Laszlo Birinyi: S&P 750's the Bottom - Barron's Interview 22 comments
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Barron's interviews Laszlo Birinyi, founder and president of Birinyi Associates. An old-timer, Birinyi notes that many once-useful indicators are no longer of much use, including odd-lots (used to be an indicator of what retail investors were doing), and mutual fund cash holdings (funds are so large that an 8-10% cash position is not making a market bet). One indicator he does like is to track the number of stocks down 50% from their highs: At the recent bottom, 322 of the S&P 500 stocks were down 50% from a year ago - an "extremely oversold condition" when you consider that the previous high was 130 in July 2002.
Last month, Birinyi published a note titled S&P 750: The Bottom. Barron's asks him what led him to that conclusion:
A few things caught our eye. One was that we started to have some very bad days in November but the market still recovered. On Dec. 5, the unemployment news was really terrible and yet the market recovered that day, with the S&P closing up 3.7%. To us, those are signs of a positive market where people are starting to look beyond the bad news.
He also notes that the greatest decline in a bear market is at its end: 70% of the recent decline occurred in its last quartile.
Conventional wisdom says small-caps lead the way in a turnaround, but Birinyi says his research doesn't bear this out. He's also not enthused about growth stocks, noting past glamor names like IBM (IBM) no longer command the attention they once did.
Likening investing to a football game, Birinyi says we're in the fourth quarter - and behind by four points. "You are not going to complete a 60-yard pass. So you have got to go for six 10-yarders or whatever." The idea for now, he says, is to take small bites out of fleeting opportunities. Stocks he likes include GE (GE) (can't beat an 8% dividend), Amazon.com (AMZN) (Kindle rocks), and Hess (HES) (it's a solid company - buy low and sell high).
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This article has 22 comments:
Just curious, isn't this indicator most useful when forward looking earnings are positive and not negative? It seems there are not too many formal indicators that are useful in this environment other than technical chart analysis pointing toward SP 600.
So, we are the bigger fools to give fools like Birinyi a platform to speak. We should all manage our own money, its not that hard anymore. You will end up protecting your money and save on commissions and idiot talk.
Anyone who predicts a market bottom is a moron. Buffett does not do that, he has said many times that he cannot predict the markets, he can only do due diligence and pick up good companies and here comes Birinyi with his prediction.
When the market does bottom, and there would have been predictions of all sorts, and then we will hear from those people who ended up right over and over again and not from the majority who ended up being wrong.
So, people will take credit for chance.
I have nothing against any guru as I know that this is the time for old stars to die and new to born.I am not even sure tha Seeking Alpha will be here for another 12-24 months as soon we all will realize the power of economic depression, people who are 80-100 years old ( my dad was born on majestic 1929) could tell you how it was in the 20,30,40,50s when markets crashed and people stood in front of NYSE with their new FORD cars to sell to buy food ( think today of Mercedes, diamonds, antiquities, fine watches etc. as it all will be dumped soon).
Stay away from the stocks if you are Mr.Laszlo style buy/hold type, only short term traders can make money as the power of the crash shaves value of all assets day by day.
Where were these "experts" like Laszlo Birinyi, when the market was at 14K, and the S & P 500 was 700 points above its 30 year trend line?
Oh thats right, they were on TV yelling buy buy buy.
And when the markets started to fall apart they said it was a correction and you had to buy buy buy.
And when the markets were down 30%, they kept saying now is a great time to buy buy buy, and keep buying all the way down.
The real problem is:
We as the general public let them get away with it.
We allow them zero accountability. We should be able to say to them, "You know what, of you are going to reach a national audience and tell people what to do, then you should be held accountable if you are wrong."
There are many, many people out there with no investing experience who look to these people for advice (most of which is awful advice).
Heck I'm not posting this because I am bearish in general. I take the middle road. I own a few US listed stocks. A few Canadian stocks. A few ETF's, some triple tax free munis. I am definitely no smarter than anyone around here, and I am the worlds worst trader to boot.
Yet, my portfolio was down only 15% in 2008, while 99.9% of these talking heads and asset gatherers destroyed so much wealth this year.
I take the middle road, always. Not to bullish, not to bearish, in the middle just trying to generate consistent returns over time.
Just ask the average american who's portfolio value is where it was back in late 1998. (Based on the S & P 500 of which the majority of americans use as the basis for their investment portfolios)
Thankfully, my portfolio is only set back about 2 years worth to 2006.
I hope all of you have had the same success as I have managed thus far to have, and I wish you all the best.
