The Pring Turner Six Business Cycle Stages were heavily featured in a Forbes.com article published September 29, 2012 entitled The Week Ahead: What Do Sectors Say About the Economy, written by Tom Aspray. Text from the article is highlighted below.
There has been extensive work by many analysts to identify stages of the business cycle and which sectors do the best in each stage. An old friend and excellent analyst, Martin Pring, has done quite a bit of work in this area. The chart above shows the six stages of the economy and which sectors do best in each stage.
In March, the Dow Jones Pring US Business Cycle Index was launched. It is a gauge designed in collaboration with Pring Research to reflect its proprietary investment strategy, which tactically allocates among stock, bond, commodity, and cash segments based on the phase of the economic business cycle.
According to Martin, since 1955 the index has had an annualized monthly average gain of 10.05%, vs. 6.85% for the S&P. Currently, Martin says, “we are in Stage II (bullish for stocks and bonds), but headed very soon to Stage III, when commodities will go positive.”
As the chart indicates, in Stage II the best sectors are banks, technology, and consumer discretionary. The Performance chart reveals how the SPDR S&P Bank ETF (KBE), Select Sector SPDR Technology (XLK), Select Sector SPDR Consumer Discretionary (XLY), and Spyder Trust (SPY) have done since the June lows.
The performance of all four was quite similar, with KBE leading up 14%, followed by XLK rising 13.7% and the other two just slightly above 12%. In the Sector Focus section, I will take a look at technology, transports, and oil drillers, which typically lead in Stage III.
Martin Pring, Principal of Pring Rsearch and Chairman of Pring Turner, published an article on MarketWatch on September 14th entitled, Why Betting on Bonds Might Not Be a Good idea. The commentary discusses the firms bearish outlook for Bonds.
Pring Turner Capital Group was heavily featured in an ABC News article published August 2, 2012 entitled Lessons From Investing’s Lost Decade, written by Craig J. Coletta. Text from the article is highlighted below.
Why Buy And Hold Simply Doesn’t Work Any More
The 2000s, when the stock market punished many investors with an up-and-down ride that delivered no overall gains, are widely referred to as the lost decade.
The disappointment hasn’t ended. “The lost decade is now in its thirteenth year,” says Martin J. Pring, co-author of Investing in the Second Lost Decade.
Since 2000, the S&P 500 has registered two plunges of more than 50 percent and several of more than 10 percent, leaving this index slightly lower today than it was 12 years ago. With portfolios (including those held in 401(k) plans) now under fire from the most volatile stock market ever, the current decade holds little promise for improvement over the last.
This isn’t your father’s market. Gone are the days when using a buy-and-hold strategy – purchasing a variety of stocks and sitting on them long-term – makes sense.
“Buy-and-hold investors have little to show for the roller-coaster ups and downs, aside from a nauseous gut,” says Pring, chairman of Pring Turner Capital Group.
That’s because a buy-and-hold strategy can easily leave you open to big hits. It’s critical to protect your portfolio from such hits because it could well be impossible to recover, especially if you’re approaching retirement.
Today’s unforgiving market makes it more important than ever to fortify your portfolio against risk. Here are some defensive moves to consider:
Take refuge in cash. By “cash,” I don’t mean dead presidents but investments that are highly flexible because they can be quickly liquidated without penalties. These include money market funds and extremely short-term Treasury bond funds.
Go light on growth stocks. When the market plunges, stocks of rapidly growing companies often go down disproportionately. Market drops of 10 to 20 percent can drag these growth stocks down 25 to 60 percent. In bear markets, it’s not uncommon for them to drop 70 to 80 percent from their highs. When this happens, your portfolio ship’s propellers turn into anchors. The moral is that you don’t want to be too heavily invested in growth stocks in a severe correction or bear market.
For value investors, begin focusing on quality. Value investing is the practice of buying stocks you believe are undervalued but will eventually rise. In the current market, even the best of these value horses are likely to falter. Instead, look for companies that the market sees as being high quality now.
Quality companies have good balance sheets year after year, and they have lower volatility. Thus, they have good returns for the risk taken. They may not rise meteorically during good markets, but they can serve as safe havens from market storms.
Identify defensive market sectors. Some sectors or industries are inherently defensive. Among these are mature companies including utilities, which aren’t race horses in brisk markets but protect capital during tough times because they tend to have stable revenues and predictable costs.
Established pharmaceutical companies with household-name drugs can be protective. So can a category of companies known as consumer staples –for example, Coca-Cola and Johnson & Johnson.
Options. These are contracts that give investors the option, but not the obligation, to buy or sell a security at a set price within a given time period.
A widespread misconception about options is that they are strictly a speculation tool. Yet they are also used to protect against losses.
Let’s say you own shares in Apple. You believe the company may be vulnerable, but you’re not sure you want to sell the shares. So you buy a “put” option on your Apple shares, allowing you to sell them at a set price within a set time period.
If, when the option is about to expire, you want to keep the shares, you do nothing. But if the shares have declined substantially and you don’t think they’re going to come back, you might be able to sell them at a price far higher than the current market value.
