San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, July 31, 2015

Hamilton Collins Defends David Mitchell

Yesterday I received a series of comments to three of my most popular blog posts from the past.  All three blog posts had to do with a likeable fellow by the name of David Mitchell who promises potential followers of his stock market investment plan perpetual 20%/month total returns regardless of market conditions.  Mitchell is also a Christian and a pastor of a Baptist church.  I have written three posts about him, found here, here, and here, that take exception to his claims.   Hamilton Collins is a graduate of Mitchell's most advanced stock trading program and believes that I have treated Mitchell unfairly.  He wrote to correct what he believes are several of my most glaring errors.  Here is the gist of Mr. Collin's comments, found posted in the comments section on the second link listed above:

"Mr. Welshman,
(The following diatribe of sorts is in reference to the numerous posts regarding Pastor David Mitchell.)
I have been using Pastor David Mitchell's, NeUventure On Wall Street (NVOWS) trading system now for 12-months. My results are far less than they should be at a mere 35% return so far. The S&P has moved 7.5% in that same time period. I had nearly doubled my money in 4 months using the Seminar 2 options trading strategies when I broke some rules and made some big mistakes that gave it all back in 2 plays. Since December 2014, the market has been erratic and difficult to make headway and thus I'm only ahead 35% truly since January when I basically started over.
Your original post pulled out the key marketing quotes and you are holding those to the fire without the 16 hours of teaching contained in the 2-day Seminar 1 event. When I originally heard the same radio spot that your quotes come from I was interested, but woefully skeptical. A few weeks later, I dubiously walked into their Seminar 1 advertised on Christian radio here in San Diego, CA. As a Christian I was very concerned about a pastor tied to the stock market. After 2 days of me delivering a barrage of skepticism, the teachers were able to put my mind at ease regarding their motives and connections to God's promises. That said, I invested in their lifetime education called Top Gun. With that I and my immediate family have access to all 4 levels of seminars for life.
Since receiving their almost daily "Market Alerts" for 12-months now, it is crystal clear that David Mitchell and NVOWS are highly concerned for their students well beings. They are ultra careful when dissecting the news and the recent market action when "timing" the market. You are correct and David Mitchell teaches, that we can't predict the future, but you can time the market to a degree. Learning how to "put the odds in your favor" which is the core of NVOWS teaching regarding timing the market, is what makes their system effective.
In support of these same tenants and others of the system, you should read How to Make Money In Stocks by Bill O'Neil and look into the newspaper O'Neil has built called Investor's Business Daily (IBD.) By doing that, you would see that both men teach the same truths about timing the market, pattern recognition and fundamentals that make up three legs of the trading table. IBD and NVOWS use different terminology at times but when you dig into the concepts you'll see their teachings are well aligned. IBD also teaches much higher annual returns than the industry standard of 10% buying and holding mutual funds.
Regarding the "Forbes...richest people," how about reading classic books about the all-time greatest traders and comparing their thoughts on the market to those of David Mitchell's and Bill O'Neil's? Here are a few classics:
• Reminiscences of a Stock Operator by Edwin Lefèvre
• The Battle for Investment Survival by Gerald Loeb
• Stock Market Wizards: Interviews with America's Top Stock Traders by Jack D. Schwager
After reading those you'll see that taking control of your money and making focused investments with properly timed buy points when the general market is properly positioned, you too can make much greater returns than the -3.5% to 8.7% you graciously shared on 7/21/12.
I've written too much and yet there is so much more to say. Bottom line, David Mitchell runs an outstanding business at a very fair price and watches out for his students. Having met the man once in Dallas, TX at a Seminar 3, eaten lunch with him that day and attended his church one Sunday, I can confidently say, he is first and foremost a man of God with Christ driving his every decision. As a business man living for the Lord, he honors God by teaching us how to be safe in the market and then guides us in our early stages of learning. Thank you for the opportunity to stand up for Pastor David on your blog. Much appreciated."

