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This Is What Wall Street Is Buying Right Now


Weekly Notes With Tiho — Issue 18

Location: Skopje, Macedonia

Warren Buffett once said that "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”

I promise that this won’t be another negative article putting Wall Street into the spotlight for all the wrong things they do (and get away with).

This blog is about investing and making money.

Buffett's quote, therefore, is great wisdom for independent thinkers and contrarian investors amongst us.

Following Wall Street — or market consensus — rarely, if ever pays handsome dividends.

How To Outperform The Market

It’s no secret that I have done well investing over the last two years. This year alone, some of my clients with higher risk tolerance have managed to increase their capital by staggering 24%.

A potential client recently asked me how I managed to outperform markets?

Obviously, the answer is not simple.

To start with, most wealth managers and private investors have experienced favorable conditions — for the most part.

So making some money hasn’t been that hard.

The biggest hiccup we saw since early 2016 was the peak in safe-haven assets (especially Treasury bonds) around July 2016.

Fortunately, I was able to read those conditions well and exit with perfect timing.

At the same time, coming into 2016, I exposed my clients to cheap Asian equities — including China.

Luckily for us, Asia has been the best performing region year to date.

This followed a lot more smart allocation in early parts of 2017, including perfectly timed stock market bottoms of Mexico and Turkey.

My Twitter followers got to watch those calls in real time.

To get above average results, clearly holding SPY and “minimizing your expenses” is not going to cut it.

I’m not saying it is a poor strategy.

Quite the contrary.

However, most years it will not help you outperform.

Furthermore, looking at the current valuations, chances are it will help you underperform going forward.

A classic asset allocation strategy of 60% US equities, 30% US bonds and 10% US cash, held passively to reduce fees and expenses, is priced at 0% return for the coming 12 years.

What good is it to save on fees and expenses when the probability is decently high that you might not make a dime over the next decade?

Not Following Consensus Does Help

As one of my friends recently said: “in order to beat the market you need to be able to bet against the consensus and be right.”

Being contrarian alone is not enough.

But, it's a good start.

For those willing to stick their necks out, and try to outperform the market, you will have to do something different to the consensus to achieve superior returns.

So with that in mind, let us look at the way Wall Street fund managers have positioned themselves coming into September.

According to Merrill Lynch Survey, global fund managers continue to remain mildly overweight equities.

They aren’t pressing the pedal to the metal, that is for sure.

Because when they do — like in 2004, 2007, 2011 or 2015 — stocks tend to correct.

Sometimes even crash, depending on the economic conditions, but that is a topic for another article.

What about regional exposure?

What percentage of their exposure do manager hold in the US relative to say... Emerging Markets?

I’m glad you asked.

At the expensive of the US equities, where fund managers have gone extremely underweight, exposure has risen in other regions.

Positioning in Developed Markets excluding North America continues to remain overweight.

Is this a contrarian bearish signal?

It could be.

Consensus Can Be Right, Too

However, not necessarily so.

There are a lot of factors we have to take into consideration.

Developed Markets outside of North America have experienced “a lost decade” as prices went sideways since 2007.

Therefore, I am not surprised to see fund managers bullish during a major breakout towards new record highs.

After all, investors are meant to be bullish in bull markets… just not extremely bullish or as John Templeton said — euphoric.

Because it is euphoria that ends bull markets.

For the curious investor, pull out the chart of Bitcoin and Emerging Market equities, then ask yourself which one displays euphoria?

Focusing our attention back to Merrill Lynch’s survey, we can see a similar optimism towards Emerging Market equities.

Exposure is above one standard deviation.

What the perma-bears will notice is how similar sentiment today is to 2004, 2007, 2009 and 2011 peaks.

However, what the perma-bears will fail to discuss is how incredibly cheap Emerging Market valuations are (chart thanks to @topdowncharts on Twitter).

So are we watching the repeat of 2007 and 2011?

I don't think so.

I believe the Emerging Market equities are going through very similar conditions today as they did in 2004.

Following a financial crisis and a commodity bust, EM stock market bottomed out and started to rally.

Optimism spiked high, just like it did in 2004 however, such low valuations attracted value investors and contrarians for the long run.

Eventually, Emerging Markets broke out of their prolonged sideways range (1994-2004) and the lost decade came to an end.

Don't Tell Me What To Buy, But When To Buy It

To come back to the original question, of how to outperform the market, first and foremost an investor should buy attractive, cheap assets.

The other side of it, and quite frankly the more important side, is timing this purchase.

As my mentor always used to say: “don’t tell me what to buy, tell me when to buy it.”

If you’ve missed the rally in Emerging Markets, and in particular the Emerging Asian equities (which have made us a handsome return in 2017), chasing the price right here might not be the wisest action.

Consider the fact that the price has now become quite stretched away from its mean (the 52-week moving average).

Furthermore, despite strong momentum carrying prices higher, technical indicators like RSI (relative strength index) are constantly overbought.

Mean reversion will eventually occur.

In other words, buying here might see nerves tested during a corrective period, as you hold losses.

For the curious investor, pull out the chart of Bitcoin and Emerging Market equities, then ask yourself which one displays euphoria?

Tiho Brkan

Clearly, outperforming markets is not an easy gig.

You need someone with an accomplished level of financial expertise to make the right portfolio decisions on your behalf.

Someone who does this as a full-time job — day in and day out — with a proven track record.

Someone with the ability to read these trends and expose your portfolio the correct way, and more importantly at the right time.

If you would like to know how I am positioning my client’s portfolios and which investment themes were are exposing ourselves to — get in contact by clicking below and filling out the brief survey.

I’ll get back to you within 24 hours.


Contact us now to get started on growing your wealth, protecting your assets and increasing your quality of life.

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Tiho Brkan

Written By Tiho Brkan

As a successful trader, business consultant and portfolio wealth manager, Tiho is known to visit up to twenty countries per year, all the while observing global economic trends, purchasing off-shore real estate and executing investments on behalf of his clients. With a keen belief in living like a Global Citizen, Tiho takes pleasure in unearthing rare business opportunities worldwide, building strong connections in the fields of accounting, banking and law while helping his clients with international taxation & citizenship planning.

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