By buying the options, you’ve insured your Apple shares against risk — a use of options that many investors aren’t aware of. “When I ask investors if they have life insurance, auto insurance, homeowner’s insurance, health insurance, disability insurance, I get a lot of ‘yeses,’ ” says Stan Freifeld of McMillan Analysis Corp., an investment advisory firm that specializes in options.
“When I ask the same investors if they have any portfolio insurance, they look at me as if I had three eyes! Why would someone who apparently believes in the insurance concept not have any insurance on what is probably their first or second largest asset — their investment portfolio?
The answer is they probably don’t know it’s available,” says Freifeld, whose colleague, Lawrence G. McMillan, explores uses of options in Options as a Strategic Investment.
You can insure your entire portfolio by buying put options on indexes (such as the S&P 500) or by buying “call” options — giving you the right to buy an underlying security at a set price during a set period – on the VIX, or market volatility index. This way, you can manage risks posed by the current rollercoaster market.
Tactical asset allocation. This is changing your portfolio’s percentage of one type of investment versus another based on where the economy is headed. Pring has developed a model for this called Dow Jones Pring U.S. Business Cycle Index.
Pring Turner Capital Group has successfully used this strategy for clients over the years, outpacing the S&P 500 since 2000. The strategy involves buying or selling different types of securities at different points in the economic cycle. For example, the model calls for buying stocks near the trough of a recession and selling them just after the peak of economic expansion. And it calls for buying commodities after the economy begins to grow out of recession and holding them until after growth has peaked and the economy has turned downward again.
Though this tool may be a bit complex for some individual investors to use unassisted by an advisor, it nonetheless shows the kind of proactive approach that the current market requires.
Buying and selling too much can be costly, but in today’s market it’s often the lesser of two evils. The greater of the two is to believe that you can just buy, hold and sit back without playing defense. When you do this, chances are the market will eat you alive.
Craig J. Coletta has 20 years of experience in the financial industry. He is president of C.J. Coletta & Co., a Registered Investment Advisor firm, and president of Coletta Investment Research Inc. Coletta is a Chartered Financial Analyst charterholder, a Chartered Market Technician and a Certified Hedge Fund Professional. He holds a B.S. in accounting and business administration from Rider University, and is a member of the American Institute of Certified Public Accountants.
In the August 2012 From the Bookshelf section of the American Association of Individual Investors website our latest book, Investing in the Second Lost Decade is reviewed. Below is an excerpt from their review.
Co-authors Martin Pring, Joe Turner and Tom Kopas argue that the United States is in the midst of a secular bear market in “Investing in the Second Lost Decade” (McGraw-Hill, 2012). The authors say the current secular bear market started with the collapse of the tech bubble and is being extended by the high level of federal debt. They further argue that we are in a bull market for commodities, which is also bearish for stock prices.
The book’s value isn’t in the authors’ market analysis, however, but rather in their approach to identifying business cycles. Much of the text defines the difference between a business cycle, which often lasts four to five years, and a secular market trend, which often lasts 20 years. Even if you don’t agree with the current market assessment made in the book, it is interesting and informative reading.
Martin Pring, Principal of Pring Rsearch and Chairman of Pring Turner, was featured in a MarketWatch article published July 3oth entitled, Is gold getting ready for take-off, written by Peter Brimelow. The commentary discusses the firms bullish outlook for the yellow metal.
It wasn’t really very much — gold measured by the floor close of the CME August gold contract ended the week up $35.2 or 2.22% — but it’s really got people excited.
Particularly chartists. On Thursday, MarketWatch’s Mike Paulenoff asked “Is gold set to accelerate higher?” At Market Trend Forecast, David Bannister asked “Is Gold Ready To Run To All Time Highs?”
And Pring Weekly InfoMovie Report’s Martin Pring observed of the iPath DJ-UBS Precious Metals Subindex Total Return ETN : “Quiet action in the precious metals again suggests a big move might be afoot. The two trendline benchmarks are at $85.50 and $82.25. Momentum has gone absolutely and very uncharacteristically flat.”
In the event, gold gained a further $9.90 over Thursday and Friday, JJP closed at $85.77.
A special Pring Weekly InfoMovie Report distributed on Sunday noted this, adding: “This is likely to be a valid signal because it has been supported by a positive signal by the short-term KST. Gold, by the way, has done the same thing.” (KST is a Pring momentum measure.)
Pring Turner Capital Group’s new book, Investing in the Second Lost Decade, was featured in the July 7, 2012 edition of the New York Times. The article entitled Paths Around Investment Gloom and Doom, was published in the Off the Shelf column written by Paul Brown.
Pring Turner Capital Group was mentioned in the article “Shop Focused on the Business Cycle Preps…,” by Chris Cumming of Mutual Fund Wire, July 6, 2012.
Martin Pring recently sat down with MarketWatch senior columnist and MoneyLife host Chuck Jaffe to discuss the release of Pring Turner’s latest book Investing in the Second Lost Decade.
To start listening to the interview please click the play button below.
Martin Pring, Chairman of Pring Turner Capital Group and Pring Research, in an interview on Moneyshow.com, shares his views on the business cycle and Dow Jones Pring U.S. Business Cycle Index. (DJPRING)