 I appreciate Mr. Collins respectful and thoughtful challenge of my position and have decided to dedicate today's blog post to my response. I did a little checking on the surname "Collins" and discovered that it is predominantly Irish, with a tiny percentage of those so named being Welsh.  I had suspected as much as I immediately sensed an ancestral bond with Mr. Collins.  He seems to be a genuinely good egg.  If he were here I would toast him with a pint of Boddingtons ale.   He also seems to be a Christian.  I was refreshed to receive a long series of comments about David Mitchell from a man who appears to be a quality individual, a Christian and who has gone through the NVOWS program.  So let's take some time and consider what he wrote above.
Mr. Collins begins by citing his investment performance for the past 12 months.  Using the program taught by NVOWS he has been able to realize a total return of 35% on the entirety of his stock portfolio, compared to a mere 7.5% total return on the S & P 500.  During that same period of time my portfolio has generated a tax adjusted and weighted total return of 5.5%.  Clearly Mr. Collins, by following NVOWS, has smashed my returns for the past year.  But I do not believe that short term performance necessarily indicates that an investment strategy is viable for the long term.  My best 12 month total return was +131%, which I realized in 1999.  That year the S & P 500 was up 20%.  If I have done the math correctly my one year performance actually exceeded the market by more than Mr. Collins has over the past 12 months by following NVOWS.  My point is simple, short term returns really do not tell me anything about the usefulness of an investment strategy.  I believe that at the very least a ten year investment history should be established prior to pronouncing NVOWS a success.  Incidentally, my ten year tax adjusted and weighted total return is 8.3%.  Is there any NVOWS practitioner who has done better?  More importantly, is there any NVOWS practitioner who has realized 100%/year the past ten years?  How about just 50%/year the past ten years?  I will even go as low as 25%/year the past ten years.
Mr. Collins points out that I have "pulled out key marketing quotes" and I am "holding those to the fire" in my analysis of the NVOWS program.  I plead guilty as charged.  Indeed, Mr. Collins recounts how he was initially quite skeptical in regards to those same key marketing quotes that I find so disturbing but that after going through the program his skepticism was vanquished and he has now come to believe in the system as expounded by David Mitchell.  To be clear, let's establish precisely what those key marketing quotes are.  In my view they consist primarily of the following:
  1. By following the NVOWS program any intelligent and hard working investor can realize 20%/month total returns in perpetuity and in all market conditions.
  2. The means by which the above returns can be realized repudiate the long-term, fundamental buy and hold approached expounded by many money managers as the key to financial success.  
  3. There are investment advisers who are currently realizing 20%/month total returns in perpetuity and throughout all market conditions and the key to doing the same is to replicate their stock transactions as precisely as possible.
To keep things simple I will assume that 20%/month translates to 240%/year.  I realize that is not taking compounding into account but my feeble brain can only work so hard.  It seems to me that if there is a universe in which a particular group of investment advisers are realizing 240%/year it should  not be hard to find out about them.   Mr. Collins himself gives me three book recommendations which I assumed would lead me to these fellows.  After a good deal of internet searching about the contents of those books I still had not found what I was searching for (my apologies to U2).  So I decided to spend a good part of yesterday afternoon doing a series of diligent Google searchs in what turned out to be a vain attempt to find out who these men and women are.  Despite spending several hours trying to find just one person who has been able to realize 240%/year for ten years by timing the market and utilizing sophisticated stock trading strategies, I was unable to find a single example.
Before I show you what I did find, let me point out that I believe it is fair to hold the people at NVOWS accountable for their claim that 20%/month total returns are realistic and attainable.  That claim may be a key marketing quote but it forms the basis for what they profess to be able to accomplish.  For that reason I do not believe it to be unfair to expect that anyone who follows the NVOWS program should attain that rate of total return.
I began my search by Googling "stock market gurus."  I figured that would bring up the names and investment performance history of some of these fellows.  This website led me to a fascinating analysis of a relatively large number of professional investment advisers and money managers.  The study examined the relative performance of 68 stock market gurus and it tracked the accuracy of their stock market forecasts as well as the performance of their stock selections.  In a pure random walk down Wall Street I would expect that the median degree of accuracy would be 50%.  In other words, simply guessing what will happen tomorrow or which stock will go up or down should, over the long term and with a sufficiently large sample, give me a 50% accuracy rate.  The highest rated guru rated a 68.2 accuracy level.  The second highest rated guru is a personal favorite of mine.  He is Ken Fisher and he attained a 66.4% accuracy rating.  Other popular figures included Doug Kass (49.2), Jim Kramer (46.8) and Gary Schilling (36.6).
