The Contrarian's View is published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. Material in this publication may be freely quoted provided proper attribution is given to its source. Subscription rate: Free on the Internet through the World-Wide Web service at Assumption College. Using your favorite Web-browsing program, Open URL http://www.assumption.edu. Mailed paper subscriptions, one year for $39 to The Contrarian's View, 132 Moreland Street, Worcester, Massachusetts 01609. There is a limit of 50 paid subscribers at one time; please check for availability before sending any money. Sorry, Visa and Mastercard are not available. Overseas subscription rate, U.S. $54. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! Phone: (508) 757-2881
Earlier this month I received an (unsolicited) phone call from someone in Oregon.... whose name I forget, but it isn't important.... who was interested in starting up an investment letter. Apparently he got my name from Mark Hulbert (or Hulbert's book) as as a person who does things "differently". (That's for sure!) And he called for advice from somebody who's in the "business" on how to get started.
So, the first thing I asked him was, what objective did he have in mind for his letter? Stock selection? Market timing? Sector analysis? Mutual funds? Political or economic fortunetelling? Well, it seems he really hadn't given it much thought.... picking stocks, he guessed. So then I asked him if he had any sort of "track record" to entice people to sign up. Well, not really.... he had made a few really successful stock purchases over the past few years, but hadn't sat down and figured out his overall gain.
Although he didn't come right out and say so, I detected that my caller was hoping to give up his regular paying job for the presumably lucrative business of offering investment advice at $200 to $250 per subscriber. So I asked him what he did for a living.... worked for a utility company, was the reply.
At least you have an area of expertise on which you can draw, I said.... something that gives you an edge in a certain area which you can use to attract subscribers. Yes, but he wasn't really interested in covering utilities (too boring, I guess). So then I elaborated on the primary difference between The Contrarian's View and most other market letters:
Look, I said, I do this primarily for enjoyment, not for the money. This gives me the freedom to say what I really think, right or wrong. (This is why I can offer The Contrarian's View free over the Internet; the $39 for paper issues just covers the cost of production and mailing.) If you are dependent on your letter for a living, then you are under enormous pressure to tell your subscribers what they want to hear, not what you really think; otherwise they will cancel or not renew, and you will starve to death.
Furthermore, market letters do well during bull markets, when interest in stocks is high, but they can really suffer during bear markets, when interest wanes. Even if you are correct, and keep your subscribers in cash during a bear market, subscriptions will fall off, because people don't need to pay $200 or more per year to be told to stay in T-bills, and besides, they probably didn't follow your advice and are losing their shirts in the bear anyway.
So if you are just making a living in this mother of bull markets, you are unlikely to survive the next mother of a bear market. The casualty rate for investment newsletters during major bear markets is very high (in excess of 50%). Even the best market letters.... those that for the most part correctly call turns in the market.... find the going tough during major bear markets.
Then I pointed out more of the pitfalls in producing a market letter.... maintaining subscriber lists; advertising and media exposure (both of which I avoid like the plague, but you can't do that if you intend to live off your efforts); production, printing, assembly, envelope-stuffing and mailing; and keeping at bay the vultures who want to pay you for promoting their stocks in your letter (yes, there are such creatures). Before I initiated The Contrarian's View, I had worked for small-scale publishers, so I knew what I was getting into; but for a novice, the amount of work required can be a real eye-opener.
Anyway, I told my caller, if you do decide to publish your letter, I'd like to do a tradeout. Tradeout?.... and I had to explain to him that this is an exchange of subscriptions so we each can keep tabs on what the other is saying. And with this I wished him good luck (he'll need it!).
Now, when interest in stocks is so extreme that totally green people think they're going to get rich in the investment-letter-publishing business, then we certainly are at a market-letter top.... and like the fortunes of brokerage houses, which rise and fall with the market, this probably indicates we are passing through a major market top, too. The evidence is anectodal, of course, but nevertheless compelling.
