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David Moenning is a the Chief Investment Officer at Heritage Capital Management. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987.... More
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Daily State of the Markets
  • What Separates The Pros From The Public 0 comments
    May 2, 2013 10:31 AM

    Daily State of the Markets
    Thursday, May 2, 2013

    Good Morning. I spent the better part of the last four days at NAAIM's (National Association of Active Investment Managers) annual "Uncommon Knowledge" conference, which was hosted in my hometown of Denver this year. While the conference agenda was chock full of strong presenters such as Keith McCullough of Hedgeye, Martin Pring, Tom McClellan, and Ian McAvity, the real benefit to attending a conference like this is getting to spend time chatting with more than 100 active money management professionals.

    In case you're wondering, the term "active management" runs the gamut of everything from periodic reallocation of tactical and/or strategic investing strategies to trading in and out of various markets on a daily basis. In short, the managers at this conference engage in a wide variety of investment methodologies. However, the common thread is that ALL believe in doing something other than the old buy, cross your fingers and then hope approach. While we may disagree on whether a trend-following, black-box model, or mean reversion approach is better/smarter, one thing we all agree on is that buy-and-hope is an outdated concept - unless, of course, you are able to implement such a strategy when there is blood in the streets. But then again, isn't that too an "active" approach?

    But I digress (as usual). While there is a contingent of managers within NAAIM that I would call "quants" who manage money based solely on the readings/rules of their mathematical systems, there are also a great many "active" managers who look to keep their clients in the right place at the right time using their experience and brains as a guide. And it was this crowd that I enjoyed talking to as the opinions on the outlook for the markets were all over the map.

    I talked to advisors (a manager must be an RIA - Registered Investment Advisor - to be a member of NAAIM) who felt that the world was in sorry shape at the present time and that the piper would most certainly have to be paid at some point given the state of China, Europe, etc. What was interesting (well, to me anyway) is that some of these managers were younger and had only been in the business during the current secular bear market, while others were grizzly veterans who have seen it all since the 1970's. As such, I can't say that the folks I talked to were simply fighting the last war due to their frame of reference.

    On the other side of the macro view, a smaller group of managers were borderline giddy about the outlook for the next couple of years. They cited the action on the chart, the Fed, BOJ, ECB, et al as well as the idea that the stock market tends to look forward and not back. Therefore, this group argued, if the market can find a way to not succumb to the "sell in May" season this year, stocks - specifically U.S. stocks - are the place to be.

    While it isn't terribly surprising to have heard both bullish and bearish arguments from this crowd of investment professionals, the one thing that unites the crowd is the insistence on employing a risk management strategy. When asked, "What if you're wrong on your view?" the answer was universal. While the actual words chosen to offer a response varied, the overriding message was, "That's easy - we will follow our sell discipline and get the heck out of the way if things get nasty."

    This is the message I will leave you with on this fine Thursday morning as I've got to pack a bag in a few minutes and start brushing up on my French (my goal is to not completely embarrass my wife in the restaurants this time around). While the approaches, strategies, methodologies, and time frames vary widely amongst the members of NAAIM, the common theme is the each and every manager has an exit strategy for their positions. And frankly, it is this one simple concept that separates the pros from the public.

    While the public has a tendency to drink the Kool-Aid of the day being pushed by the financial media and their commission-based "advisors," most of the managers within the NAAIM organization get paid for "getting it right" when things go wrong. And this is why I so enjoy the gatherings because in short, I've found my people.

    Publishing Note: My travel schedule continues to be full. Starting tomorrow, I will be traveling in Europe with my wife for two weeks. Then, the day after we return, I set off to fetch my youngest from college. So, I will be schedule-challenged for much of the next three weeks and will publish morning commentaries as time permits. However, rest assured that since vacation isn't a word in my vocabulary, I will be monitoring the markets on a daily basis.

    Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

    Thought For The Day...

    "He who walks straight rarely falls" -- Leonardo da Vinci

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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