The Entire Stock Market Is Loaded To One Side Of The Boat

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During this week’s episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss how the entire stock market is currently loaded to one side of the boat, and what that might mean for the future:

Tobias Carlisle: I think that’s a good segue to, actually, this was what I was thinking about. My topic was the market’s high- I think… I saw somebody… It’s a 29% year for the S&P 500. Is that right?

Bill Brewster: Feels a little high…

Jake Taylor: I think it might be over 30.

Bill Brewster: … but December’s been strong, man.

Tobias Carlisle: And I think it was the best year since like 2013, which was also like a 30% year, like stunning, stunning returns. And those are compounded, there’s not being much… there’s been no draw down. 2019’s coming off a higher level than 2013. Every central bank in the world is printing. I don’t know anybody, other than the guys who are permabears, who is even remotely bearish. My instincts are always wrong, so I’m always slightly bearish, but there’s a little permabear in me, too. But I feel like… I just kind of get this feeling like we’re going to run into a brick wall. Just because there’s not… Every single person is on one side of the boat and all the arguments are so strong for being super bullish. Nobody’s even thinking about what happens if it’s not… if we go down a little bit.

Jake Taylor: I did… I was messing around in the Apple stocks app and I happened to notice that if you like kind of pinch your fingers together, it’ll show you returns between two points in time. And I’d never done that before and…

Tobias Carlisle: Yeah, I didn’t know it could do that.

Jake Taylor: Yeah, so then I was like, “Oh.” I kind of looked at one of the… I was just on the S&P 500s map there and if you go back to January 2018 to today, we’re only up 12% from there.

Tobias Carlisle: I can…

Jake Taylor: So… That’s like a 6% return basically compounded over the last two years, which is about what the average you would expect on any given random year for equities. But, boy, isn’t that just like what you’d also expect? The path to get there… Crazy monster draw down in, well, relatively speaking for this bull market, in late last year and then just a year, it comes out of nowhere that’s up 30% and that’s how we get to 6% annualized for the last two years.

Tobias Carlisle: Yeah.

Jake Taylor: This is a tough game.

Ken Fisher – Average On Paper Is Not How You Get To Average

Bill Brewster: Well, this is… I mean, people are going to say what they say about him, but I think Ken Fisher’s one of the best writers on this subject. I mean he always talks about average on paper is not how you get to average.

Tobias Carlisle: Right.

Bill Brewster: And I really like his way of picking what next year’s going to do. It’s sort of cheating, but he basically looks at what everybody says the year’s going to do and then he figures out the bands that no one’s picking and he’s like, “That’s the most probable outcome because that’s the least likely to be priced in.”

Tobias Carlisle: The band that people aren’t picking?

Bill Brewster: Yeah, so like you get up big, I don’t know what the definition of big is, right? But like he basically looks at it like you’re up big, you’re a up a little, you’re down a little, or you’re down big. And, statistically speaking, you’re either going to be down a little to up big more often than anything. So, his argument is you want to be long unless you’re going to be in the down big draw down. So, I guess when he might argue that you should get nervous is when no one’s looking at down big. That’s when you may…

Tobias Carlisle: What does he say… Has he given his 2020 projection?

Bill Brewster: I can’t read that, man. Didn’t you know what happened to him this last year?

Tobias Carlisle: Yeah, I don’t listen to… I mean, I don’t listen to anybody prognosticating about what’s going to happen next year because no one knows. The only thing that those guys don’t know is that they don’t know. And so…

Bill Brewster: He’s…

Tobias Carlisle: …they know less than I do.

Bill Brewster: I think he’s the best. I mean, I don’t know. Say what you… I wouldn’t talk like he talks at conferences, but that guys freaking smart, how he looks at things.

Phil Fisher’s Thoughts On Forecasting

Tobias Carlisle: I love the story that his dad… He talks about Phil Fisher in the intro to one of the Common Stocks books and he says he got asked at some conference where you could win, I think it could’ve been a TV or a color TV, what was going to happen the next day, I think. And I think his dad said, his dad was like, “Up big.” And I don’t know what that meant for the day, but up big for the day. And then everybody else is like trying to come up with like a little move, like half a point or a point move, and he might’ve said two points or three points one way or the other. And, of course, that’s what transpired. And he asked his dad, “How did you know that that’s what was going to happen?” And he said, “I didn’t know. All I knew was that I’d be the only person picking that number.”

Bill Brewster: That one.

Tobias Carlisle: And so, when it happened, it looked like skill and if it didn’t happen, then it would look like… nobody would remember anyway. So, maybe he learned that lesson from his dad.

Bill Brewster: He might. He might’ve.

Tobias Carlisle: He’s just picking what everybody’s not picking and then, if that happens, then he’s a genius because he’s out there by himself.

Jake Taylor: I mean, that is the way to bet it, thought, right? If you’re… You kind of bet the don’t come line and wait for… and no one else is. Kind of quiet…

Tobias Carlisle: It’s definitely the way to bet.

Jake Taylor: Yeah.

