Most people I know don't ask why a stock is going to go higher, they ask, why isn't that stock lower? And that's why I find most people missed a lot of tremendous individual moves. They were too worried about the downside, too set on the potential losses and too willing to suspend their corroded critical faculties -- augmented, often, by a visceral hatred of the president -- to see how the risk-reward changed so drastically in 2019.
That subtle, novel risk-reward differential defines this market. Take the most top-of-mind story of the moment: the halting of Boeing (BA) 737 Max production. Tell me when you looked at that stock yesterday, you couldn't believe it was still in the black for the year? That's astonishing. Here you have the worst-case scenario for a company, one that was listed as almost impossible to happen when they first flagged the issues, and the stock's still positive?
Why isn't that stock lower? Wouldn't Boeing's stock have wrecked your performance?
That's the question.
The answer, no, not at all, because there are too many portfolio managers who want to be in Boeing's stock when the company fixes the problem. Planes are a duopoly. There's tremendous secular demand. They don't fear $250 on the downside, a totally logical outcome if this darned plane isn't fixed and the regulators from overseas keep screwing the company. They fear $400 on the upside and they don't want to be left behind.
Same thing with GE (GE) . Now we have some really fabulous analysts who spotted GE going down and they, especially Steve Tusa, are relentless in saying there are black holes and hidden issues and TOO MUCH WISHFUL THINKING.
So why isn't the stock back at $6?
Because do you really want to miss the comeback of one of the greatest industrials of our time? Do you want to sit there and say "you know what, I see it going up but I have to wait for Tusa to upgrade it?"
Until this year, this incredible year for stocks, you would say "once we get the all clear from Tusa I will jump back in." This year, this is the year where you can't just marvel "why isn't that stock lower, I want in." You have to suspend much of what you have been taught, acknowledge that Tusa's become a liability on this stock (not others just this one) and accept the magic of GE at $11. Yes, 2019 is the year of Joan Didion, The Year of Magical Stock Thinking.
The market's littered with stocks where you should have been asking how can that stock go higher, not why isn't it lower.
How many times did people disparage me on Twitter about my view that Apple (AAPL) could go higher? If I showed you the hate mail I got from professional money managers who made millions of dollars in stocks but were furious that I didn't see the downside coming in Apple, you would think I had physically assaulted one of their family members. They just never stopped to think how the stock could go higher, how the ecosystem would make the stock worth more, how Tim Cook could juggle two presidents. Nah, they just wanted to know why that stock isn't lower.
You know what really galled people this year? When a stock broke down on a bad quarter and then refused to stay down. The most obvious is Apple after the January pre-announcement: one of the greatest buy points ever. But same with Caterpillar (CAT) after its last terrible quarter or the miserable quarter just now from Deere (DE) .
When did Nvidia (NVDA) bottom? When things were as horrendous as they were for Lam Research (LRCX) . In each case, when these stocks didn't continue to descend after bad news ,you had to ask "why is this stock going higher," and then craft reasons for the upward tilt and get aboard even if it seems like you are lacking in rigor to do so.
Look, I don't have a crystal ball for 2020, but I do have an attitude -- and that attitude is that you must ask what would send a stock higher, and that's a more important question than what could send it lower. Do not weight them equally.
The latter hasn't worked -- and I don't think it will work in 2020 either.