For the moment, it would appear that the debt problem is very slightly improving, in that the rate of increase in the debt is declining from year to year. But debt growth (at 5.6% per year) is still outpacing economic growth (2.4%) and inflation (about 3%), so the day of reckoning is only postponed. Thanks to the current relatively low level of interest rates, the government appears to have bought itself another five or six years from the "year 2000" Armageddon target in the Debt Overhang booklet. And, what if interest rates should start climbing again....?
Vainly we wait for the politicians to do some serious budget-cutting. And even if promised future benefits are brought into line with what the country can afford to pay, we still have the interest on the already-accumulated debt that must be paid off, in good times or bad.
When the stock market became overbought in mid-July and I told everybody, out of stocks now, I thought it was unlikely we would see new highs in the averages in the fall. But we have, though not sufficiently higher to compensate for the added risk of being in stocks. My opinion has not changed: Stay in "cash".... money-market funds or T-bills. One cannont predict exactly when the waterfall decline will come, but that it will come is a virtual certainty.
Then the stock split, and my brokerage firm, Dean Witter, hit me with a bogus margin call, by (for the moment) charging me with the stock distribution at the pre-split price. At the same time we received a phone call from Florida that our vacation condo had been flooded by a burst pipe (not ours, the unit above ours), so I had to make an emergency trip to Florida. I knew that in Florida, at long distance and with a condo mess on my hands, I would not have the time to monitor this short position; so I directed the shares of the stock I held long to be delivered against the short position, and covered the remaining short (I thought) by buying shares in the open market..... accepting the loss because I knew that I could not deal with my portfolio and an emergency situation at the same time.
When I got to Florida, and checked back with Dean Witter, I found that they had delivered the number of shares I held long against the short position post-split, so I was still left with some shares held long, a large short position to be covered, and a (smaller) margin call outstanding.... and, of course, the stock had risen another 15% after the split. There were other stocks where I had equal long and short positions (a means of deferring paying taxes), so I directed delivery of the long against the short positions, to free up the cash from short sales made long ago. (Long-time readers of The Contrarian's View may remember such profitable shorts as Spendthrift Farms, Keystone Camera, Integrated Resources and Ridgewood Properties, which were now coming back to life after many years of dormancy.)
But it seems Dean Witter will not let you cover your shorts this way unless you send them a "letter of authorization", and there was no way I could get them a timely "letter of authorization" even if I had the time to take off from the condo disaster to try. I pleaded with them, it's really OK to go ahead and do this.... but got nowhere. Rules are rules, even if the customer gets screwed in the process.
As a result, I had to sell nearly everything else in my account to satisfy the bogus margin call (which, of course, disappeared in a few days after everything settled out). I am left with all of the options except Placer Dome, which I sold because it was nearing expiration, and a few shares of Citizens Utilities Class A. That's it. At the moment, there isn't even any cash, because the "letters of authorization" haven't cleared yet.... just perfectly-offsetting long and short positions.
This disaster doesn't greatly affect The Contrarian's View portfolios because they were mostly in "cash" in the first place. But in real life, much of the profits I've made over the past decade have been withdrawn for other things.... to help pay for two cars, to pay for a conservation restriction on my forestland, to rebuild the family-heirloom desk I wrote about several years ago, to help finance the computer on which The Contrarian's View is produced, etcetera.... and the account holdings were being carried on margin. In fact, the cash withdrawals and margin borrowing costs had shrunk the account to the point where a single "wrong bet", such as the one I placed with my technology short, could cause problems.... and did.
At any rate, it would seem to be time to bring the portfolios back into line with reality, since the "cash" shown really isn't there. (How ashamed I am to find that, after years of maligning our spendthrift Federal government, I find that I have behaved the same way.... at least with this account!) I think the best way may be to simply close out the existing "Hedger's Delight", "Present and Future Income" and "Crapshooter's Folly" portfolios, and let their track records stand; those positions that have any value, plus residual cash which more accurately reflects what's actually in my Dean Witter account, can be transferred to a new, consolidated portfolio which I am tentively calling the "Phoenix" portfolio.... because I will rise again from the ashes!
