On My Radar: FANG Stocks, Gigabytes and Terabytes

“Over the years I have seen scores of very bright investment advisors turn into
hugely successful gurus who blaze into the investment business with spectacular forecasts.
Yet, I’ve watched each and every one of them crash back to earth when a big subsequent forecast inevitably proved wrong.”

– Ned Davis
Founder of Ned Davis Research

In 1965, Gordon Moore, co-founder of Intel, predicted that the number of transistors on integrated circuits would double every two years. This is the basis of “Moore’s law,” and it’s why we currently have pocket-sized devices that are more powerful than 1980s supercomputers that took up entire rooms.

Computer chips continued to increase performance while decreasing in size, allowing for innovations that engineers never thought possible. Forty years ago, most people wouldn’t believe that we would soon have access to limitless information from the palm of your hand.

Most people are familiar with the word megabytes, but terabytes, gigabytes and petabytes? It’s easy to forget just how far we have come.

I was in New York City this past Monday. Ned Davis Research (NDR) and CMG have co-licensed the Ned Davis Research CMG U.S. Large Cap Long/Flat Index to VanEck. We were doing a video interview to explain the Index and process. You can find it explained in Trade Signals below. Anyway, Jan van Eck asked me, “What percentage of time has the market been in a bull market cycle versus a bear market cycle?” I answered, best guess, two-thirds of the time. But, frankly, I was unsure and a bit embarrassed I didn’t nail the answer.

Back in my office and a few quick clicks later, this is what I leaned:

Since January 31, 1900, the stock market was in a secular bull market just 54% of the time and in a secular bear market 46% of the time.

Following is a visual look at the data set. Here is how you read the chart:

• The chart shows the secular trends in U.S. stocks, bonds, and commodities.
• The top clip plots the monthly average of the S&P 500 along with a mode box that shows returns during secular bulls and bears.
• The middle clip plots the yields of long-term government bonds, which (for data geeks) are defined as prime corporate bonds prior to 1919 and Treasury bonds with a maturity of 10 years or more thereafter.
• The bottom clip plots the NDR Commodity Composite, which is constructed using prices provided by George F. Warren & Frank A. Pearson, Bureau of Labor Statistics and the Commodity Research Bureau.
• Shaded regions in each clip represent a secular bull period for that particular asset.

Notice the gain per annum of 13.8% during secular bull trends and -4.0% loss per annum during secular bear trends. Secular simply means long-term cycle vs. cyclical, which means short-term cycle. Note too, the gains and losses for bonds and commodities.

The next chart takes a look at the Dow Jones Industrial Average bull and bear market secular trends. This time, the return stats are sorted by cycle. I started my career at Merrill Lynch in February 1984. After the long 1966-1982 bear period, I can tell you nobody was interested in buying and holding stocks. Conventional wisdom was that you had to trade stocks to make money. My manager wanted me to sell the Merrill Lynch Basic Value Fund. It was a tough sell. Making 200 cold calls a day, I can tell you everyone I spoke with told me that “buy-and-hold” doesn’t work.