Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
Hi John,

Just got the notice Alpha is winding down.

I am a happy Stock Adviser customer and was a happy Big Short customer.

My logic and approach was simple: Shorting overvalued companies makes just as much sense as buying undervalued companies. Strong companies will do better than average in bull markets and weak companies will do worse than average in bear markets.

My desire is modest: solid, medium-term shorting candidates to compliment the long-term Stock Adviser selections. I want a short yin for SA's long yang. :-)

I'm not interested in the complex, expensive, high-maintenance tools that were part of the Alpha service that I didn't use and are, presumably, part of the other services. I'm not interested in the (real) fool's errand of trying to make money in sideways markets.

I want something that allows me to come out of bear markets (or just downturns) stronger than I went into them.

Any suggestions on how to proceed?

Thanks in advance,

patagave
Print the post Back To Top
No. of Recommendations: 0
patagave,

Could not have said it better! I just wanted some good shorting ideas. The way I see it, TMFFuz brought balance to the typically long bias of all the other services. I hope John continues with MF in some way so that we continue to received his top short ideas and analysis.

tj
Print the post Back To Top
No. of Recommendations: 1
tj,

Absolutely.

Getting hammered on the longs during downturns is inevitable. Taking profits on John's short recco's while that happened was financially and psychologically wonderful. Having more cash in the accounts on the recovery was also wonderful. I have no idea if Big Short would work as an add-on to SA but it is based on the same simple, solid logic.

OTOH, making money, in any kind of market, all the time, net of all fees and commissions, is just the kind of "free lunch" concept TMF would have mocked years ago because "fools" know a "free lunch" is just a really expensive fantasy.
Print the post Back To Top
No. of Recommendations: 0
"I have no idea if Big Short would work as an add-on to SA..."

To be clearer, I have no idea if Big Short would work as an optional add-on service available to SA subscribers since it apparently didn't work as a stand alone service from TMF business perspective.

The combo worked beautifully and as intended for me as a subscriber.
Print the post Back To Top
No. of Recommendations: 0
Those looking for more of John's work might look into the AdvisorShares Ranger Equity Bear ETF (HDGE). It's a short-focused ETF run by John using a similar strategy to Big Short. Fair warning though, it has basically performed like a simple inverse-SPY ETF since inception.

-- Jacob
Print the post Back To Top
No. of Recommendations: 0
So you are saying the actively managed short positions, that were picked by the advisors after charging a very high fee, could be easily replaced by shorting the SPY? Where's the Alpha?
Print the post Back To Top
No. of Recommendations: 0
It has a short track record, which hasn't yet been through any major downturns, so I don't want to draw any conclusions like that. Nor am I saying it's a great idea for everyone, but it's something to look at. Maybe the holdings list will at least give you some shorting ideas.
Print the post Back To Top
No. of Recommendations: 2
Those looking for more of John's work might look into the AdvisorShares Ranger Equity Bear ETF (HDGE). It's a short-focused ETF run by John using a similar strategy to Big Short. Fair warning though, it has basically performed like a simple inverse-SPY ETF since inception.

Yep, it's 2 years and a month now since inception, and SH -26.44%, HDGE -30.01%.

JDV also just started a new, long-only ETF based on his earnings quality approach, "Forensic Accounting", ticker is FLAG. It starts with S&P's 500 stocks, avoids the 100 or so lowest-EQ ones, weights the other 400 or so, not by market cap like SPY, but rather by EQ score (equal weight for middling EQ, half weight for mid-low EQ, double weight for really high EQ, quarterly rebalancing I believe).

I guess the proper benchmark is RSP, which just equal-weights all of the 500 stocks in the S&P 500 -- they share the core idea of avoiding the curse of market-cap weighting, FLAG adds the idea of putting EQ center stage. RSP has been around a long time and seems to outperform SPY by quite a bit in the long run; since inception in 2003 (just about exactly 10 years), RSP +127.97%, SPY +68.58%. Annualizing, that's 5.36% for SPY, 8.59% for RSP (that's ignoring dividends in both cases; SPY does slightly beat RSP in earnings yield, currently 2.04% vs 1.52%, which minutely reduces the otherwise over-3% RSP yearly outperformance).

