by Jason Bodner

April 27, 2021

They say talk is cheap, but I find it can be terribly expensive. Take President William Henry Harrison. His inauguration speech was very long. At 8,445 words, he took two hours to read it, without a coat. And March 4th, 1841 was cold and wet. The speech cost him dearly. He caught pneumonia and died a month later. Harrison holds two dubious records – the longest inauguration speech and the shortest presidency.

I’m not a fan of mass media. News, in my opinion, has become more infotainment than information. Headlines are emotionally charged to attract eyeballs. I don’t blame them. News organizations need to make money by selling ads. If no one sees them, they don’t get paid. Hence, we’re awash with crappy news to scare us into staying tuned. We’re emotional, so it works without us even knowing why.

But this talk can be astronomically expensive. Here’s why:

I thought of all the crises since 2010 I could quickly remember – the ones that shocked markets the most:

  • The Greek Debt Crisis
  • China Growth Fears
  • Black Monday/U.S. Debt Downgraded
  • Taper Tantrum
  • The Ebola Crisis
  • The Crimea Crisis
  • The China Stock Market Crash
  • Trump Wins 2016 – Market Will Crash!
  • The Cryptocurrency Crash
  • Blue Wave Sweeps 2018 Midterm Elections
  • COVID-19
  • Biden Wins 2020 – Market Will Crash!
  • China Delisting Scare

I remember how scary they were – each one. For some of those, I sat on a Wall Street trading desk, which is the loudest echo chamber of them all. Tension, fear, and anxiety swept investors, professional and amateur alike. Big money managers had to reposition their portfolios for the latest bomb-blast story. Nail-biting and Tums would see me through most days as I watched stock market indexes lurch and gurgle.

But lo and behold: Stocks didn’t care, in most cases. And if they did, it was short-lived. It may have seemed awful at the time, and it maybe even lasted a few weeks or months. But long-term, stocks could care less about the latest crisis stories. You can see that here as I plotted each of the above. See anything?

S&P 500 Long Term Graph MapSignals

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here’s what I see: If you had gotten spooked out of your stocks by listening to all the hot talk of the time, it would have cost you dearly. I know it may sound boring, but there really is no substitute for buying and holding good stocks. And for big juicy returns, buy and hold the best outlier stocks.  

So, the latest fear-du-jour I’m hearing about (last week) is tax policy. I hear talking heads trying to get investors all riled up once again. And once again that lines up perfectly with Big Money movements…

I looked at last week’s buying data and saw Real Estate being gobbled up by Big Money. It seems likely that is happening because the talk on the media’s lips is all about taxes. If they raise capital gains rates, they might raise taxes on dividends too. REITs don’t mind because a majority of REIT dividends are taxed as ordinary income, so REITs will escape a potential penalty – that hasn’t even been voted on yet.

MapSignals Sector Rankings Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This sudden boost in appetite for Real Estate stocks has propelled it to the strongest sector in my data too:

MapSignals Sector Strength and Weakness

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Look, the logic in buying REITs is sound. Legally, real estate stocks organized as REITs are required to pay out a minimum of 90% of taxable earnings. Typically, the yields are very enticing. Add to that the fact that the U.S. is vaccinating very quickly. A full reopen is just around the bend. REITs should benefit, especially those previously beaten to near-death levels last year, like commercial and retail REITs. Now if we add the tailwind of being a potential haven from scary tax reform, we get a nice setup.

Investors could, of course, benefit from buying the overall sector through an ETF like IYR or something similar. The recent strength of IYR suggests this trend is in full swing, especially with Big Money buying:

iShares US Real Estate ETF Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Buying Real Estate exposure through IYR is fine, but keep in mind that IYR follows the Dow Jones U.S. Real Estate Index, which has nearly 100 holdings. It’s highly diversified with large and mid-cap size companies. Broad based exposure is fine, but I also told you that for the juicier returns, you want outliers. Why? Because those are the 4% of stocks that accounted for 100% of the gains of the S&P 500 above Treasuries for the last 100 years. Basically, you want to be in those 4%. Otherwise, you have a 96% chance of losing out to Treasuries. That statistic essentially says: Stock picking is really, really hard.

I showed you that the Real Estate sector is suddenly the strongest in terms of fundamentals and technicals. The 127 stocks in the sector that I track have an aggregate overall score of 66.5. That’s pretty good.

But what if we focused a basket of only the 10 strongest scoring stocks? The top 10 stocks of the 127 have an aggregate score of 80.2 out of 100. On the contrary, the bottom 10 score an average 48.5.

This scoring system looks at tons of metrics but it is mainly designed to rank all stocks from strongest to weakest. It looks at things like sales, earnings, profits, debt, and Big Money buying pressure. You want to be in the outliers. Given a choice between IYR or a basket of outliers, it’s a no-brainer for me.

Talk can be expensive: Don’t listen. Current events in terms of data can make compelling investments, but focus on data and more importantly outliers. When you’re armed with knowledge, you can tune out the talk. Better yet, do like Theodore Roosevelt: “Speak softly and carry a big stick; you will go far.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Fed’s Bull Market Strategy

Sector Spotlight by Jason Bodner
Talk Isn’t Cheap – It’s Costly to Listen to Negative News

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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