Why another Stock Market Analysis Publication?
Simply, because none of them have really worked for me without taking a whole bunch of time to figure
them out, and even then, they might not work very well. Most are focused on individual stocks, but my
IRA/401k nest egg is in index funds. And, all of the publications out there and even professional
financial advice didn’t really tell me much in terms of when a major market move down or up was more
or less likely. I’m not interested in short term trading. But, if I need to move money from an
institutional investment index fund to a short term fixed income investment up to once or twice a year,
that’s OK, and I’d like the information to support that important decision.
It’s just not out there. Now, I understand it’s not easy to figure out and nothing’s certain in something
as crazy as the stock market, but if there is something that might give me a clue on the major factors
that would make a major move a little more or less expected given historical precedent, I’d like to know
about it. Something based on data, not opinions.
Some background – how did Intelligible come across this approach?
First, a quick introduction. I’m Stephen “Scotty” Fairbairn, Principal at Intelligible LLC. I’ve long had a
passion for investing and markets as an individual investor. Peter Lynch, Warren Buffet, etc. That said, I
chose a career in aerospace, and was working hard for the US Air Force in 2000 and then in industry in
2008 when I experienced the gut wrenching effects of a retirement portfolio exposed to a bear stock
market. I had two separate financial advisors, one under fee, and neither one foresaw and warned me
of trouble ahead. I was angry at them, and angry at myself for taking too much risk with my future
savings!
So what might help? Maybe statistical analysis.
I learned about the power of statistical analysis, first at MIT’s Sloan School in the early 80’s, and then
again from Auburn while doing a MBA in the mid 90’s (had to take statistics again to get a MBA because
too much time had elapsed). Both courses required an end of course project doing a multiple regression
analysis. For the Sloan course, I examined the effect of statistics on Major League Baseball winning
percentage, and found that over 90% of winning percentage in the 1979 season could be explained by
variation in pitching earned run average (ERA) and slugging percentage alone, with pitching ERA being
the most dominant factor. While I did nothing with that analysis after getting an “A” for the course, it
was with some amusement as I first watched the movie “Moneyball,” I noted the method used years
later by the Oakland Athletics must have included a similar (although likely much more detailed)
approach. And, I knew my favorite team, the Cubs, would never be competitive until they got good
pitching. But, after that project I was really sold on the power of regression analysis for gaining insight
to solve difficult problems in a complex world.
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Skipping ahead to 1997, having completely given up on the Cubs because they still had poor pitching, for
that business statistics course I chose a topic more difficult but more germane to my future financial
security. The question – is there any correlation between macroeconomic or other factors and future
returns in the stock market as measured by the widely followed S&P 500 index? Although efficient
markets theory (https://www.chicagobooth.edu/ideas/efficientMarket.aspx) would suggest such a topic
to be a fool’s errand, I thought there had to be something. Coincidentally with this statistics course, I
was going thru Air Command and Staff School at Maxwell Air Force Base and was getting steeped in
theory about considering nation-states as systems with many interrelated factors affecting national
power and wealth – markets, monetary policy, fiscal policy, economic prosperity and growth,
international exchange rates, military power, technological prowess, etc. are all interrelated and by
implication – somehow correlated. So, given these theories, I was hopeful, and after a few weeks of
analysis and discovery, I actually found some statistically significant correlations (for the statisticians out
there – as measured by the F-test and R2 values – although as an important disclosure, the amount of
variation that can be explained in the stock market was – and still is 19 years later – much less than the
baseball project). Anyway, I received an “A” for the course, and then got back to work as a test pilot for
the US Air Force instead of pursuing the topic any further because my life kind of depended on me
paying attention to that.
Fast forward to 2016 – having achieved some personal financial and professional goals, I resigned from
my position in corporate America, pondered my next steps, spent a few weeks revisiting and revising the
stock market correlations I discovered in 1997, and came to the conclusion this information may help
me protect my nest egg. So first and foremost, I’m using it for my own purposes.
Making the information available thru Intelligible, LLC
But, it also occurred to me this information may be of interest to others who share the same
apprehensions about where the market may be likely to go given historical statistically significant
correlations. By the way, I see this approach as complimentary, not contrary to the Nobel Prize winning
work at the University of Chicago over the years because efficient market theory espouses index
investing over managed portfolio investing, and the analysis only considers the S&P 500 index.
So, I am making this information available to the public thru the business entity Intelligible, LLC as a
semi-monthly electronic publication – available either as a single issue or as a subscription. It is not
financial advice – it is only an analysis publication in a .pdf slide show format. And, many disclaimers
and caveats apply – repeated in every issue on the last page – please read them carefully.
With all that said, it is my hope you will find this information to be world class macroeconomic and
financial analysis made at an affordable price.
With Best Regards,
“Scotty” Fairbairn
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