Thursday, October 7, 2010

The Dominant Theme:

I recall many years ago when I asked an audio engineer to explain the technology behind his acoustic filter which today is found in most automobile sound systems he replied, “ why would I tell anyone in 10-minutes something that took me 10-years to learn?” I replied, “not to worry when secrets are exposed, they get distorted when broadcasted.” When it comes to successful investing if I knew the one sure thing that would generate better more consistent returns than anything else and shared it with 1000 investors – only two would stick to the strategy. Let me first begin with does not work (It took me 25-years to learn this)

Market timing: A bad idea because if you sell good stocks because of some “signal” and you are wrong – you never get back on board and the investment opportunity is lost for good. Show me a market timer and I show you a guy with the ass out of his pants

Don’t be cynical about the stock market: We are often told that advisors are salesmen that lie to you: Not so, in fact today’s advisors must endure rigorous industry training and are required to continually up-date their skill sets – today’s advisors also know that their interests best are served when they serve the client’s best interests

Stop engaging in sheep-like behaviour: Avoid bullish and bearish stampedes in and out of stocks that are often encouraged by the business media. I recall on January 22, 2008 (I saved the papers) full front pages in the Globe and the National Post, “MARKETS PLUMMET” and “U.S. recession fears spark global selloff” – and “fear around the globe” and “the market is finally waking up to realities”. Six weeks latter The Bank of Nova Scotia (now $55.00) bottomed at $24 and the Bank of Montreal (now ($60) also bottomed at $24. I know for a fact that many investors bailed out of Canadian bank stocks in February 2009 in spite of advice from their advisors not to do so.

Don't Over-Trade: Be careful with On-Line Brokers. Keep in mind they have no duty to you – you can engage in high risk behaviour and over-trade your way to zero – but at least the commissions were cheap.

In the long run you’re better off seeking out the Dominant Theme and staying with it for as long as it takes to unfold. The dominant theme is a group of related stocks that emerges from obscurity during a crisis to assume a leadership role for several years. Investors who identify the dominant theme early can buy and hold their way to investment greatness. For example the last modern Dominant Theme was the 1st “New Economy” technology boom of the 1980’s and 1990’s. In that 20-year period the tech laden NASDAQ advanced non stop over 3000% grinding out an annualized returns of over 20%. At this time I see two new Dominant Themes unfolding - should I continue or just sell-in-May and go away which has only worked once in the last 8-years.?


Investor said...

Good article, but do tell; What are the two Dominant Themes you see unfolding?

Steve said...

"Show me a market timer and I show you a guy with the ass out of his pants"

Great quote!

Dominant themes possibly with the aging baby boomers - Pharma? Health care? Funeral Services (joking).

Interested to hear more on your thoughts.

mikeQ said...

Are the the two themes - energy and transportation?

Shawn Severin said...

Some very good points here Bill. You're posts are always insightful. What is your overall opinion on emerging market (i.e. Brazil, China, South Korea, Malaysia, Thailand, Singapore, Indonesia, etc.) growth as a dominant long term investment theme? Is this the 2nd theme (other than technology) you are referring to?

Shawn Severin said...

Some notable emerging market ETFs that may be of interest are: THD, IDX, ECH, EWS, EWY, EWM, etc. Of course, China, Brazil and India are experiencing rapid GDP growth, however, the southasian economies that the above ETFs represent are growing even faster. These ETFs have rocketed off of the 09 bottom and are posting new 52-week highs.