There Is Just Not Enough Time in My Day

In This Issue:

Getting Back On Schedule
An Update on Our Performance
Words of Wisdom
Denver and My Daughter's Birthday Party

Between business growth, crazy markets, scores of research projects, and the recent launch of our technology platform allowing us to trade our portfolios on multiple custodians for other investment advisors, I just haven't had the time to write the ProfitScore IQ.  My first priority is always to protect and grow our clients' assets, and everything, though important, becomes secondary.  It just makes me realize that time is truly our most valuable asset.    

The past several months I have been working more hours than my family should have to endure.  Instead of publishing my normal newsletter this late in the month, I have decided to scale down this month's publication and return to our normal publishing schedule on the 10th of the month.      

Below is a performance update and a tribute to some of the smartest analysts that have ever analyzed global capital markets.  Their words of wisdom are a must read for everyone.    

An Update on Our Performance

March was an incredibly bullish month for the markets and April has continued that upward assent.  The rise was abnormal in its strength, seen only a few times in the market's history.  Our portfolios lost some ground in March due to our net short positions but have since adjusted to changes in the market and have been able to keep pace so far in April.  Abrupt shifts are difficult to anticipate, but as the markets dynamics change, our traders begin to adjust to those dynamics and position portfolios accordingly.           

Below are recent performance returns on the four portfolios we currently offer:

Past 12


MTD April





Income Builder  (IB)




The Guardian  (GRD)




Harmony Plus  (HMY)




The Expedition  (EXP)




S&P 500  (SP500)




Important Performance Disclosure



ProfitScore provides separately-managed accounts for individuals, advisors and institutions.  If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:


  1. Complete our Private Client Group request form by clicking here and submitting your contact information. (This is the most preferred method.)
  2. Call us directly at (800) 731-5690.
  3. Simply send us an email to info @

Someone will contact you within 24 hours of receiving your information.


Words of Wisdom

For all intents and purposes, the Great Recession has bankrupt Merrill Lynch & Co.  To pay tribute to this American icon, below are some of my favorite analysts that have come out of Merrill Lynch over the past few decades. 

Bob Farrell, Richard Bernstein and currently David Rosenberg are some of the sharpest minds to analyze and study world wide capital markets.  Bob Farrell was a legend at Merrill Lynch & Co. and an icon in our industry during some of the most exciting and gut wrenching times we have seen in our capital markets. 

Bob Farrell experienced first hand the bullish markets of the late 1960s, mid-1980s and late 1990s.  He also saw the destruction from brutal bear markets during the 1973-74 and the October 1987 crash.  Mr. Farrell retired at the end of 1992, but continued to occasionally share his valuable thoughts.  Mr. Bernstein left on April 16th and Rosenberg will leave shortly.

Below are the top 10 rules and things to remember from Bob Farrell, Richard Bernstein and the recent thoughts of David Rosenberg. 

Bob Farrell's 10 Market Rules to Remember


  1. Markets tend to return to the mean over time.
  2. Excesses in one direction will lead to an opposite excess in the other direction.
  3. There are no new eras - excesses are never permanent.
  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
  5. The public buys the most at the top and the least at the bottom.
  6. Fear and greed are stronger than long-term resolve. (He dismisses long term Buy & Hold with that statement.)
  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.
  8. Bear markets have three stages - sharp down - reflexive rebound - a drawn-out fundamental downtrend.
  9. When all the experts and forecasts agree - something else is going to happen.
  10. Bull markets are more fun than bear markets.

From Bernstein recently:


Tomorrow will be my last day at Merrill Lynch. I want to sincerely thank my colleagues and clients for the opportunity to work with them. It is because of them that my 20 years at the firm have been so rewarding.  As a last report, here are what I view as 10 of the most important investment guidelines I've learned in my time at the firm:


  1. Income is as important as are capital gains. Because most investors ignore income opportunities, income may be more important than are capital gains.
  2. Most stock market indicators have never actually been tested. Most don't work.
  3. Most investors' time horizons are much too short. Statistics indicate that day trading is largely based on luck.
  4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
  5. Diversification doesn't depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.
  6. Balance sheets are generally more important than are income or cash flow statements.
  7. Investors should focus strongly on GAAP accounting, and should pay little attention to "pro forma" or "unaudited" financial statements.
  8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
  9. Investors should research financial history as much as possible.
  10. Leverage gives the illusion of wealth. Saving is wealth.

Finally, I include Rosenberg's recent Farrell-ish Commentary:  "Barron's Big Money Poll meets Bob Farrell's Rule #9 - When all the experts agree, something else will happen.


Last week we invoked Bob Farrell's Rule #8 about the three stages that characterize all bear markets. Today, it's time to highlight Rule #9 which is that "when all the experts and forecasts agree -- something else is going to happen."

