicted by the long careers of investors for whom valuation was not unimportant… they compounded wealth slowly but surely using old fashioned balance sheet reading and cash flow analysis… from Graham to Buffett to Berkowitz, there are countless examples of investors who use knowledge to leverage their financial resources over very long periods of time, as opposed to the pure guesswork invoked by the ex-ballroom dancer Nicolas Darvas… the Graham approach may have periods of apparent failure, as we are seeing today, but over medium and longer periods its really hard to say that it doesn’t work, when practiced intelligently… however, as opposed to the magical thinking invoked by Darvas and the majority of day traders, it requires hard work, study, knowledge and perseverance… all qualities in very short supply these days…
Bill Millers’ approach is actually much more similar to Darvas, in that he is mainly a quant analyst who doesnt know anything about the companies he is buying, but relies on guesswork in an attempt to profit… in his case instead of aping others’ uninformed buying and trying to bail out before the overvalues stock drops, he buys fallen growth companies and attempts to profit from their resurgence (except when they go to zero)… that approach is more akin to a value investor, except by being completely uninformed about the companies he is buying, and having no defensive strategy, he winds up with the worst of both worlds…
I enjoy reading your posts and am glad that your momentum approach is working for you… but the number of people that it works for over long periods of time (Darvas had the good sense to bail out and go back to the ballroom dancing after a couple of hot years) is likely close to the number of people that become professional athletes or celebrities… in the meantime countless people have had their wealth compounded over decades by following in Grahams footsteps… or by trusting their money to knowledgeable practitioners of that philosophy… its super boring, but over reasonable time frames, so far so good…
Ajw
Bill Miller a good stock picker? I beg to differ. Even when he was beating the market, he wasn’t beating it by much. I would say he ran a glorified index fund and nothing more. Of course the inevitable mean reversion takes place and all of a sudden the emperor is wearing no clothes. Miller’s performance can easily be explained by survivorship bias. Why would Legg Mason allow such an unremarkable manager keep his job?