Ken Fisher is a billionaire who has made his billions by advising rich clients.  His investment strategy is decidedly long term and fundamental in nature.  He eschews practically everything taught by the folks at NVOWS.  A link on the website brought me to a particular description of Fisher and provided a chart of his performance.  The commentary on the chart said this, "The following chart summarizes the annual performance of Ken Fisher’s public stock picks relative to matching investments in the S&P 500 Index, as calculated by Forbes, during 1998 through 2014. Ken Fisher’s public picks outperform matching S&P 500 Index investments in 11 of 17 years. On average, he outperforms matching benchmark investments by 4.7% per year."  So in my first examination of a man deemed to be the second best stock picker in the country I found a performance that exceeded the stock market indices by 4.7% per year.  I consider that to be pretty good but it pales in comparison to 240%/ year in perpetuity.
Next I decided to Google "top stock pickers," hoping that would lead me to this elusive group of people.  That brought me to this website.  Although I was in search of people who have proven the ability to obtain 20%/month total returns by trading stocks I was taken to a website that informed me that stock picking was a total waste of my time.  Here is some of what the website had to say, "There is just no point in expending energy researching individual stocks for 99% of the population....Let me tell you about a friend of mine who invests in the stock market. We’ll call him Matt. Matt manages a pretty sizable fund at a well respected firm in New York City. He spends perhaps 80-100 hours per week studying his industry (technology stocks) and has done this for over a decade. He reads annual reports, market news, and press releases from his Bloomberg terminal, and studies investor decks the moment they become available.  After hundreds or thousands of hours of careful research and methodical number crunching, Matt leverages his research and his decade of experience to purchase tens of millions or hundreds of millions of dollars of equity in the companies he selects. Matt’s target is to be correct just 60% of the time. If he hits that target, his fund will make hundreds of millions of dollars, and he’ll take home a fat bonus. He’s well incentivized to squeeze every additional basis point in return he can each year for his investors.... Because of his training, expertise, resources and results, thousands of wealthy investors give Matt hundreds of millions of dollars to invest for them via his fund.  Matt’s fund has well over $500 million in assets under management. He buys and sells enough shares of multi-billion dollar companies that he can single-handedly change their market price with individual transactions. Because of his efforts, resources, training and expertise, Matt has beaten the market by about 1-2% per year throughout his history as an analyst." 
For a moment there I thought I had found one of those clandestine stock pickers who can realize 20%/month in the stock market by trading stocks ahead of the curve.  Matt sounded just like that sort of fellow.  But for all of his abilities Matt is simply a good investment adviser who has been able to realize a one to two percent premium over stock market indices for his clients.  I consider that to be a pretty good performance record.
Next I decided to go to Investopedia.  Certainly that website would know the identities of the people who are realizing 20%/month total returns in the stock market.  I searched the website for the "greatest investors of all time."  What I found was a list of twenty men who have made reputations for themselves by trading stocks.  What I didn't find was anyone who has come even remotely close to attaining 20%/month by using sophisticated trading techniques.  The top three guys on the list were John Bogel (famous for recommending that everyone purchase index funds exclusively), Warren Buffet (a notorious long term investor whose 25%/year total return since 1976 in his Berkshire Hathaway stock is legendary), David Dreman (a curmudgeon long term value investor).  Other notables included the father of fundamental analysis, Benjamin Graham, infamous contrarian value investor John Templeton and retired Fidelity Magellan manager Peter Lynch.  Although all of these men have realized fantastic market beating returns over their careers none of them even came close to approximating 100%/year in perpetuity, much less 240%/year.  I kept looking.