Let us keep a rational perspective about the markets as it has become clear that those who have been dead wrong over the past 12 months are now beating the drums, telling you everything is OK now, without a care in the world.
Remember, they all have their real agendas well hidden from view.
the pollyanas are declaring the bottom is in. Here is the biggest truth any SA'er is going to get. I DON'T KNOW, YOU DON'T KNOW, NO ONE KNOWS what the hell is coming.
You know what we need to do? Here is the answer, man up, get ready to change with the world, make your self some money and keep yourself and your family safe. As a follow up, dont give in to a negative mind set. Even if it is the end of the world being negative will only weigh you down.
But that's what Birinyi is advocating. He said, "The idea for now is to take small bites out of fleeting opportunities."
I think the market has lost its downside momentum (for the moment, anyway), even though the fundamentals are poor. OTOH, several stocks look very cheap. I reconcile all this by thinking that the market may be anticipating enough inflation to keep it at its present nominal price level, even if its real value shrinks.
10-yr treasury pays under 3% and you can get solid companies like PFE and GE and MO yielding 7%+ divvies. Hint: Good sign the market is undervalued.
Yes, it is under 3% now and the P/E ratio is once again over 20. The Dow's is just over 10 but is likely to hit as low as 5 or 6 in a secular bear market and earnings are still falling.
The housing crisis is actually accelerating with alt-a loans yet to have their impact (lookup Meredith Whitney) and the financial problems are far from over (see Nouriel Roubini) and of course the American consumer is tapped out and has finally got religion on paying down their debt, especially since the banks are cutting their credit lines. Oh, and how about the baby boomers retiring and the bad debt our government is taking on that will have to be paid for with taxes?
Yeah...a P/E 50% over the historic AVERAGE and 4x higher than the normal low for a secular bear market just cry out for new highs...BUY, BUY, BUY!!!
--Jim Cramer (just kidding)
--Fred Voetsch
You all are the ultimate KNOW IT ALLS!
Laszlo Birinyi has one of the best stock analyst track records fomany years.
Best to listen to expert conflicting views than be a chicken little...the sky is falling in! You will be on the sidelines watching as the market goes up and miss the upside.
You bears are absolutely merciless in your criticism. The only thing I can figure is, you are covering your shorts and your desperation is showing.
Randy Ruiz had it right - I DON'T KNOW, YOU DON'T KNOW, NO ONE KNOWS. And that includes you bears. So chillax a little.
<<Laszlo Birinyi has one of the best stock analyst track records fomany years>>
Could you post a link that confirms that statement?
<<Best to listen to expert conflicting views than be a chicken little>>
As per my previous post I am long stocks, some ETF's. etc. I am just not long the "garbage" that is "sold" to the general investing public by the same people who have been dead wrong for the past 12 months.
<<You will be on the sidelines watching as the market goes up and miss the upside.>>
What matters MOST in investing is long term consistency, not trying to miss a huge upside. In 2003 my portfolio was up, yet not as much as the S & P. Then from 2004 thru this year I out performed the indexes.
The indexes are now back at 1999 levels. My portfolio is back at 2006 levels.
Enough said.
I think you need to spend less time worry about the predictions of these market mavens and more time generating long term consistent returns.
The GE "stock buy" noted above is at a 12 year share price low. Unemployment is growing. Job numbers are declining. Retail is truly suffering. Gas prices are dropping but purchasing for personal driving is not recovering. Home foreclosures are rising. Home prices are still dropping. Stock earnings estimates are being revised downward each week. Investor confidence is growing but still wary with trillions in cash. Many hedge and mutual funds will close this year. Many more businesses and shopping centers than usual will close also. Personal bankruptcies are growing. Business BK's growing. Charitable contributions are way down.
That's enough bad news for now.
On Jan 04 10:50 PM Jackson Cash wrote:
> Even Helen Keller could see that THE best indicator of a "bottom"
> is the unemployment line, just like last time in the 30's.
>
>
They do this because they took a bullish stance in 2008 and have gotten clobbered and they apparently believe they can influence the market through the WSJ.
I have never gotten and answer when I asked them how they come up with this but someone else did and their (Birinyi Associates) answer was a bunch of rubbish about how they base it on what they feel it should be. It was absolutely amazing that such vital financial data that has a history of being determined in a very specific way (share price / reported earnings per share = PE) and that data shows up on The Wall Street Journal's website and Bloomberg TV. NOTE: Bloomberg may come up with their bad data some other way.
If you want to know the TRUE P/E and earnings for the S&P go to Standard & Poor's themselves:
www2.standardandpoors....