thoughts (x)

the consensus view

I think there’s a clear consensus among professional stock market strategists that the first half of 2023 will be weak, maybe extremely weak, before a bounceback of unclear strength in the second. This belief is surprisingly unified–I know of only one exception to this view (who argues we’ll have the reverse–a rebound in 1H23 and a selloff in 2H23).

In the before times, when I was working, this would have been a gigantic buy signal. The reasoning back then was that by the time something had become so entrenched as to become the consensus view most portfolio managers would already have incorporated this into their portfolios. In other words, there was no one left to bet on the consensus. So the sensible move would be to go in the opposite direction and bet against it. The big question would be how to do so, meaning figuring out where one thought the market was likely to move next and, in the most elegant solution, just finishing repositioning as the strategists were figuring this out and changing their minds.

I think that even today it remains a good rule that if there’s a consensus of strategists, their prediction is inevitably wrong. The issue today is what it has always been–how the consensus is wrong. In this case, I think it’s a fundamental issue. Are the strategists too bearish or too bullish?


— while the mind of the market processes data at lightning speed in a bull market, it moves much more slowly in a bear market. In the latter, the market discounts, over and over again, the same negative news …until one day it doesn’t. Boring, maybe, but that’s the way it usually works. I should note, though, that although I’ve lived through a bunch of them bear markets aren’t my strong suit. The most important thing I can bring to the table right now is that the turn from bear to bull seems to announce itself when the market begins to take tiny little bullish steps. I haven’t seen much yet

–while the deep negativity of the current consensus will eventually turn out to be a good sign for the market, I don’t think it necessarily is so today. That’s because the most powerful force in the contemporary stock market is still trading bots, which are reactionary not anticipatory

Another point: I’ve found that an important key to investment success is to understand that you don’t have to have an opinion on everything. It’s much better to have a few things you have a lot of confidence in and avoid betting on stuff you don’t.

So, I’m avoiding the high-level bet on bull or bear by trying to have a portfolio that’s more or less market-direction-neutral. Instead, I’m…

working around the edges (sometimes this is the best you can do)

–we don’t have to bet on everything. In fact, that’s probably the worst possible strategy. It’s better to bet on/against a few things that you’re the most sure of, and watch them like a hawk. For instance,

–I think the pandemic was the last hurrah for the FAANG stocks. A typical growth company runs for about five years before it has exhausted its competitive advantage in a given area and has to reinvent itself. The FAANGs have done this successfully more than once. Maybe the AAPL car will happen, and produce yet another growth spurt for the company. But I think the group as a whole is well past its best-by date.

I’ve been holding MSFT since the board replaced Steve Ballmer (if there were a way to bet against the Clippers as a franchise, I’d do it) and continue to do so. If nothing else, I think it’s the best of a pedestrian lot.

–it’s probably time to look at stocks that have exposure to non-US markets. That’s because the dollar got a major boost after the invasion of Ukraine, as did Treasury bonds. This defensive positioning by non-US entities has begun to unwind and will probably continue to do so, I think, implying higher US$ profits for Wall Street-traded multinationals

–It may be worthwhile (although I’m not doing this yet) to look at Japan and/or the EU, more on the idea that they’ve been train wrecks than that they’re hot spot of growth

–as for the US, I’m happy, for the time being, to look more like the index than usual. I’m getting my tech exposure (ex MSFT) mostly from ASML + semiconductor makers

–I think the way to approach the former pandemic darlings is as potential value stocks, that is to say, to pay a discount price for net assets on hand, and be willing to wait for something good to happen, rather than to pay for dreams of future glory that may or may not pan out. So much the better if their growth plans are still mostly intact. Much better if forced change of control is a possibility.

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