The Call Heard Round the World

“Sell everything except high-quality bonds. Stay short commodities. Yes, especially Oil. Emerging market majors all remain sells.” – RBS (January 11, 2016)

“RBS has advised clients to brace for a ‘cataclysmic year’ and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.” – UK Telegraph (February 11, 2016)

In the field of market punditry, you hear a lot of extreme calls, for it is the extreme that gets the most attention in this business. But the call made by RBS on January 11 of this year was one for the ages. It was the call heard round the world: “Sell Everything.”

Every major media outlet ran with the story…


And the returns since?

Crude Oil: +39%

Emerging Markets: +22%

S&P 500: +14%

High Yield Bonds: +11%

RBS’s Stock: -40%


Fascinating and ironic, I agree. But this story is much more than just a call gone horribly bad. In fact, it’s not about the outcome of the call at all. Let’s pretend the “cataclysmic year” unfolded just as RBS predicted. Would “selling everything” and “shorting commodities” really be good for your long-term portfolio returns?

Only if you got both the timing of selling everything correct and the timing of buying back in. You’d have to be right in your timing not once, but twice. This is no small feat given that study after study has shown that “market timing” tends to do more harm than good on average (this is before accounting for taxes, commissions, slippage, etc.).

Why is timing so difficult, most especially the alluring dream of picking a top?

Because markets, on average, go up over time. Since 1928, the S&P 500 has been positive 73% of years while the 10-year Treasury bond has been positive 82% of the time. A 60/40 portfolio with annual rebalancing would have been positive 79% of the time. If we extend that out to 10 years this balanced portfolio has been positive 100% of the time. These are not great odds to bet against.


Which is why instead of “selling everything” in hopes of a timing the next “cataclysm” most investors would be much better off buying everything (creating a diversified portfolio), all of the time (saving and adding to their investments on a monthly basis, especially when they go down).

While not nearly as attention-grabbing as an extreme call to action, sound investment advice rarely is…

“The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully, and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike.” – John Bogle

“Only liars manage to always be out during bad times and in during good times.” – Bernard Baruch

“When you think the market’s too high, don’t do anything. And when you think a particular stock is a hell of a buy, don’t do anything. Market Timing is a wicked idea. Don’t try it — ever.” – Charlie Ellis

“To the rash and impetuous stock picker who chases hot tips and rushes in and out of equities, an ‘investment’ in stocks is no more reliable than throwing away paychecks on the horses with the prettiest names, or the jockey with the purple silks . When you lose [at the racetrack, at least] you’ll be able to say you had a great time doing it.” – Peter Lynch

“If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.” – Ben Graham

“Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient. The only value of stock forecasters is to make fortune-tellers look good.” – Warren Buffett

“Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

“The average investor’s return is significantly lower than market indices due primarily to market timing.” – Daniel Kahneman

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Recession Odds and Soothsayers

When Bond Kings Short Emerging Market Equities

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.


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