These days, anyone with a Twitter account can make a prediction on the market. And all across Wall Street, there are people making broad, widely-consumed prognostications despite never having set foot on a trading floor.
Legendary investor Laszlo Birinyi — who has nailed the eight-year bull market at every turn — is more apt to listen to people putting their money where their mouth is. He advises that people playing the market listen to pundits who are willing to back up their public comments with an actual monetary wager.
And Birinyi practices what he preaches. After nailing his view for the first half of 2017, he made a new forecast: that the S&P 500 would hit 2,500 by the end of September. [Note: it did just that.] To show he was serious, Birinyi bought September 29 S&P $US250 calls.
In an interview with Business Insider, Birinyi discussed his approach to taking investment advice, and provided some of his own. He also covered such hot-button topics as volatility, equity valuations, exchange-traded funds, the effect of politics on the market, and what important factor he thinks investors are missing.
Here’s what Birinyi had to say (emphasis ours):
“We have a cliche here that we say to our customers, and it’s from a Wendy’s commercial: Where’s the beef? We see so many articles about how there’s going to be a correction, but out of all the forecasts, I’ve never seen one that outright says to sell. No one comes out and says, “There’s going to be a correction — short the S&P.” It’s all “The market is scary” or “We could have a downdraft,” but at the end of the day, the question remains: Has there been a transaction?
Having sat on a trading desk on Wall Street, where you live and die by what you do, to me this is just noise. In the last eight years, there was only one instance that I recall where a strategist came out and said, “There’s going to be a correction, and you should sell the S&P.” And we did! It didn’t work out — we lost a little bit of money. And that was OK.
We like situations where someone gives something tangible, where someone is accountable. That’s why, when we put up our forecast in June, we said we were buying those September 29 S&P $US250 calls. We had skin in the game, and I think customers appreciate that. We may be wrong, but we’re not going to sit there and give people a forecast we’re not following ourselves. As somebody once said, don’t tell me it’s going to rain — tell me to buy an umbrella.”
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