If you are looking for a movie about power, money, sex, drugs, yachts, Lamborghinis, high-pressure sales tactics, stock manipulation, sex, and drugs (did I mention sex and drugs?) then go see the new Martin Scorsese movie, The Wolf of Wall Street, starring Leonardo DiCaprio. The film is based on the memoirs of Jordan Belfort, the founder of the brokerage firm Stratton Oakmont, which functioned as a boiler room selling penny stocks in the 1990s. I don’t want to give away the ending, but I will say that if you enjoy watching unimaginable amounts of corruption and debauchery, you are going to love it.
All of which gets me thinking about the admittedly boring world of our Pinnacle investment analysts.
To my knowledge Martin Scorsese has never approached them about doing a movie, and for good reason. The real world of risk managing our client portfolios entails a lot of hard work and a sound investment process. To illustrate my point, I present to you a sample from the company network where analysts save their presentations for our weekly Wednesday meetings. This collection gives only a glimpse of the volumes of research being done by the team, since much of it resides in individual folders for each analyst. Nevertheless, if you were a Pinnacle employee and could log into the company network, you’d find these presentations made by the analysts from Aug 28th to November 27th of this year. While it probably isn’t the basis for a riveting Hollywood screenplay, I thought it might be illustrative to take a look.
Here are a few of the highlights:
Aug 28th – Data Dump
Rick Vollaro sends around 148 slides to the investment team for study. Randomly looking at slides in the deck reveals that slide #148 is about the Australian Dollar, slide #63 is “% Contribution to GDP from Inventory Investment,” and slide # 18 is “Composition of retail and food services.”
Aug 29th – Gold and Commodities around crisis events
This is a 10- slide presentation showing the investment performance of gold and commodities after a variety of crises throughout history.
Aug 29th – Sector Review and Other Stuff
20 slides in this presentation including Syria, a proposed trade for Gold, a review of Brazil, and various U.S. sector slides.
Sept. 5th – U.S. Sector Review
46 slides presented by analyst Carl Noble, 14 of which were on the Tech sector and 23 covered Consumer Discretionary. Slide #35 is a recommendation that we continue to overweight the Discretionary sector while keeping a watch on Homebuilders.
Sept. 13th – Consumer Confidence
14 slides in this presentation. Randomly picking slide #8 shows the Bloomberg Consumer Comfort Index and it’s components.
Sept. 23rd – U.S. Dollar
18 slides about the investment characteristics of the U.S. dollar. Again randomly picking on slide #8: It is a chart of U.S. Dollar versus Japanese and Euro Real Interest Rate Differentials. (Riveting!) Chart #9 is much tamer, showing Inflation versus the U.S. dollar.
Sept. 25th – Financials
24 slides. Slide #11 is a chart showing that JP Morgan represents 8% of the holdings of XLF, the financial sector ETF we own in client portfolios.
Oct. 1 – Yet another data dump from Rick Vollaro
157 slides… heaven help us.
Oct. 1 – Performance Attribution
10 slides. Sauro Locatelli’s monthly look at the drivers of Pinnacle portfolio returns. Slide #8 shows that our under allocation to Telecom Services and to Utilities was a big winner for the month.
Oct. 2 – Fixed Income Options and Ireland
18 slides where slides 5 to 18 were all about introducing the team to Ireland as a possible investment for our accounts. Slide #8 showed a breakdown in the holdings for EIRL (the ETF for investing in Ireland) where CRH PLC represents 25.96% of the holdings.
Oct.30 – Defensive Sector Review
10 slides presented by Rick Vollaro. Slide #4 is titled “Bubbling up, or Just Bouncing?” Slide #6 is titled “Earnings don’t seem to be the driver.”
Nov.14 – Consumer Discretionary
A 66 slide presentation by Sauro Locatelli. Slide #15 is “Consensus Forecasts of Operating Earnings Per Share,” and slide #28 is “Household net worth versus U.S. consumer spending.”
Nov. 27 – Mexico
Carl Noble shares 28 slides on our southern neighbor. Slide #8 shows Unemployment Rates, Slide #11 shows Industrial Production, and Slide #21 is titled, “Valuation looks Overvalued.”
Pinnacle’s investment process is all about coming up with high probability forecasts for the broad market, sectors, industries, countries, or business cycles. We develop our forecast using a variety of tools that help us to evaluate the weight of the evidence. Once we perform that analysis, Rick Vollaro has to determine the level of conviction we have in our forecast; only then do we change the asset allocation of our portfolios. To the extent that we rely on qualitative decisionmaking, it is based on our experience, wisdom, knowledge, and ‘right-brained intuition.’ I write about this process in Chapter 8 (“Becoming an Investment Expert”) of my book, Buy and Hold is Dead (AGAIN). If you want to become one, then I’d argue that there’s no substitute for simply hunkering down and doing the work. Lots of it. Over and over again.
In that regard, our investment analysts may not look like Leonardo DiCaprio, but they are stars in their own right.
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