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Pay Close Attention To This Man

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January 11, 2009

For several years, I have enjoyed following MSN’s Strategy Lab competition.  Strategy Lab is a stock-picking challenge.  They select six contestants: some seasoned professionals, some amateurs and occasionally, one of their own pundits.  Each contestant manages a mock, $100,000 portfolio for a six-month period.  Sometimes, the amateur will out-play the pros.  I always enjoy it when the “conventional wisdom” followed by the investing herd is proven wrong by a winning contestant, who ignores such dogma.

Our current economic situation requires original thinking.  Following the conventional wisdom during an unconventional economic crisis seems like a path to failure.  While checking in on the Strategy Lab website, I noticed an original thinker named Andrew Horowitz.  Mr. Horowitz is a contestant in the current Strategy Lab competition.  He is the only player who has made any money at all with his imaginary $100,000.  Andrew’s portfolio has earned him 13.44 percent as of Wednesday, January 21.  His competitors have been posting dismal results.  One of the regulars, John Reese (nicknamed “Guru Investor”) is down by 41.55 percent.  I think I’ll steer clear of his ashram.  The others currently have losses roughly equivalent to Andrew’s gains.

Andrew Horowitz is the president and founder of Horowitz & Co., an investment advisory firm serving individual and corporate clients since the late 1980’s.  He has written a book, entitled:  The Disciplined Investor.  It is focused on his experiences and what he has learned from twenty years in the investment advisory business.  He has been featured and quoted regularly in the media, including such publications as The Wall Street Journal, The Financial Times, Bloomberg, Barron’s and Reuters.  He also has a blog website with the same name as his book:  The Disciplined Investor.

His recent article for MSN caught my attention.  It is entitled:  “Why invest in this market anyway?” He began this journal entry discussing a “consider the source” approach to evaluating the advice given by those currently encouraging people to buy stocks now, while they are “cheap”.  His “where do we go from here” discussion resonated with my belief about where the stock market is headed:

The fourth-quarter earnings season kicked off with little fanfare last week and a great deal of bad news.  Many have asked if there is a light at the end of this tunnel.  My reply:  Sure there is, but it’s the headlights of a speeding 18-wheeler coming straight for us.  We have the choice of getting run over or stepping aside.

This is not a popular commentary.  I know that many investors would prefer to hear all about opportunities to make money on the “upside,” but until there is one shred of good news, I refuse to throw my hard-earned money into a bonfire just to watch it be incinerated.

Mr. Horowitz also made a point of emphasizing something we don’t hear often enough from those media darlings entrusted to preach the gospel of the brokerage firms:

With all the talk of change coming from our government officials, it is evident that if things continue down this path the only thing that will be left in our pockets is change.  It’s as if investors are waiting for something incredible and magical to be said, but there is only so much that words can accomplish.  Americans need action, assistance and reform in the banking system.

In an era when we are bombarded with investing advice from a multitude of “experts” appearing on television and all over the internet, it becomes difficult to distinguish a good signal from all of the noise.  One’s ability to give good investment advice in a bull market does not necessarily qualify that person to be a reliable advisor in the current milieu.  The performance by Andrew Horowitz in the Strategy Lab competition (so far) underscores the value of that old maxim:  “Money talks and bullshit walks”.  I’ll be paying close attention to what he has to say as we make our way through the treacherous economic times ahead.