by Travis Johnson, Stock Gumshoe | August 13, 2014 1:13 pm
Alexander Green[1] has a new “special report” out to lure subscribers to a letter I haven’t seen before called The True Value Alert[2] — Green has been the head honcho at The Oxford Club[3] for a long time and has put out a bunch of interesting ideas (and has some refreshingly stable and non-hypey stuff like the Gone Fishin’ portfolio), so I thought I would find out what this new bit is he’s touting.
The newsletter is expensive — like all of them are almost all the time, it’s “on sale” at a discount (normally $4,500, now $1,250), and it seems that he’s largely focused on finding stocks that have some sort of “trigger” but that are also value-priced. Or at least, that’s what they’re teasing for this first promo.
Here’s how they put it on the order page:
“✓ Urgent Special Report: “Ride the 2014 Golden Cross Surge”
“Right now, Alex is recommending a company that is severely undervalued, despite having a breakout year financially. Some of the biggest Wall Street firms have noticed and are starting to take very large positions in the company. When this stock hits its Golden Cross and surges up to its true value, a few people are going to make a lot of money.”
So … you can see why that catches investors’ attention.
What’s a “Golden Cross?” It’s one of the more well-worn technical indicators — the usual interpretation is that it’s when the 50 day moving average line crosses over the 200 day moving average line, which is a graphical representation of a stock that was down for a pretty substantial period but is gradually and pretty consistently moving up in the last few months — the stock has recently had an improving average price. (The “Death Cross”, by the way, is the opposite — the short term average crosses below the long term average).
There are lots of variations of these, many folks argue that different time periods are better or dispute the time frames used (there’s an interesting analysis of that by Barry Ritholz here[4], from back in early 2012 when the S&P 500 was about to have a golden cross, and a look at different kinds of moving averages from last year here[5]), or that different kinds of moving averages are better (exponential versus simple, etc.).
And, frankly, there’s a lot of suspicion about it in many cases — it does seem to be a good general indicator for markets on average, meaning it’s better than a coin flip in determining the market direction for the next six months, but that doesn’t mean it is infallible or that it always works for broad markets or for individual stocks — there was a piece in the FT a couple years ago[6] when their market (the FTSE 100) was hitting a golden cross as well, and the pundit said that “Golden crosses have a 100 per cent success rate during bull markets and a 100 per cent failure rate in bear markets.”
But what precisely is Alexander Green touting? Well, he’s tellng us not that a golden cross has hit which will make a stock likely to move up for the next six months — but that a cross might be about to be made by a stock he likes on or near August 29.
And they provide a dozen or so examples of stocks that made “golden crosses” in recent years and went on to huge returns — but you, of course, are wise enough to know that almost any idea can be cherry-picked… just find a few great stocks of the past few years and see which ones made a “golden cross” first, and show readers those charts. When you see a dozen charts, the thinking goes, you’re not thinking about the other dozen “golden crosses” they probably found where the cross “failed” and the stock went down and the copywriter wisely left them out of the ad. The implication of most of these ads is that THIS NEWSLETTER picked those stocks at the time (Conn’s in 2011, SunEdison in late 2012, Rite Aid in early 2013 are a few of the examples), but most of the time that’s not true — they don’t lie, but they don’t whack you over the head with the fact that these are not recommendations they made… they’re usually just examples of what might happen or what could have happened. (Though in this case they do say one of these was a pick of Alex’s — “Alex made a similar call last year that could have turned $10,000 into $46,000… in only two months.”)
So what do they think you should do?
“The steps you should take are clear…
“1) Find a stock that’s about to experience a Golden Cross.
“2) Get in before the event occurs.
“And 3) Collect a huge payday….
“Alex has spotted the potential for not one, not two, but THREE Golden Crosses… the first expected to hit within the next few weeks.”
I’ve never heard of someone trying to anticipate a “golden cross” several weeks before it might happen, but I guess there must be chart-searchers who do just that. This stock has likely already released earnings, so it’s probably not a big event like a quarterly release that’s going to move the shares at the end of August (not many companies report in late August), presumably they just think the trend of a stock’s generally increasing shares is going to continue.
Predicting a golden cross even further into the future than that, like the other two must be, seems awfully foolhardy, but if you like this indicator than perhaps finding stocks where it’s getting close and putting them on a watchlist is a reasonable thing to do — remember, though the Golden Cross is still pretty widely accepted to be predictive to at least some degree for the broader markets (whether it’s predictive for individual stocks is much messier), a stock almost but not quite having a golden cross probably has no predictive power at all… at least, not that anyone has tracked very carefully.
What, then, is that first Golden Cross that Alexander Green is pitching? Let’s check our clues:
“…when Alex showed me the effect of Golden Crosses in this niche market, I was amazed. Nothing I’d ever encountered gave such predictable profits.
“Our research shows that not only can Golden Crosses predict monumental rises in stock prices… but that one particular part of the market creates the most profitable opportunities…
Are you getting our free Daily Update
"reveal" emails? If not,
just click here...“By far.
“In fact, study after study proves this could be the safest corner of the market.