Next I stumbled across an article in Forbes magazine about a man named Michael Steinhardt.  The magazine christened him "Wall Streets Greatest Trader."  That got my attention.  Could it be that I had at last found one of the elusive 20%/month men that I had been so desperately searching for?  If the editors at Forbes believe Steinhard is the greatest trader in the history of Wall Street I surely must have found an example of what the folks at NVOWS have been describing.  Here is the article.  Steinhardt did indeed have an amazing run of success in his private hedge fund.  Here is how Steinhardt was described in the article, "During the three decades that Wall Street grew up, morphing from a gentlemen’s investment club into a global financial colossus, Michael Steinhardt emerged as the world’s greatest trader. From 1967 to 1995 his pioneering hedge fund returned an average of 24.5% annually to its investors, even after Steinhardt took 20% of the profits. Put a different way, $10,000 invested with Steinhardt in 1967 would have been worth $4.8 million on the day he shuttered his fund. (The same investment in the S&P would have been worth $190,000.) It was a performance that landed him on The Forbes 400 in 1993, with a net worth estimated at more than $300 million."  25%/year, after his enormous fee, was an astounding rate of total return for a hedge fund.  Indeed, the author of the article went on to point out that Steinhardt's success was the seminal event in the massive expansion of hedge funds in the years to come.  If there were stock market gurus out there who could realize returns like that, people were willing to plunk down lots of money and pay enormous fees to get in on the action.
Steinhardt is now Chairman of the Board at WisdomTree Investments.  Here is what the article said about Steinhardt's current investment activities and goals, "With $35 billion under management, WisdomTree has only a 2.1% share of the $1.7 trillion (assets) ETF market, but that’s up from less than 1% in 2010, and it has been steadily chipping away at BlackRock and State Street, which have a combined 61.9% market share. The company uses academic investment theory to create ETFs that seek to consistently outperform the market, albeit just by a point or two."  What?  Just a point or two?  Why not 15 or 20 points better?  What happened to the 25%/year he realized earlier?  Why is he not repeating that performance?  I guess that genius has an expiration date.  It is called luck and the bell curve.
I gave up my search for a Wall Street guru realizing 20%/month in total returns and turned my attention to Mr. Collin's argument that O'Neil's Investors Business Daily is essentially the same program as NVOWS. If that is true then I should certainly be able to find a non-fundamental, non-long term, non-buy and hold approach to stock investing that has realized 240%/year over the past ten years.  The total returns for the model stock portfolios recommended at IBD are available to the public for analysis.  Here is what I found.  An abstract of a critical analysis of the IBD approach said this, "This paper examines the profitability of trading strategies derived from stock rankings published in Investor's Business Daily. The best system provides market-adjusted abnormal monthly returns of 1.81% from buying S&P 500 stocks, and a 3.18% abnormal return on an arbitrage portfolio. Stocks selected for trading have above average volatility, but a portion of abnormal return may be a reward for identifying stocks with short-run sustainable price momentum. Results seem indicative of market inefficiency, but the phenomena may be temporary since abnormal returns are lower during the second half of the data set."  So according to this study, which costs $36 dollars if I want to read the entire paper and not just the abstract, the average rate of total return realized by using the IBD stock investment program averages about 2-4 percent above the average return on the stock market indices.  Once again I was foiled.  No 240%/year returns are to be found following the IBD system.
Unless someone can provide a list of names of the people who have been following the NVOWS system who have realized 20%/month for at least ten years in the stock market I am driven to the conclusion that those people do not exist.   Moreover, every bunny-trail I went scampering down indicated to me that the best way to realize market beating total returns in stocks is to use a long term, fundamental approach to stock market investing.  Beating the market indices by a couple of percentage points per year is possible and indicative of market inefficiency, as the abstract quoted above illustrates, and a handful of skilled investment advisers have been successful at doing so.  But believing in an apparently mythical group of people who can consistently realize 20%/month by means of sophisticated trading techniques just does not seem to be true.  That, Mr. Collins, is the point of my blog posts.
Mr. Collins concludes by extolling the Christian virtues of David Mitchell.  I will not challenge his statements.  I will accept that Mitchell is a genuine and sincere Christian pastor who wants to help people realize market beating returns in the stock market.  But as I have written in previous blog posts, sincerity of purpose does not equate to quality of advice.  When something sounds too good to be true it usually is.  I am still waiting for empirical, historical and statistical evidence for a period of at least ten years that illustrates precisely what the followers of NVOWS have realized on their portfolios.  Thank you, Mr. Collins, for your comments.  I have enjoyed the interaction.

