Investing by Ruler

The Barron's big money poll for the fall of 2013 is mainly one thing: not surprising. As usual, the respondents have applied their rulers to the charts and decided to simply extrapolate: they love what has been going up, and hate what hasn't.

For gold aficionados there are great contrarian news buried in the poll: only 3% think gold will be the best performing asset class over the next 12 months. They are similarly down on treasury bonds, which are the one asset class on which the poll respondents have been most consistently wrong over the past several years.

Equities get the most love with 80% convinced they're going to keep outperforming,  and within that asset class, US stocks are held to be the best, with 89% bullish on US large cap stocks (it probably doesn't get more stretched than that). Of course US stocks have been among the best performing stocks in the world over the past two years or so, so this is another case of extrapolation ad infinitum. 71% are bearish on gold, a full 91% are bearish on treasury bonds. In other words, whatever has been going up the most is liked best and what has been going down is hated with a passion. How imaginative of these worthies. The one exception to this rule is the US dollar. It is liked by a solid majority in spite of the fact that it has been going down lately, a warning sign if ever there was one.


The poll results are shown below. All in all, the responses are about as bland and mainstreamy as it gets. You would probably get exactly the same average opinions on this range of topics if you were to simply switch on CNBC and listen to the opinions proffered there. It goes to show that those watching over humungous amounts of money are anything but contrarians – they are in fact the proverbial herd. They will succeed as long as nothing scares the herd into stampeding out of the stock market. Usually being bullish on stocks is a pretty safe bet in an age of fiat money inflation, as the stock market rises about 66% of the time.

By simply staying bullish, one will therefore be right two thirds of the time and then one's clients will suffer huge drawdowns when yet another one of the serial Fed-induced bubbles bursts. However, that won't matter professionally, as the rest of the herd will be similarly devastated. Since the year 2000, the stock market continues to be down in real terms (it is also still down in real terms versus 2007), so only those who have occasionally changed their opinion and acted on the realization that the wagon was coming off the rails have actually produced real returns for their clients over that span. We wager that only very few have been so perceptive.

Apparently though, a solid majority of those polled actually outperforms the SPX both personally and professionally – at least that is what they are saying. This flies into the face of every other statistic we have on active money management: out in the real world, the percentage of active money managers who are outperforming the market is embarrassingly tiny by comparison. By a stroke of incredible luck, Barron's apparently only gets to survey the very cream of the money management crop.



Big Money PollWhat they love and what they hate – the Barron's big money poll survey. Note the unbroken faith in 'soaring corporate profits' in spite of the fact that earnings growth has basically disappeared. None of these opinions are one iota different from the consensus detectable elsewhere.



The best money mangers ever:




Looks like Barron's got to interview only the very best money managers. Their perceptions about their own performance are a far cry from the well-known averages across the financial industry.



Cover Alert

This isn't always meaningful of course (especially not with the Fed printing 85 billion additional smackers every month), but the Barron's cover gracing the issue containing the poll is a bit of a warning sign in and of itself. It is one of those 'nothing can go wrong' covers.



Bull Treat

Barron's cover – nothing can go wrong.



We find it interesting though that several of the best performing stocks  in the tech sector are getting the cold shoulder (although a huge majority of those surveyed is convinced that tech stocks will keep outperforming – again, this is investing by extrapolation ad infinitum). For instance, Netflix, one of the stocks they love to hate, has been soaring to new all time highs the very day this issue of Barron's was published.

Now, we happen to agree that the stock is overvalued, and given that its ascent has become a near vertical affair it is probably quite dangerous to buy it here, but still, the love/hate list on the cover strikes us as a bit incongruous considering the overall poll results.



NFLXA stock they love to hate: NFLX. The day this issue of Barron's appeared it rose by another $21 – click to enlarge.




It is difficult to ascribe any particular value to this poll, although we have frequently seen that extremes in opinion have proved to be contrary indicators in the past (for instance, Japan's stock market was the by far most hated in the big money poll shortly before it soared by nearly 90% in the space of half a year or so). Other than this occasional value as a contrary indicator, it simply has no value, as it reflects the consensus opinion you can get both on an anecdotal level and from other positioning and sentiment indicators elsewhere. We are personally encouraged that the respondent's opinion of gold has deteriorated to extreme bearishness in the meantime. Back when gold was near the $1,900 level, almost the same percentage of respondents that hates it now was bullish on it. 



Tables by: Barron's, chart by: Stockcharts




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