Black Swan Hype (2)

Our Japan “Black Swan” is now just over a week old and so I wonder how investors reacted to the volatility of last week. Several industry “experts” went public with profound statements. For example one money manager in a memo to a securities firm, “if you’re your not invested buy now”, and (the same guy) “if currently invested sell now.”

Personally I would rather listen to the markets rather than a black swan which is a large not too bright water bird found mainly in the southeast and southwest regions of Australia. It seems the best stocks were the ones that were strong before the Japan event and remained strong after the event. Some examples are forest stocks, energy stocks and the financial stocks.

I am currently over weight the CDN bank stocks and using the BMO Equal Weight CDN Bank ETF (ZEB) - not a bad yield 3.7%, pays monthly with opportunity for capital gain.

Black Swan Hype

I don’t know about you but I grow weary of being regarded as stupid by these “Black Swan” guys who use scare tactics to influence normally sane investors.

A Black Swan is the latest buzz word which is a metaphor that encapsulates the event to be a surprise with major impact. In the “old” days we used the term “exogenous event”. An exogenous event in the capital markets is a one-off variable that is not resultant from any of the usual market drivers such as earning releases, employment data and industrial production numbers. The exogenous event (in this case Japan) is an external event that is large enough to affect markets and because it is change that comes from outside any model or analysis, there is no way to anticipate the event

The black swan buffoons tell us “this time it’s different, something is wrong.” The idea here is to have you believe that what ever worked in the past, won’t work anymore. We are to reject traditional stock analysis and to fear the current environment because it always the wrong time to invest.

They will tell you that buy-and-hold is dead because the equity markets have delivered zero returns over the past twelve years, just like the 1968 – 1980 period. What they don’t tell you is that during these long congestive periods there is great opportunity because “the next big thing” can emerge from these periods. The next big thing that emerged from the 1968 – 1980 zero return period was the new economy and the related components. To-day start-ups like Intel Corporation, Cisco Systems, Inc. Microsoft Corporation and Apple Inc. are household names.

The current 2000 – 2011 zero return period introduced the global economy and the related commodity boom. I do believe the Black Swans which is a large waterbird found mainly in the southeast and southwest regions of Australia missed this great investment opportunity.

An exogenous event

According to a blog post at The Traders' Trader, Bill Cara, (I don’t know this guy) at: www.CaraCommunity.com “random noise was the helter-skelter spin of all the Talking Heads on Financial Entertainment TV leading up to and in post mortem discussions re the FOMC announcement. My point on this is consistent: turn the TV off. (and) If there are 5, 10, 100, or 1,000 Talking Heads, or whatever number of clowns make it onto the stage, you are not going to learn anything. These people are not there to make you money; they are simply walking billboards for financial services industry companies like Ameritrade, PIMCO, Merrill Lynch, or whatever. The more they talk, pointing you in different directions, the greater is the random noise.” (and) “An exogenous event in capital markets is a one-off variable that is not resultant from any of the usual market drivers. It is, however, an external event that is large enough to affect markets.”

OK – I’m back. The Japan earthquake was an exogenous event that was unforeseen and will interfere with normal junctures and trends in the capital markets. In other words there will be capital winners and losers as a result of the massive re-build. As investors we must avoid the losers and make sure some of the beneficiaries are in our portfolio. The obvious sector winner is the lumber exporters such as Weyerhaeuser and Int’l Forest Products – just to name a few. Out chart displays a surprising pattern – both of these names were in up trends before the Japan crisis. Strange that in the midst of a crisis the stocks that were advancing before – continue to advance and the stocks that were declining before, continue to decline. When you look back at the 911 crisis the same thing happened with up and down trends uninterrupted. The fundamental guys will never get it – the trend is your friend