Therefore, those portfolios are not shown this month, as I have not yet had the time to sort out what happened. I'll make the "switchover" effective September 30, using values as of the market close on September 29, and I expect the "Phoenix" portfolio will have an initial value of about $8,000.
I have also given considerable thought toward what strategies to pursue in the new portfolio. One of the ongoing headaches I have had is the enormous amount of paper-handling I've had for my holdings, which at times have numbered more than a hundred stocks. Even successful companies will send you annual and quarterly reports, and proxy cards for their annual meetings. Then there is the paperwork that comes with special meetings, stock splits, stock rights (to foil greenmailers), mergers, hostile takeovers, buyouts, spinoffs and other surprise corporate events. If a company goes belly-up, you can be sure there will be reams of litigation boilerplate sent your way, sometimes years later. Enough already.
Derivatives to the rescue! In the "Phoenix" portfolio I'm going to try to own mostly items that generate no paper, such as warrants, LEAP options and (maybe) convertible bonds and ADRs of foreign stocks. The problem with derivatives is that they carry a time premium which vanishes if the underlying stocks go nowhere.... in fact, the majority of them will expire worthless. But a few will do well, making up for the wipeouts in the others, and I expect the overall profitability of the "Phoenix" portfolio will be about the same as if the underlying stocks were owned. But, with much less paper.... and greater diversification with less cash up front.
Oh, by the way.... I also plan not to execute any strategies that require a "letter of authorization" or some other stupid rule to close out. I probably would never again get caught as I did this time with the emergency in Florida, but I'd rather not take the chance.
Notice to Internet readers: To date, there is no adequate Macintosh software tool available that will allow me to "convert" the portfolios printed in the paper version of The Contrarian's View (which are actually spreadsheet tables in a word processor) into something that can be viewed by a World Wide Web browser. Consequently, they are omitted here; just the summaries and commentary follow.
D. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG" :
Original cost: $ 3,700.00
Present value: $ 4,171.16
Increase: 471.16 [12.73%]
COMMENT on "PIG" :
COMMENT on "PIG": The NewVision warrant purchase I mentioned in the last issue is now shown, and the professors also decided to buy 100 shares of Isis Pharmaceutical at 11-3/4, which good-till-cancelled order was filled this past week. I wish I could tell you what these biotech outfits do exactly (I can tell you that they're not making any money yet), but I guess I'll just have to defer to the doctors in our group that these are good stocks to own.
In the absence of our regular treasurer (he's on sabbatical), I am making the purchases and have access to the account info, so I can now give you a more accurate accounting of what the professors are doing.
E. Fidelity IRA - real portfolio, includes commissions:
SUMMARY - IRA:
Original (1983-86) cost: $ 8,326.19
Present value: $19,473.38
Increase: $11,147.19 [133.88%]
Current yield: $ 886.19 [4.49%]
The performance of this portfolio (including its predecessors) from January 1, 1987 to the present is +77.56%, for a compound annual rate of return of 6.79%.
F. CREF Pension plan; I switch between indexed stock/bond/money funds:
Date Sold Bought
13Mar92 stock @ 56.65 MM @ 13.41
29Apr92 MM @ 13.48 bond @ 31.19
19Jun92 bond @ 32.14 MM @ 13.55
29Jun92 MM @ 13.57 stock @ 56.74
24Jul92 stock @ 56.76 MM @ 13.61
29Oct92 MM @ 13.72 stock @ 58.61
23Dec92 stock @ 61.48 MM @ 13.78
16Jan95 MM @ 14.83 equity-index @ 26.44
20Jan95 eq-index @ 26.19 MM @ 14.84
Values, 29Sep95: stock, 87.32; MM, 15.45
Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993: 3.08%; 1994: 4.07%
Gain, January 1 through March 31, 1995: 0.48%
Total gain since January 1, 1988 (7.25 years): 124.01%
Compound annual rate of return: 11.77% (My long-term target: in excess of 15%)
Gain shown excludes the impact of additional monthly cash contributions.
Buying CREF stock on January 1, 1988 and holding it gained 138.24%, for a compound annual rate of return of 12.72%.