“A report in Bloomberg[7] determined that this combination niche has ‘produced consistently positive returns… for more than 80 years.’
“…when a Golden Cross hits a stock in this niche… it almost always signals a huge run-up. And Alex has spotted three Golden Crosses set to hit three stocks in this particular niche in the market starting around August 29.”
What’s the “niche?” Really cheap stocks based, apparently, on asset value. Here’s how they say True Value Alert works:
“It’s based around a group of stocks that are often in the unique position of trading below “true value.”
“In short, this happens when stocks are trading at less than the audited liquidation value of the companies’ assets.”
So it sounds like what Green is doing is trying to find value stocks that have just started an uptrend — one relatively common way that value-focused investors “hedge their bets” to try to avoid “value traps” (stocks that are dirt cheap but stay cheap for years for one reason or another). Not an unreasonable strategy. The Bloomberg article they quote is about blending value and momentum strategies, which is another way of describing it — you can see that here if you’re curious.[8]
Or, as they put it:
“As Alex began targeting these companies selling below their true values, he also noticed that many of them would experience Golden Cross events at the exact moment the stock took off.”
The one that they do take credit for recognizing in real time is Alcoa, which they say they was Alex’s first recommendation for The True Value Alert last Fall, and which had a “golden cross” last November 1 and ran up 360% after that. So that’s what they’re looking for, cheap stocks that are just beginning an uptrend as denoted by the “Golden Cross.” What specifically is that first one that might “cross” by August 29?
Here are the specific clues:
“Alex has personally selected what he believes will be the next big hit….
“It’s a publicly traded hedge fund that Alex has marked an official “Buy.”
“As he puts it…
‘Earnings should rise 45% in the next year, yet it trades at a P/E of eight and yields a tax-deferred 6.7%. This company has huge operating margins, a big return on equity and insiders own 27% of the stock.’
“Because of this, its share price is just starting to show a big momentum push right now and Alex believes a Golden Cross is likely to happen on or near August 29”
Who is it? This is, sez the Thinkolator, Och-Ziff Capital Management (OZM), one of the hedge fund management companies that went public not long before the 2008 financial crisis (along with the much more successful Blackstone (BX) and the similar Fortress Investment Group (FIG), among others). OZM is highly levered (they borrow a lot of money to amplify returns, apparently), but is awfully cheap based on earnings — though that doesn’t make them stand out, FIG and BX and others are also cheap on that metric.
Like Blackstone and others, Och-Ziff describes itself as an alternative asset manager, running lots of different investment funds and strategies for institutional investors, and they are a publicly traded partnership. So it’s a little bit like an MLP in that you can expect distribution payments (similar to dividends[9]) and a K-1 form for your taxes each year (shareholders in publicly traded partnerships are liable for the partnership’s tax burden, similar to MLPs or REITs[10] they don’t pay corporate tax but pass along the taxable profits to shareholders). The dividend is not steady or steadily growing, however — unlike fairly predictable businesses like owning shopping malls (REITs) or owning natural gas[11] pipelines (many MLPs), asset managers see their earnings fluctuate quite a bit from year to year. This year will likely be good for all of them if they’re good managers, thanks to great equity returns (you’ve probably heard of “2 and 20” — that’s a standard renumeration for alternative asset managers, they get 2% of assets as an annual fee plus 20% of returns above some benchmark number), as the past couple years have been good in a bull market where institutions are willing to pay for some “hedging” or alternative exposure because they’re afraid of crashes. That’s likely why the stocks are pretty cheap based on earnings, investors are afraid of the cyclicality of the business and are, perhaps, worrying that next year won’t be as good.
But if you want value and momentum, you might find it here — the momentum, as measured by the golden cross, has not yet come… but it’s close. That’s if you use the simple moving average — and in that case, it actually showed a “Death Cross” for OZM back in May or so, with the possibility that there might be a “Golden Cross if the two lines continue to converge (which would mostly mean the stock goes up for the near term). If you use the exponential moving average (EMA) that some technical analysts prefer, however, which weights the averages differently, then the stock flirted with a Death Cross back in May but the short-term average is already above the long-term average so can’t, by definition, have a “Golden Cross.” So technical traders may quibble about this, but the stock is cheap by most metrics and does have some upward momentum. And it pays a pretty nice distribution, though that distribution is heavily weighted to the year-end payment made usually in February (the trailing four quarters provided a yield of 13.5%, more than half of it in the February payment).
Whether that means it will be a great investment, well, that’s your call to make — I don’t own shares and I don’t know how OZM has done of late in terms of growing assets under management (AUM), which is the lifeblood of any asset manager, I can just tell you that this is the stock Alexander Green is teasing. Investing other peoples’ money and taking a fat fee is a great business, but it’s also very competitive and not necessarily steady.
So go forth, researchify, and let us know if you like OZM — or if you think it will make a “golden cross” and bring riches down upon us… just use the friendly little comment box below to share your thoughts. Thanks!
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Thanks for the analysis, Travis. Seems a bit specious to tout this as a potential “golden cross” when it hasn’t happened yet and would be a product of a fairly recent “death cross.” I know it’s hard to believe, but we might have a newsletter writer and/or his copywriter exaggerating a bit here!