Sentiment is too bullish on equities:
So, with that in mind, we recommend that you have a look at the Barron's Big Money Poll in this week's edition: 59% of the portfolio managers polled are bullish on the equity market while only 13% are bearish.  Fully 84% are bearish on Treasuries whereas a puny 3% are bullish. In fact, Treasuries are the asset class with the least bullish sentiment and equities are clearly the asset class most in favor right now -- though 58% do like oil, 51% like corporate bonds, 32% like gold, 11% like cash and 10% like real estate. It's really amazing that bulls on real estate exceed bulls on bonds by a factor of over three. However, what is most telling is that for every bond bull there are currently twenty bulls on the stock market.

Sustained bull markets require vigorous recovery:
In any event, here's the rub, as Hamlet said in his soliloquy: The consensus forecast from this group of market-watchers polled in Barron's calls for real GDP growth of only 2% in the four quarters to mid-2010, which is practically flat in per capita terms.  Yet, we went back to all the cycles back to 1949 and found that the onset of sustained equity bull markets requires a vigorous post-recession recovery.  The 1990-91 turnaround was the exception.  

The only time in the past six decades we actually saw a sustained post-recession bull market with growth this weak was in the 1990-91 turnaround. Then again, at that time, we were coming off the shallowest recession in the post-war period.  As mentioned, the consensus from the Barron's poll is also calling for a 10% profit rebound through mid-2010, which again would be rather tame in the context of a post- recession recovery when it's much more normal to see earnings recover 15 to 20%.

Why have the rallies of 1981 and 2002 proved to be head fakes?  Sustainable post-recession equity bull markets usually require a vigorous tailwind, which is why the rallies of 1981 and 2002 proved to be head fakes. The sustained rallies in both periods were delayed by a year until the economy managed to display more vigor.  And ultimately, it did. The reason why the late 1982 and late 2002 lows held for good was because we saw nearly 6% real growth in the year after the '82 lows and almost 4% in the year after the 2002 trough.  Now, those are the types of growth rates that would even cause us to turn more bullish on the equity market.

Portfolio Manager's forecasting the second weakest recovery on record:
To be sure, this is all with the benefit of 20-20 hindsight, but it's an exclamation point on the remark we made last week that no bull market has ever been SUSTAINED without there being a macroeconomic inflection point within reasonable proximity of the market low.  So, we just think it is ironic that we would have a plurality of portfolio managers that are so bullish when their collective 2% growth forecast would represent the second weakest recovery on record, half of what is characteristic of a self-sustaining bull market and well below the historical average growth rate of around 3%.

Treasuries don't lose investors' money in this environment:
One more thing.  A look back in time (over the past three decades) shows that not once did the Treasury market ever lose investors' money in an environment where year over year real GDP growth moved into a 2% backdrop in either direction (sample size of 8). The worst return was +3% and the best was +20% with the average coming in at +12%. The performance of equities in a period of 2% growth was a little more spotty, generating negative returns half the time and with much more volatility (best was +38%, worst was -22%) and the average return was 0%.

Treasuries outperform equities in a 2% growth backdrop:
It is open for debate as to whether we will even see anything close to 2% for the four quarters ending in mid-2010, although the year over year GDP data will be calculated at that time off of a deeply negative base.  Even if we were to see that, it is so soft that the unemployment rate would still be making cycle highs while industry operating rates would hit cycle lows. This is why 2% growth may sound nice, but it falls enough below potential that Treasuries outperform equities 75% of the time and by an average of 1200 basis points. So, without even realizing it, portfolio managers in the Big Money poll have an economic forecast that is entirely inconsistent with their views towards the relative return potential between stocks and bonds.

Denver and My Daughter's Birthday Party

I fly to Denver on Saturday to attend the annual meeting for the National Association of Active Investment Managers (NAAIM).  NAAIM is the only group of active investment managers I know in the traditional registered investment advisory space.  If you are an advisor and you would like to learn more about producing absolute returns for your client's portfolios, then I encourage you to join this wonderful organization.  Here is the link to the website  Some of the brightest people I know in this business will be there and it is hands down my favorite meeting I attend all year. 

My only drawback with the NAAIM meeting is that it normally conflicts with my oldest daughter's birthday on May 5th.  When Sarah gets old enough to attend college, I will probably regret that her birthday is on Cinco de Mayo.  Since I am going to be out of town, we will be having a surprise party for Sarah on Friday-she has no idea.  In attendance will be family and friends.  On the dinner menu, my wife's famous barbeque baby back ribs and for the entertainment we'll play various outdoor games.  I can't wait to see the smile on Sarah's face. 

The next IQ will take a hard look at how increasing taxes affect per capita GDP.  Taxes are almost certainly going to increase over the next few decades, so I am excited to share our findings with you. 

Working to grow your wealth,

John M. McClure
President & CEO
ProfitScore Capital Management, Inc.

P.S. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:


  • Complete our Private Client Group request form by clicking here and submitting your contact information. (This is the most preferred method.)
  • Call us directly at (800) 731-5690.
  • Simply send us an email to info @

Someone will contact you within 24 hours of receiving your information.

Posted 04-30-2009 1:49 PM by John M. McClure