COMMENT on "Timer's Trend" :
See comments under Stock Market Outlook.
{, } = "Timer's Trend" (4% and 10% exponential) SELL ({) or BUY (}) signal
=============================TIMER'S TREND===========================
Tue 25 Jul 95 . | . # | 4714.45 | . + *
Wed 26 Jul 95 . | . # | 4707.06 | . + *
Thu 27 Jul 95 . | . # | 4732.77 | . + *
Fri 28 Jul 95 . | .# | 4715.51 | . + *
Mon 31 Jul 95 . | .# | 4708.47 | . + *
Tue 1 Aug 95 . | # | 4700.37 | . + *
Wed 2 Aug 95 . | . # | 4690.15 | . + *
Thu 3 Aug 95 . | .# | 4701.42 | . + *
Fri 4 Aug 95 . | . # | 4683.46 | . + *
Mon 7 Aug 95 . | .# | 4693.32 | . + *
Tue 8 Aug 95 . | .# | 4693.32 | . + *
Wed 9 Aug 95 . | # | 4671.49 | . + *
Thu 10 Aug 95 . | .# | 4643.66 | . + *
Fri 11 Aug 95 . I #. | 4618.30 | .+ *
Mon 14 Aug 95 . | .# | 4659.86 | .+ *
Tue 15 Aug 95 . I # | 4640.84 | .+ *
Wed 16 Aug 95 . | . # | 4639.08 | .+ *
Thu 17 Aug 95 . | . # | 4630.63 | .+ *
Fri 18 Aug 95 . | . # | 4617.60 | . + *
Mon 21 Aug 95 . | . # | 4614.78 | . + *
Tue 22 Aug 95 . | .# | 4620.42 | . + *
Wed 23 Aug 95 . | # | 4584.85 *~.~+~~~~~~~~~~~~~~~~~~~~~~~~~
Thu 24 Aug 95 . | # | 4580.62 | . + *
Fri 25 Aug 95 . | .# | 4601.40 | .+ *
Mon 28 Aug 95 . | .# | 4594.00 | .+ *
Tue 29 Aug 95 . | # | 4608.44 | .+ *
Wed 30 Aug 95 . | . # | 4604.57 | .+ *
Thu 31 Aug 95 . | . # | 4610.56 | . + *
Fri 1 Sep 95 . | . # | 4647.54 | . + *
Tue 5 Sep 95 . | . # | 4670.08 | . + *
Wed 6 Sep 95 . | . # | 4683.81 | . + *
Thu 7 Sep 95 . | . # | 4669.72 | . + *
Fri 8 Sep 95 . | . # | 4700.72 @|~.~~~+~~~~~~~~~~~~~~~~~~~~~~~~~*
Mon 11 Sep 95 . | . # | 4704.94 | . + *
Tue 12 Sep 95 . | . # | 4747.21 | . + *
Wed 13 Sep 95 . | . # | 4765.52 |~.~~+~~~~~~~~~~~~~~~~~~~~~~~~~*
Thu 14 Sep 95 . | . # | 4801.80 | . + *
Fri 15 Sep 95 . | .# | 4797.57 | . + *
Mon 18 Sep 95 . | # | 4780.41 | . + *
Tue 19 Sep 95 . | . # | 4767.04 | . + *
Wed 20 Sep 95 . | . # | 4792.69 | . + *
Thu 21 Sep 95 . | #. | 4767.40 | .+ *
Fri 22 Sep 95 . I# . | 4764.15 | .+ *
Mon 25 Sep 95 . I # | 4769.93 | .+ *
Tue 26 Sep 95 . I .# | 4765.60 | .+ *
Wed 27 Sep 95 . I# . | 4762.35 | + *
Thu 28 Sep 95 . I . # | 4787.64 | .+ *
Fri 29 Sep 95 . | .# | 4789.08 | .+ *
=====================================================================
[, ] = 4% exponential change unconfirmed by 10% exponential (not a signal).
@ = market overbought or oversold. I or & (on baseline) = 10% exponential SELL.