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State of the Markets: Repeat after me: I will not make…

I was recently taken to task on Seeking Alpha for providing a “daily dump” of information (this was likely a play on the title of my morning missive, “Daily State of the Markets”) and for failing to provide specific guidance on (a) what the reader should do and (b) what I believe will happen next. This individual is obviously not a fan of my work, and frankly, I can respect that. What I do is definitely not for everyone.

However, the complaint brings up an interesting and to me, anyway, a very important point. You see, I do NOT and will NOT make predictions about the stock market. Sorry, but years of experience has taught me that such endeavors are a fool’s errand.

For the record, I manage “OPM” (other people’s money) for a living and have done so since 1987. Also to be placed in the full and fair disclosure category is the fact that my firm and my approach can be put in the “active risk manager” category. I started officially managing client money just before the “Crash of ’87” and have been trying to keep client accounts in line with the big-picture market environment ever since.

Perhaps the most important thing I have learned over the past 27 years is that Ms. Market doesn’t give a hoot about what I think is about to happen next in “her” game. I’ve learned that my opinions just don’t matter. I’ve learned to check my ego at the door each and every day. I’ve learned not to equate luck with skill. I’ve learned that “taking a stand” can be painful and oftentimes costly. And I’ve learned that “making calls” and predictions are for those seeking attention.

On that note, I will relay a story from a friend/colleague in the money management business about how he is able to get CNBC, Fox Business, Yahoo! Finance, etc. to contact him for interviews on a regular basis. And I quote, “What I do is take the exact opposite stance of whatever is hot at the time. For example, back when Apple was soaring, I called for the stock to crash 60%. The media LOVED that one – I got tons of calls!”

My friend/colleague then laughed and said, “And the funny part is that Apple did actually crater! Suddenly I was a hero and everybody wanted to talk to me!” He added that he has publicly and loudly taken the opposite side of “anything popular” ever since.

But here’s the important part. When asked if he used any of his prognostications in his money management business, he replied, “Are you nuts? Of course not!”

My friend went on to emphasize that he uses disciplined models, indicators, and/or systems to dictate 95% of his investing decisions. He says he likes to keep a teeny tiny amount of subjectivity available to him, “just in case things get nutty and my experience might actually be useful.”

So, call me a chicken. Challenge my manhood. Throw proverbial stones if you must. But I’m not going to bore you with what I think is about to happen next in the stock market – ever.

Sure, my opinion might be accompanied by more than 27 years of experience. Sure, I can get it right now and again. And yes, there have been times where my intuition was actually better than the models/indicators/systems I use (did I mention the idea about not equating luck with skill?). But, in reality, providing readers with opinions of what “should” happen next isn’t likely to do you, or me for that matter, any good.

The bottom line is this: No one (repeat, no one) has been able to consistently “call” the direction of the market for any length of time. So, what would make anyone think they can? Hubris, is the likely answer.

Let’s be honest; this is a tough game. Staying on the right side of this bucking bronco we call the stock market is challenging at best. Thus, the goal of my morning missive is to provide anyone willing to spend a few minutes reading my work with an unbiased analysis of what IS happening in the market. I want to try and focus on the actual drivers of the market and not what I think “should” be happening. No, this missive is intended to help readers make informed decisions – or better yet, learn from my years of investing mistakes.

In case it isn’t obvious, I’d also like to point out that I don’t make predictions or use “my view” when investing people’s hard-earned money. In fact, the words ‘should’, ‘could’ and ‘would’ are strictly banned from use in our shop. No, we depend on unemotional, market models, indicators, and systems to guide our positioning. In my humble opinion, investors deserve our best work, not my best guess!

It is my sincere hope this helps clarify why I don’t – and won’t – “take a stand” in my writing. I am trying to provide objective analysis, not be just another pundit yammering on about what I think the future holds. As the late, great Marty Zweig (a key influence on my career in the early 1980’s) used to say, “Those who depend on a crystal ball will end up with an awful lot of crushed glass in their portfolio.”

– See more at: StateoftheMarkets.com

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.

Dave Moenning

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.