FLAG has been around only 1 month, obviously far too early to assess; FWIW, anyway, in that month, FLAG -0.05%, RSP +0.47%.

According to Morningstar's FLAG's current top five holdings are Safeway, Hewlett Packard, Marathon Petroleum, Avon Products, and Computer Sciences Corporation -- each a bit less than 0.5% (top 5 holdings together, just 2.34% overall -- it's clearly a highly diversified fund).
Print the post Back To Top
No. of Recommendations: 3
So you are saying the actively managed short positions, that were picked by the advisors after charging a very high fee, could be easily replaced by shorting the SPY? Where's the Alpha?

Shorting SPY would actually have outperformed HDGE since inception -- what I compared it to in my previous post was SH, which is an inverse daily ETF with all the inevitable warts that carries.

Since HDGE's inceptions 25 months ago, HDGE -30.01%, SH -26.44%, SPY +19.10%. Shorting SPY would have cost you about -23.20% (because when you short you owe payments in lieu of dividends, and there may also be borrow fees though that's unlikely in this particular case at a decent broker with SPY being so incredibly liquid).

Clearly the market in the last 2 years has not only been up in general, it has particularly favored stocks with low earnings quality. For everything there is a season, and a time for every purpose under Heaven: this was clearly (in hindsight) the time and season for buying junk;-).

A season clearly WILL come when quality pays and junk suffers -- who knows when (the market can stay irrational, &c).

A different worry is whether EQ does a good job identifying quality vs junk. I sampled the list of FLAG's 400 holdings, to see what it is that they're keeping out (by EQ score), and was a bit surprised to see that essentially all giants of the modern economy (cloud, entertainment, credit card &c industries) are out, with the exception of troubled YHOO -- no Google, eBay, Oracle, IBM, Liberty Interactive, Disney, Activision, Comcast, News Corp, Visa, Mastercard, &c.

Easy to research yourself at http://www.flagetf.com/funds/flag_holdings of course. So I wonder -- maybe it just so happens that accounting in all of these "new-economy" industries is truly a disaster, but perhaps instead it could be the case that JDV's EQ formulas don't really properly account for such `intangible services` firms, for which for example "inventory" is a very different concept (if at all meaningful, in fact) than for the more familiar kind of firm which mostly produces and/or resells physical goods.

Warren Buffett, not exactly inexperienced in matters of accounting, for example, holds IBM (one of the large caps excluded from FLAG thus implicitly deemed to have low EQ by JDV's formulas) as one of the largest positions in BRK's stocks portfolio (it's been rapidly accumulated a couple years ago as WB surpassed his distaste for "tech" companies by deciding that IBM is really about "business consultancy" these days instead).

Has WB let himself be fooled by some aggressive-accounting trick which the EQ formulas cleverly caught in IBM's 10-Q and 10-K filings? It's possible, of course. But maybe, as an alternative possibility, WB might have interpreted the accounting in those filings more accurately and correctly than those mechanical formulas possibly could.

If these doubts of mine are at all founded, they might help explain the apparent underperformance of HDGE and FLAG -- as the economy gradually shifts more towards provision of such "intangibles", a bias towards eschewing or underweighting firms focused on them (in FLAG), or worse towards shorting them (in HDGE), could conceivably produce longer term underperformance, not just cyclical/seasonal based.

Of course, nothing stops JDV from pondering these issues I'm highlighting, deep-diving into the various companies I've mentioned (many are TMF recs, of course, in one or more services), and tweaking his proprietary EQ computations to make it all better going forward.
Print the post Back To Top
No. of Recommendations: 5
Sorry for the delay. I was locked out of my account and I'm traveling. I'm in Alexandria right now with the intention of working out a deal. Q4 last year was my worst in 14 years but Ive been very hot this earnings season with numerous stocks down 20-40%.

I've known Jeff Fischer for 15 years and he's a great friend.

I really think we can do something awesome here. But I hope you can appreciate that in any organization there are things that happen behind the scenes. I'm looking forward to having my very best ideas presented to an even larger community. I'm pretty sure we are close to getting this done.
Print the post Back To Top
Advertisement