Meredith Whitney Quitting Oppenheimer Shows Contrarian Indicators Still Work 25 comments
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As my clients know well, I am a contrarian when it comes to investing in the market. To me, buying a stock is no different than shopping for a new house, car, or wardrobe at the mall. You get your best deals when you are either buying things other people don’t want (store sale racks, foreclosed properties), or buying things when other people aren’t shopping for them (winter coats well into the season).
As a result of natural human behavior, many market participants use contrarian sentiment indicators to guide their investment strategy. Measures of investor bullishness and consumer confidence, for example, are proven contrarian indicators. Sometimes certain events can even mark emotional extremes.
Consider banking analyst Meredith Whitney’s decision on February 18th to leave her sell side job at Oppenheimer to start her own firm. Prior to October 2007, few people even knew who Whitney was, but after she became one of the first analysts to point out a possible capital shortfall at Citigroup (C) she immediately became the face of the banking crisis (thanks to the financial media) and has been extremely bearish on the group ever since.
So, we have a relatively unknown banking analyst make a good call on a large bank stock, the media picks up on it and runs with the story for months, and less than 18 months later she has enough of a following to start her own firm. These kinds of events often mark extremes, in this case, the depths of the banking crisis. For an analyst who made her career by being unrelentingly bearish on banks, it stands to reason the banking sector would be struggling mightily around the time she quit her job to go out on her own. It makes sense to question whether negative sentiment would be peaking around that time.
Of course, I wouldn’t have used this example if it didn’t serve as a positive data point for the contrarian indicator thesis. We won’t know for another year or two if Whitney quitting actually was a great contrarian indicator or not (it’s too soon to call the bottom in the banks), but it took only 12 trading days for the bank stocks (and the market itself) to put in a fierce and dramatic bottom on March 6th. Since then the market has risen 36%. Financial stocks have fared even better, soaring 105%.
Another contrarian indicator I follow is the number of worried emails and phone calls I get from my clients about their investment portfolios. If I get a few clients expressing concern over a period of days, that signals to me that sentiment is extremely negative and a bottom may not be far off. This personal indicator of mine peaked on March 2nd, merely four days prior to the market’s bottom.
All in all, contrarian indicators measuring sentiment among investors and other market participants can still be a very valuable tool when managing one’s investments. I recommend keeping them in mind as you continue to follow the market and your portfolios.
Full Disclosure: No position in Citigroup at the time of writing, but positions may change at any time
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I'm sure Warren Buffet, David Einhorn, and every CEO in America don't know how to build one either, but it hardly disqualifies them as a professional investor.
Ms. Whitney busted her hump and took nothing at face value. Her diligence led to some fantastic analysis. She continued to analyze and continued to be proven right, time after time. To my knowledge, she never sensationalized anything or made outlandish sales pitches. She seemed quite reserved and professional.
Now she has now parlayed that into a more lucrative, rewarding career opportunity. Diligence, patience, and intelligence. I fail to see the contrarian "indicator" in any of this.
And as Larry pointed out--if you have to wait a year or even two before you know if this was actually an indicator, then what value is it anyway?
MM
Comments Stream Stats
2059 comments
Rating: -7488 (5611 - 13099 )
On May 12 05:16 PM nyoneway wrote:
> Cetin, what is your track record? Feel free to disclose your long
> positions and see where we've at in 30 days.
And being able to set up a website has nothing to do with this at all.
I'll stick with my tea leaves, tarot cards, cow manure readings, and my crystal ball, thank you very much.
> She's also way too young. Only 38. She needs to settle down and stop
> trying to get ahead.
Let's judge people by their results rather than their age, please.
I'll hire a 4-year-old if he can reliably beat the best at stock-picking.
And no need to tell her to "settle down;" frankly, that seems bizarrely sexist.
Cetin, Let me get this right. Research on the internet I believe will show you are approximately 26-27, live with your mother who supports you, have no job other than posting about 30-40 comments on SA a day to extreme negative ratings, have been banned on other websites for abusive comments, have removed all your previous posts on other sites recommending the purchase of GOOG at over $700 a share a year or so ago, and yet you have the audacity to criticize a woman for honorably and well carrying our her professional responsibilities? Have you no shame? Are you autistic?
