Articles

Before we get going, I want to put in a plug for my podcast housed here at Jared Dillian Money, called BE SMART.

My friend Cameron Hagler is the host, and I am the muse. We talk about markets, for sure, but lately we have been talking a lot about books. You see, Cameron has an MFA, just like me, and has been endowed by his creator with copious creative abilities. So, you have two finance guys and literary guys on a podcast. Don’t worry: We don’t just talk about books. Anyway, check it out here—it’s highly underrated.

The BE SMART podcast has been in existence for a while, and I thought it was a clever bit of branding on my part, because isn’t that what we all hope to aspire to do in money and markets—be smart? Unfortunately, sometimes people are very, very dumb. Like, piling into AMC was dumb. So, we try to avoid those sorts of things. One of these days I am going to ask the production people here to put this newsletter in a serif font because it adds a few IQ points. At least it isn’t in Comic Sans.

Being smart, as it were, is all about questioning assumptions. Duh, we have an election coming up. Trump is gaining in the betting odds (and the polls), and the stock market is going up. You might be led to believe that there’s a correlation between Trump leading in the polls and the stock market going up. I believe there is. So linear, straight-ahead thinking might get you to a place where you believe that a Trump victory is unambiguously good for stocks. I mean, it was the last time around, so that’s a reasonable assumption, right?

Except when the market starts pricing in something, like an election, by the time the election happens, all the smart people have already bought, all the dumb people pile in on election night, the smart people sell to them, and the market goes down. This is otherwise known as “buy the rumor, sell the news.” It happens all the time, and people constantly get fooled by it. 

I will tell you one time that I got fooled… and fooled bad. In the 2008 election, when there were rumblings about socialized medicine or some variation, I got very bearish on health insurers. Coercive regulation can’t be good for a sector, could it? As it turns out, coercive regulation was very good for health insurers; they went straight up for years, and now they are among the largest companies in the S&P 500. I was looking at this from a first-order standpoint of regulation = bad, and not the second- and third-order effects. In the markets, you always need to be looking at the second- and third-order effects.

Smart Chart Reading

I will tell you a story of when I was smart.

Last year, I was at a social event at a boat show, and one of my neighbors came up to me and started pumping me for stock picks. I’m used to it—people are too cheap to buy the newsletter and instead pump me for stock picks at parties.

So, this guy tells me that he just bought Boeing. Now, I had just happened upon a chart of Boeing days earlier, and it was one ugly-looking chart, and I told him so. I told him that the company was doomed. He argued that it was cheap. Ah, well. 

Anyway, you know what happened next. The stock actually did go up for a few weeks, and then the door flew off the plane, and it has been chaos at Boeing ever since. The stock is down 23% in the last year. If it were strictly a commercial aviation company, it would probably be down a lot more, but it has a robust military business as well.

How did I know all that from looking at a chart? I mean, I couldn’t possibly have known that a door was going to fly off a plane.

Let me tell you about technical analysis. A lot of people make fun of technical analysis. Lines on a chart. I don’t have a CMT, but I have spent the better part of 25 years looking at charts, and I have a pretty good sense of what works and what doesn’t. I didn’t even run any technical studies on it. Looked like a chart that was reaching exhaustion on the upside. I can’t put it into words. 

Anyway, this is sort of an advertorial. If you’re thinking about subscribing to a newsletter, maybe subscribe to the guy who is freakishly, almost suspiciously, good with charts. Past prices contain information about the future—markets are not efficient.

One last plug for NIGHT MOVES and I’ll shut up. 53 reviews and 4.9 stars on Amazon, and I don’t have 53 mothers. I’ve had my share of bad reviews on books, and this has none. Everyone loves it. Go to the Amazon page and skim the reviews—you’ll see what I mean. Last chance to get it here.

Jared Dillian, MFA