Tobias Carlisle: It’s definitely the way to bet.

Bill Brewster: It’s hard to see how people are wrong because you did just have a big spending bill, you do have an accommodative Fed. Valuations… Like I don’t know where else to invest than to buy stocks and I know that that is like… what are you doing if you’re doing it for nothing else, but… I see stuff that I think is reasonable out there. So, I don’t know, it’s hard for me to be in the down big camp, but if it happens, I would be totally not shocked and I think people are going to freak out. And I have this theory that people are just holding on to things…

Tobias Carlisle: What’s definition, though, right? If it’s down big, everybody’s freaking out.

Bill Brewster: Yeah, that’s true, that’s true. But I mean… man, you can see some draw downs in a lot of these names.

Jake Taylor: I do have…

Bill Brewster: And there’s a lot that’s not rich, right? Or there’s a lot that is rich. I say I see things that I like. I like certain setups, I think… This is not investment advice, folks, but Spirit Airlines to me, people aren’t going to go nuts on Spirit Airlines. It’s a good business model, they’ve done a lot over the longterm, it’s trading at a pretty reasonable price. I’d rather on that than bonds. So, there’s some stuff out there that I see. That just came to mind.

Jake Taylor: Let me ask you guys this, what was the last pitch that you heard that didn’t have like 12 caveats added to it about like… Well, if this stays accommodative and X, Y, Z all need to break right. I just feel like every pitch now these days is like, they realize that there’s this chain of events that kind of have to happen and break the right way for you for it to really, really work out from this price level. Doesn’t that seem to represent more of the majority?

Bill Brewster: Yeah, maybe, I don’t know.

Tobias Carlisle: I don’t really look at outside pitches. So, I don’t know.

Jake Taylor: Okay. Maybe I’m just a little…

Bill Brewster: Sorry, I don’t mean to not be able to give you confirmation bias. It could be the fact that I spend time looking at airlines.

Jake Taylor: Why am I here then, if not to give confirmation bias.

Bill Brewster: It’s a good question.

Jake Taylor: I do wonder… I think you bring up some good points, though, that like if there was ever going to be a exogenous push from the, call it the powers that be, to keep the market high before an election, boy, wouldn’t this be the team that would do it. Like Trump… We thought we’ve seen a lot of rhetoric out of him so far. Imagine what he would be doing as the election draws near and the things he’s going to be putting out to try to prop up just the perceptions of the market and the economy and trade deals. Like…

Tobias Carlisle: Doesn’t he just ignore it if it’s down? It just doesn’t exist if it’s down.

Jake Taylor: Yes, he gets quiet, but yeah.

All U.S Presidents Are All Motivational Speakers

Bill Brewster: I was cracking up when Robert Shiller was like, “We’ve never had a motivational speaker that’s a president before.” It’s like, dude, that’s what half the presidents have been.

Tobias Carlisle: They’re all motivational speakers.

Bill Brewster: Just no one’s been an open market cheerleader and gone against the Fed or whatever, publicly, but…

Tobias Carlisle: What about Reagan? Reagan was just good hair. Good looking bloke.

Bill Brewster: Yeah, I mean, you’re going to Obama wasn’t a motivational speaker. Like get out of here.

Tobias Carlisle: That’s the job.

Bill Brewster: It’s ridiculous. Yeah, so.

Tobias Carlisle: It’s the CEO job, right? We were just talking about that before. Was that before we were on camera? The CEOs job is to tell the story.

Bill Brewster: Yeah, and I think Trump understand reflexivity as it pertains to trying to get people out there and spending money. I mean, he gets that. And I agree with Shiller, that he puts more focus on that than others, but he’s not like the first motivational speaker that we’ve ever had.

Bill Brewster: But I digress. But I do think that sort of goes to your point, Toby, that Robert Shiller’s on CNBC saying that cape’s pretty high, but also Trump’s a really great motivational speaker, so we can go higher. Like it’s interesting. Everybody’s pretty bulled up right now. Fear and greed is what at like 97 or something stupid like that. But [crosstalk 00:22:45].

Tobias Carlisle: It feels very weighted to one… Just the boat feels, to me, to be filled up on one side. And I feel pretty positive, too, I’m not immune. Like I feel good. It’s been a pretty good year. We’re clearly like where there’s momentum going into the new year. I don’t know how it kind of comes undone and I don’t see it coming undone, it’s just… I just get nervous when every single argument aside from the guys who you know are going to say something bearish, you’re like everybody’s bullish.

Bill Brewster: I’m not like bulled up, I’m just not bearish. If that makes any sense, like…

Tobias Carlisle: I don’t have a view. Like to be fair, I don’t have a view, I just feel good.

Bill Brewster: My view is that we probably become Japan, right? And how I’m wrong is like maybe the BlueGrass Capital view is correct and we’re in the middle of a revolution…

Jake Taylor: Technological revolution.

Bill Brewster: Yeah and the deflationary impacts take a lot of the inflation out for a while and then, once everybody has captured the market share and start to raise price, then inflation comes. I mean, that’s plausible, I don’t know.

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