Mark Fisher: Analysis Doesn't Matter in This Market

Includes: APOL, STRA
by: Thomas Kirchner

Mark Fisher, inventor of the technical trading method ACD, sees this market as a pure trading market in which analysis does not matter. This was probably not what some of Wharton’s students, attending its first annual Wharton Hedge Fund Conference, wanted to hear. After all, they have committed to spending a six figure amount on learning how to perform just that analysis. Fisher probably also depressed Wharton’s faculty, whose livelihood depends on a steady supply of students willing to pay ever increasing tuition rates. Not to mention that Fisher himself holds a Wharton MBA.

Instead of analysis, all that counts in Fisher’s world for the foreseeable future are market psychology and spotting turning points. Markets are a chess game in which you have to stay one step ahead. Until December, Obama triggered 11 brief market rallies when he appeared on TV. At his twelfth appearance, the market no longer rallied. Fisher shorted the market and sure enough, it dropped a little later. Fisher thinks Bernie Franks might provide a similar trading opportunity: the day the market does not drop when Franks appears on TV, you should go long as much as you can.

We are not quite convinced by Fisher’s trading rules. A money manager we know recently backtested Fisher’s ACD indicator, described in his book “The Logical Trader - Applying Method To The Madness” (John Wiley, 2002). The backtest ran over 15 years or so, but the manager was unable to show that the strategy worked. It did not produce satisfactory results due to excessive drawdowns that made it not much better than holding equities outright. So we wouldn’t bet our retirement savings on Fisher’s Bernie Franks indicator.

For the resolution of the current credit crisis, Fisher has two proposals: first, imitate Canada’s solution to its housing crisis from seven years ago. Canada gave green cards to anyone who bought a house for Cdn$400,000 with cash, no mortgage allowed. Second, remove the stigma from bankruptcy by letting people get credit after they declare bankruptcy on their mortgages. This will force borrowers and lenders to work out mortgages, which is better than giving judges authority to re-write mortgage contracts.

Fisher’s outlook for the hedge fund industry is as somber as that for analysis. He believes that next year the conference will no longer be called Hedge Fund Conference but Managed Accounts Conference, something we agree with. We would add that not only managed accounts provide the level of liquidity and transparency wanted by investors in the post-Madoff world, but any good ‘40 Act vehicle can be structured today to implement almost any hedge fund strategy. Fisher argued that KISS is the way forward for the industry: Keep It Simple, Stupid.

Finally, Fisher gave a hot stock tip: he sees education stocks such as Strayer and (NASDAQ:STRA) Phoenix (NASDAQ:APOL) as the short opportunity of a lifetime. They still trade near their 52 week highs; however, as more and more graduates find it difficult to get jobs, the appeal of paying for their courses will decrease along with the rapidly diminishing disposable income of its potential students.

Seeking Alpha provides complimentary conference passes to our contributing authors as a courtesy. A list of eligible conferences can be seen on our conference calendar.