You hate the barbell, until days like this when it keeps your sanity and allows you to stay actively managing your money.
I'm talking about the barbell of having some stocks that are momentum-tech plays that have been soaring, but others be the more cyclical, less recession-proof stocks that can rally when fears of an economic collapse can be avoided. It was the latter part, the transports, the travel and leisure, the construction, aerospace and retailers that led the market and did so in spectacular fashion. If you owned none of those, you had a miserable day. But if you followed my barbell thesis, you somewhat offset the losses with some good gains where you least expected.
Now, before I go into the barbell and all of its glory, let me just say a word or two about portfolio management, the skill I try to teach every day after learning it for 40 years -- consider it a continuation course that I both take and give.
The common theme of most of the cognoscenti is that it's a fool's game to try to manage your own money.
This is a relatively new phenomenon, something that would have been frowned upon greatly by any person of means in the old days, and even now. A wealthy person was always trying to augment her wealth with some individual stocks and in my years of helping rich people manage their portfolios, I saw many of them come up with brilliant ideas, far more good ones than bad, and it was always a joy to brainstorm with them. An art collector would see flows into gold. A scientist figured that semiconductors could be used to turn a small personal computer into something with the power of a mainframe. A retailer would see the power of Gap (GPS) under Mickey Drexler or recognize that if Target (GPS) were freed from the old Dayton Hudson it could have a terrific run. All of which came true.
Individuals excelled in stock picking in the '80s and '90s and we used to call it The Greatest Story Ever Told, how the business had become democratized as so much information was suddenly available to everyone,
And then the dot.com era sucked a lot of people in and in a very short period of time they lost everything.
It took years to come back, but just when it looked like individuals were getting their feet wet with stocks, the Great Recession occurred and those feet were cut off mercilessly.
And then on May 6 2010, we got the last straw, the flash crash when people lost trillions -- if only on paper -- in just a few minutes.
After that we saw a giant cohort of people go into bonds never to return and we a huge number of people just give up but wanting exposure to the market and were told they were too dumb to pick stocks. It's a brutal judgment to decide that everyone's an idiot and can't do a thing with their money and have to surrender it to others or, worse, to a machine called the S&P 500. I think the profession, so to speak, has managed to convince people that they are more capable of handling their money than they are of doing brain surgery on their loved ones.
In fact, it's a selfish judgment that so many have become complicit about that it's considered hubris that I can even attempt to try to help you manage some of you own money; notice that I say some, because as a concession to the industry, I am willing to accept that the majority of your funds should be passive. I am just betting that you will be the passive index with the selection of some stocks that you follow, do your homework on and profit from because you are an aware, thinking person.
Which brings me to now. I have said to you that when I think a recovery can occur, you will wish that you owned some stocks that are levered, as they say, to a recovering economy.
Oddly, I had thought that we would get a rally after we had some terrific news about a vaccine -- not something that I can say is happening -- or after we had a deal in Washington that would pump enough money into the economy to get us to the Panglossian world of the vaccine. The latter fizzled in miasma of politics and rancor.
So you should suspect that the high growth portion of the barbell, the FAANGS, Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) , and Alphabet (GOOGL) would be the leader along with fellow travelers Nvidia (NVDA) and Microsoft (MSFT) . There were some specific analyst boosts that took Apple and Nvidia up, but the expensive growth stocks pancaked, much to the chagrin of those who believe that the market reflects the macro, or large scale picture.
Not today. We had a couple of thing happens that boosted the other end of the barbell, that had nothing to do with the headlines, the politics or the rejectionists. It had everything to do with the companies themselves.
First, we had what looked like a terrible quarter from Marriott (MAR) . But when you dove into the conference call, you were surprised about the nascent return of the travelers. It was so easy to craft a bull case for this down-and-out operator tripped over themselves trying to get stock. Sure, it's still down 36% for the year, but in some ways that makes it even more savory.
Then we had a monster ugly quarter from Royal Caribbean (RCL) , which is kind of a duh, considering that they can't sail. Like Marriott, if you traded off the headlines, though, you missed a fabulous move that came from the company's announcement of great bookings for next year. It was pretty astounding. You put the two together and you get a view of the consumer as someone who is ready to travel, anxious to take a vacation. With the U.S. crossing an astounding 5 million cases of Covid-19. You would think the opposite would be occurring.
Finally, Footlocker (FL) , a beaten down mall retailer reported a surprising 18% increase in comparable stores, igniting a rally for all things apparel, including, of course, Nike (NKE) , but also pretty much every other kinds of goods imaginable. You know the logic: if Footlocker is good how amazing could Target be? Or how about Walmart?
Last week we saw this nascent rally coming when the transports, led by United Parcel (UPS) , took off. Monday it expanded to Federal Express (FDX) and the rails. Why not? A recovery will impact all of these. But travel? Leisure? Mall spending? At a time when people are cheering Simon Property Group for considering putting Amazon warehouses into vacant Penney (JCPNQ) and Sears (SHLDQ) stores, it's ironic that the mall may be more alive than we think.
Now, because of the description I gave you about how so few people actively manage their money, you are going to get selling in the other end of the barbell to put the money to work in the recovery stocks. My take is simple: maintain a portfolio that's diversified, owning high quality companies that may be out of favor now, you won't have to pay up for stock on days like today.
It's an important lesson for those brave souls who still want to learn about stocks, despite the endless drumbeat that you are too obtuse to do so. It's a shame what they've done to you. Remember though, it's not brain surgery.