November 4, 2020

Serenity

Moab, UT — photo courtesy Tim and Karen Quast, Oct 2020

On Nov 4, 2020, words commonly associated with a 12-step program come to mind.

Protestant theologian Reinhold Niebuhr, who received the Presidential Medal of Freedom in 1964, sometime in the 1930s during the Great Depression is said to have coined the words we today call the Serenity Prayer.

Ostensibly it might at the earliest have emphasized courage: Give us courage to change what must be altered, serenity to accept what cannot be helped, and the insight to know the one from the other.

It’s a good life rule, a thoughtful notion after elections. And a way to see the stock market.

For public companies, there are things one can change, influence, based on how the market works.  And things you have to accept.  You cannot control the fact that 85% of volume is motivated by something other than your skill at running a business.

You CAN control what, investor-relations professionals, your board and executives understand about the way the market works.  You can know when to accentuate and accelerate your contact with holders because the data indicate conditions are favorable for them. You can avoid wasting time when conditions signal trouble for your stock and the whole market.

I’ve written about it for years, so I ask that you serenely indulge my penchant for repetition.

The stock market ebbs and flows.  It will add to and remove from your shareholder value, and it will do that no matter how much time and money you spend on telling your story and propagating data on your environmental, social and governance achievements.

Why?  Because that’s the gravity of the stock market. It has immutable forces, like this planet, that remain in place and in effect no matter who’s in charge.

Serenity comes from recognizing what you can and cannot change. And being proactive in response to both.

These principles apply to investors and traders too.

Here’s an example.  If you followed simple principles of market structure to buy and sell MSFT between Feb 1, 2020, before the Pandemic slammed us, and Nov 2, 2020, you could have made 46%.

Buying and holding MSFT has produced a 17% return – a redoubtable outcome under any circumstances.  SPY, proxy for the S&P 500, was up 2% over that span.  It covers 191 trading days.

But our 46% return in MSFT came in just 107 trading days. The other 84 days we could have owned something else to add to our returns.

How and why? The market ebbs and flows.  MSFT spent 134 days at or above 5.0 on a supply/demand scale, and 57 days below it.  Owning MSFT when it was over 5.0 produced the gains. Selling it when it dipped back below 5.0 avoided the losses.

That had nothing to do, really, with MSFT’s success as a business. It’s supply and demand.  The product is stock.

Since Sep 1, MSFT is down 11% because it’s spent about as much time below 5.0 as above it.

For you ModernIR clients, that over 5.0/under 5.0 scale we’re talking about is Market Structure Sentiment™, your gauge of the balance of supply and demand for your stock (and we go further and show you the kind of money that’s responsible).

Is the story MSFT tells any different now?  No.  It’s market structure. It’s the gravity of the stock market – the ebb and flow of supply and demand.

I’m not suggesting you stop doing the things you do to drive shareholder value.  I am suggesting that without an understanding of market structure, those dollars and efforts can be Sisyphean.

Same for you, traders and investors. I can prove six ways to Sunday, as the saying goes, that buying and holding is inferior to using market structure to help you keep gains and avoid losses.

It’s just intelligent use of technology.

Sometimes the beginning point for better ways of doing things is the Serenity Prayer. You first must recognize what you can and cannot change – and you have to accept what that realization means.  Then you find the courage to change what you can.

With the election behind us now, Market Structure Sentiment™ is about 4.0. It was on the same trajectory we measured in Nov 2016, and with the Brexit vote in June 2016.  The pressure on stocks was machines, and the surge ahead of it was short-covering.

Now we begin the next chapter.  See you next week.

-Tim Quast

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