> If her professional duty is to destroy wealth, yes, she's doing a
> good job of it. Her initial report triggered this whole bear market
> costing investors billions, so you can understand why some people
> don't like her too much.
Really?
Wow.
So, because you don't like the message, you're now saying "shoot the messenger"?
It had nothing to do with derivatives, subprime mortgages, Lehman Brothers, Bear Stearns, credit default swaps, the trade deficit, GDP numbers, unemployment, bank balance sheets, or anything like that?
Shame, shame on you Kate Kelly, you evil, evil person, for telling the truth!
And, I would put less emphasis on the propaganda of your website.
You do occasionally have some valid insights. But strike a balance with your exuberance.
Also, read some alternate economic viewpoints to Keynes. The QE activity of the FED has yet to be validated as effective (long term not short term).
On May 12 06:03 PM Cetin Hakimoglu wrote:
> Why do ppl keep flaming me? My positive attitude is in the trash,
> gotta' build it back up. Keep on going
> When will the highways of the internet become less few?
> there is uncertainty and great mential loss
You're cracking up, Cetin. BTW you should disclose the fact that you don't have any real money invested in anything. A couple hundred bucks on ETrade doesn't count.
If you are serious and want my advice: First, show respect to all people even those you don't like or think can't think. This is the golden rule and it works pretty well for most folks. Second, don't comment so much that its seems like spam or junk email. I find it irritating and I suspect others do as well. I get your points; you don't have to repeat the same thing day after day on every person's post. Third, if you do comment, make it more substantive and backed up with reasoning and facts. Not everyone who is "flaming" you disagrees with you. Rather it is the simplistic manner in which you post. Four, don't go on about your being the smartest or wisest person in the world. Maybe you are but humility works wonders.
And speaking of that, perhaps I am wrong about all this, as I am not perfect either. But you asked for an opinion.
> Has she ever looked at a chart or is
> she too busy putting on mascara?
Again with the sexist nonsense. There's no need for that.
It seems that some commenters did not get Mr. Brand's point. The idea is that when a certain point of view becomes so popular that it becomes the focus of popular attention, then its usefulness is exhausted. The famous historical prototype is Joseph Kennedy's story of the shoe-shine boy in 1929. When the "man in the street" wants to buy stocks, it's time to sell.
With that clarification, we are invited to look at Whitney's "promotion" to independent fund manager as an indicator that her bearish outlook has run as far as it can. I'm not sure the comparison is applicable, because it didn't require masses of people coming to agree with her to give her that opportunity.
So, while the author makes an interesting point, I don't agree with the analysis. Still, don't trash an article just because you don't follow the reasoning: it's possible to ask for clarification.
On May 12 04:01 PM Cetin Hakimoglu wrote:
> She's a one trick pony. How can you entrust your money in someone
> who can't even built a functioning website?
>
> Whitney wrote a particularly pessimistic, but accurate, report on
> Citigroup, on Oct. 31, 2007, which got her attention from many Wall
> Street analysts,[3] and news media.[4] She has since followed this
> report with similar reports and predictions, which have tended to
> leave the companies involved with lower stock prices as the market
> has taken her opinion seriously.[3] One of her claims is that goodwill
> is built-in to a lot of companies share prices, and that as the market
> moves into dark times, this goodwill will dissipate.[3]
The best to your investing. AD
On May 12 10:20 PM Alan Young wrote:
> I hate to distract everyone from the Troll-feeding-frenzy, but I'd
> like to say something about the original article.
>
> It seems that some commenters did not get Mr. Brand's point. The
> idea is that when a certain point of view becomes so popular that
> it becomes the focus of popular attention, then its usefulness is
> exhausted. The famous historical prototype is Joseph Kennedy's story
> of the shoe-shine boy in 1929. When the "man in the street" wants
> to buy stocks, it's time to sell.
>
> With that clarification, we are invited to look at Whitney's "promotion"
> to independent fund manager as an indicator that her bearish outlook
> has run as far as it can. I'm not sure the comparison is applicable,
> because it didn't require masses of people coming to agree with her
> to give her that opportunity.
>
> So, while the author makes an interesting point, I don't agree with
> the analysis. Still, don't trash an article just because you don't
> follow the reasoning: it's possible to ask for clarification.