Yellen Swings and Misses
Walter Schloss is one investor you should know.
If there were an Investor Hall of Fame, he would certainly be in it.
In fact, Warren Buffett sang his praises and had this to say about his old friend:
He knows how to identify securities that sell at considerably less than their value to a private owner: And that's all he does... He owns many more stocks than I do and is far less interested in the underlying nature of the business; I don't seem to have very much influence on Walter. That is one of his strengths; no one has much influence on him.
Schloss started on Wall Street in 1934 and then went to work for Ben Graham when he returned from World War II. In 1995, he left Graham and started his own investment firm. With nothing more than a copy of Value Line in an office the size of a closet, he averaged a 15.3% compound return, versus 10% for the S&P 500, over the course of 45 years.
Perhaps in the next issue of Energy and Capital I’ll share with you how Schloss picked stocks.
But for now, I want to tell you what Schloss, who slayed the S&P 500 over a period of more than four decades, had to say about predictions:
Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.
That Time of Year
At the start of each New Year, pundits come out of the woodwork ready to give predictions on everything and anything.
I want to warn you to stay away and don’t listen to the Call of the Sirens, enchanting you with their logic, cute anecdotes, and economic terms. Like the sirens in Greek mythology, listening to them will end up in disaster. Odds are you will end up shipwrecked and watch your portfolio go down the drain.
You would think that if the Chair of the Federal Reserve whispered into your ear, you would almost be certain that you’d make money. Well, think again.
Yellen Swings and Misses
Back in July 2014, Fed Chair Janet Yellen was worried about biotech stocks.
In her testimony before Congress, Yellen was ringing the warning bell on momentum stocks and how they were a potential concern.
Yellen said, “Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries.”
Now, if you’re like the average investor, you would’ve thought that she just gave you a solid piece of trading advice.
And you wouldn’t have been so wrong.
The amount of data the Fed has on every corner of the economy is enormous.
So, let’s assume you took her warning to heart and sold all of your biotech stocks.
Using the iShares Biotechnology ETF (IBB) as a proxy, one would expect a sharp decline right after she made this announcement on July 15, 2014... right?
Well, the iShares Biotech ETF did drop by about 1.6% that day. But if you would have sold all your shares, you wouldn’t be a happy camper.
The iShares Biotech ETF rose from 252 to as high as 397 by July 2015, for a gain of +57%... before taking a breather.
Yellen’s one-year concern on the valuation metrics for biotechnology stocks cost investors 57% if they listened to her warnings.
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What You Should Do
The way Wall Street insiders have been consistently making money for decades is by avoiding having to predict anything.
They only like to take trades that are as easy as shooting fish in a barrel... with the water drained out.
These trades are not easy to find, but when we uncover them, the compelling logic of the trade makes so much sense, you could write the idea with a crayon.
I should know... I’ve spent most of my +30-year career on Wall Street.
I can show you how the insiders really make money... the kinds of trades they bet the farm on and trades they wouldn’t touch with a ten-foot pole.
Each month I give readers straight talk on finding trades that most investors overlook simply because they don’t know how to think like a Wall Street insider.
I strongly urge you to take a few free minutes and check this opportunity out for yourself.
The next step is yours.
All my best,
Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street.
And with more than 30 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Hidden Values Alert and the Inevitable Wealth Portfolio newsletters.
Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.