Note to regular readers of this blog:  I am heading for the mountains for a week of climbing.  Hence there will be no posts to this blog the first week of August.  See you on the other side.

Update:  September 30, 2016

It has been over a year since I wrote this post and I am still waiting for some practitioner of the NVOWS system to come forward and attest to the fact that he has realized just a measly 20%/year for the past ten years on his stock investments.   Yes, you read that right.  I am not asking for 20%/month, as David Mitchell says you can achieve.  I am asking for a simple 20%/year for the past ten year period.  Hello....hello....hello.... is there anybody out there?

6 comments:

  1. Thx for the insightful read MW. In passing, I would add a couple of thoughts. The mutual fund industry that espouses buy and hold are actually buying and selling in the market every day. Particularly around the last day of the quarter for redemption's and portfolio balancing. Warren Buffet has made hundred's of millions by simply selling covered calls on his huge blocks of stock in S & P 500 stocks. Very pricey strategy, since it requires that you own the underlying stock--but great for Buffet and Berkshire Hathaway. I haven't taken any of Neuventure's courses, but the options strategies are sound--if you do the homework and act accordingly. If your "virtual" practice trades hit the 70% mark, you will make money in excess of the S&P index. (SPY). One of the best educational resources has been Optionetics. Their platform was impressive enough for Schwab to buy them. Appreciate your work and diligence. Best, Steve skyrat550@yahoo.com

    ReplyDelete
  2. Mr. Anonymous:
    Thank you for your comments.
    You are quite correct that the mutual fund industry has various rates of turnover within their portfolios. And, if what I have been told is true, 80% of them underperform their respective indices.
    MW

    ReplyDelete
  3. Higher returns are possible with relative small accounts, as the accounts grow, the returns will diminish since its trading activities will affect the market. Obviously, Mr. Welshman, you are not a trader.

    ReplyDelete
  4. Please note that my comment is a generic one since I don't know who David Mitchell is.

    ReplyDelete
  5. Mr. Trendtrader:
    Given your name I assume you are a successful day trader of stocks. Would you be willing to give me your overall total return on your portfolio for the past ten and fifteen year periods? I am still looking for someone who has realized 20%/year over those two time frames by actively trading in the stock market.
    You are correct that I am not a trader. I remain fully invested in a wide spectrum of stocks and I never attempt to predict the stock market. I have gone through the market crash of 1987, when my portfolio dropped by 25% in one day, as well as the tech stock collapse and the Great Recession. My 32 year average annual rate of total return on my portfolio is right at 12%/year and all I have done to realize that rate of return is nothing.
    The common belief, which you allege, that larger accounts realize smaller rates of return because trading activity affects the market confuses me. For example, the market capitalization of Apple as of today is right around $762 billion. Even if I am trading my account valued at $10 million dollars every single day and only buying and selling Apple stock I fail to see how my activities would affect the value of Apple. I also do not understand how the mere fact that I have a smaller account (what defines small?) I therefore have some greater prescience for predicting future values of a particular stock. Therefore as a day trader with the ability to predict the future direction of a particular stock, like Apple, I would guess that I would have to be trading at least a couple billions dollars a day to have any meaningful impact upon the price of Apple stock. What am I missing here?

    ReplyDelete
  6. Mr. Trendtrader:
    Upon further review of my insipid and irrelevant comments I realized you were speaking of large mutual fund families trading in the stock market and their inability to achieve market beating returns due to the fact that their trades actually impact the market. That seems like a reasonable theory although it is impossible to prove because there is no control group (a stock market without participants of that type) with which to make a comparison.
    However, I am still interested in the total returns of day traders. Do you beat my ten to thirty year averages?

    ReplyDelete