Investment Philosophy

MARKETS LEAD FUNDAMENTALS – To understand the investment philosophy behind "Before the New$" one needs remember that empirical evidence proves financial markets usually discount the news. Said another way, most economists understand that the stock market normally leads the economy; that is, the stock market often tops out and heads down before the economy goes into recession. Likewise, the stock market usually bottoms out before a recovery is evident. The stock market is a leading (it comes before) not lagging indicator.

For example, when the stock market bottomed in March 2009, what was the economy doing? It was going in the tank. Corporate fundamentals and earnings estimates were still turning negative. Brokerage houses were going bust. Why should stock prices bottom then?  They bottomed not because analysts thought they were at cheap price-earnings ratios but for lots of other reasons…including that stocks were "oversold" (most  weak holders had already sold); the Federal Reserve had lowered short-term interest rates to a 0-.25% rate and was making lots of credit available to the banking system; and massive government bailout efforts were at hand....but they had also begun to create a head and shoulders reversal that would carry the S&P up to 1,200 to 1,300, anticipating an economic recovery.

If stock market indices lead and help foretell fundamental economic developments why don’t stock prices themselves help foretell what is going to happen at a company…or commodity prices tell about changing supply and demand for gold…or bond prices about long-term interest rates? We believe that with few exceptions they do.

So those who try to guess what the news will be (e.g., corporate earnings) and make a buy/hold/sell market judgment solely on the prospective price-earnings ratio are going about it the wrong way. In our opinion, they are using but ½, and maybe not the most important half, of the available tools to make that decision; they are also putting the cart before the horse.

PRICE IS A KEY FACTOR – One of the biggest components of total return from a free market investment is the difference between the price one pays to buy and the price one gets when selling.  Ideally, we buy low and sell high. In a volatile world, where trying to maximize that spread and reduce risk is so important, getting a good handle on what the price of a stock or bond or commodity or asset class may do is as, if not more, important than what a company’s earnings may be going to be.

To emphasize where we come from on this issue, we believe that what the stock market may do, frankly, is more important than what the economy may do. Our clients do not own the economy. They do or do not own stocks, bonds or commodities.

We believe that there is too much emphasis on trying to figure the economy to help justify investment decisions and too little on prices. As an example, in early 2008 the investment strategist at one of the major local insurance companies asked me if I thought a recession lay ahead. I said, "probably, but I don't spend a lot of time worrying about that. It is too far removed from what my clients want. They want to know what prices are going to do. I look at prices, and it looks to me like the stock market is headed down, perhaps big-time."

There are bona fide ways to get a better handle on what prices may do.

HOW CAN WE GET THAT HANDLE? – If price itself is so important, how can we get a handle on what it is likely to do? There are many, many ways of trying to solve this problem. Most all of them involve the art of technical analysis in one form or another.

Having historically been thought of by fundamentalists as playing a Ouija board game or like Muslims think of infidels, technical analysis was a phrase that was kept in the closet for a long time. We have been using technical analysis successfully for over 40 years. Today that talent has become more and more in vogue.  

THE WARNER FINANCIAL SELECTED WAY - The most basic precept of technical analysis is that “the trend is your friend”.

Believe it.

Our work in Before the New$ (BTN) covers global money markets, bonds, currencies, equity markets and commodities, primarily aimed at trying to estimate what prices within those asset classes are likely to do, thereby allowing us to suggest not only which markets are most or least attractive within an asset class but also (because asset allocation is such a big determinant of results) which asset classes are most attractive and which least attractive for medium to long-term price performance.

(BTN)  is not a trading model. We are most interested in medium to longer-term trends and trying to pick turning points in those trends. Thus we produce our report monthly utilizing weekly data series. We monitor markets daily and from time to time send out emails during the month with updated analysis when we foresee an important change occurring.

Our analysis utilizes a number of technical tools which are outlined in the “explanation of graphics page” on this website.  We use absolute and relative trends and several methods of what we call price momentum. These have been chosen and optimized from our more than 30 years experience working with various indicators. We utilize a stochastic indicator for short-term momentum; we use a fractal formula with buy/sell arrows for medium-term momentum and a modified MACD indicator for long-term momentum. We integrate momentum analysis with price pattern analysis when we see a pattern we think is important, and we sum up each market analyzed with a buy/hold/sell/sell short recommendation.

Click here to see details of one of our chart pages; and here to view a sample of the service from our archives.