Say it isn’t so!
My chart interpretation of weekly and daily makes me feel this is a better short than a buy.
the exaggeration is for sure, speaking as a shareholder in Alcoa. AA rose 60% or so after its golden cross last Nov. which is different from 360%. Besides the hype they also make it up as they go along.
For some of them they claimed a derivative gain — maybe buying options, haven’t checked to see what they might have done with Alcoa.
I subscribed to True Value Alert from October to May, when I cancelled for a refund of my subscription fee. Alcoa stock has a little more than doubled since Alex recommended it last fall – from around $8.27 to the current $16.93. If he’s mentioning a 360% gain, that would definitely have been Alcoa January call options – which did quite well (they were recommended before I subscribed). However, Alex wildly hyped his “service” by claiming he made his alleged tremendous gains without using options:
He cited the following “annual returns” of “just a few stocks that were trading below cost last year”:
VAC… Up 135% SPWR… Up 414%
HGG… Up 124% TSL… Up 166%
NOK… Up 110% LEAP… Up 148%
BNCC…Up 460% YGE… Up 221%
FBC… Up 240% RDN… Up 200%
And wrote: “And none of these are options gains either. Each of these stocks more than doubled in about a year.”
On the other hand, in my experience with True Value Alert, not a single one of Alex’s picks over a period of like six months, except one (Alcoa), appeared even remotely likely to reach a triple digit gain. And this from a service trumpeted (in large bold letters) to provide:
“Dozens of Opportunities to Double Your Money All Year Long…”
Interestingly, while Alex included options recommendations in his True Value Alert service, he only mentioned the results (surprise, surprise) when they achieved a large gain – as part of his hype – and would even maintain that “all” of his positions were “positive” even when some of his options positions were negative. When I asked about this, I was told his options recommendations were only “secondary trades” – pure nonsense. They were “primary trades,” worth hyping, when they produced good returns; but supposedly not part of his portfolio when they lost. And his options recommendations from January to May were pretty woeful, with significantly more losses than gains.
I just want to point out that you shouldn’t personalize the copywriting marketing fiction with the actual advisory editor. The former is written by third parties; the latter is straight from the horse’s mouth (after legal filters). They do tend to like to tout the option gains when its convenient to do so, but the core portfolio for winners and losers is the stocks and not the options. They have no option picking skill anyway since they lose at a higher rate than the underlying stocks.
I find it fascinating about the entire enterprise: the high priests, the support underlings, the college-educated customer service, etc. are all paid from subscription fees, joint ventures with hucksters, etc.. Even if they are ethical, it’s not built completely on a foundation of offering above market average performance. So they’re no different than Wall Street non-alpha performers in that sense. Strange beast.
Why would a financial service recommend great winners to strangers. The financial service should not need subscriptions if they know how to make great profits.
Well, there’s a huge difference between managing other’s people money which is highly regulated and publishing non-investment advisories. The latter is a lot easier to do.
And BTW, anyone that knows how to make “great profits” is not going to let you onto their playground unless you’re super-rich and/or connected already. So trading advisories is one of the few ways for the relative poor to play on the same level. But since its so easy to be a publisher, the Pareto principle will still apply as it does with funds.
A few years ago I owned some OZM shares but sold them after tax time because the tax info they sent was incomplete and I could not get them to correct the problem.
How do MLP’s affect Canadian investors?
Canadian investors pay a lot of tax to the US government on dividends. I got a $177 payout from APL and had to pay a “non-resident tax” of $70.09. I.e., a 40% tax.
Would putting MLP’s in an RRSP make a difference? I keep all my USA dividend paying stocks in there as I don’t get dinged US withholding taxes because of the Canada/USA tax treatise. But I have not tried buying an MLP yet.
I live in England and hold 3 US MLPs. I get the dividends less 30% US witholding tax but I can set that off in my UK Tax return agains the equivalent amount of UK tax on my total portfolio. I cannot hold US stocks in my ISA [a tax-shielded investment account similar but not identical to schemes in US and Canada] because qualifying shares must have a UK listing.
Ian S: Not so!…Im in UK and I buy loads of US, Canadian and OZ stocks from an ISA account. (Crumby ol’ Nat West Bank brokers). Sometimes they dont have a ticker in their ‘ISA Allowed List’ if no one has bought that stock thru them before. (not that unusual espec for Bio and mining). But one call, and they then mark it as allowed. They wont allow pink sheets/OTC, but will allow all main Markets ie NASDAQ.
Ditto Uk. Tax treaty. I buy from a UK tax free account.
This sounds to me like a self fulfilling prophecy.
I’ll add it to the watchlist anyway, to see what happens.
I owned OZM earlier this year but got out when they were investigated for some African mining deals. Then a bunch of law firms initiated class action suits against them. I don’t know the outcome of these but I didn’t want to stick around to find out.
I guess if you buy the stock after the 50-day MA passes the the 200-day MA going up and then it noses over and the 50-day passes the 200-day MA going down, that would be a “double-cross”?
I was laughing so hard I had to rush to the bathroom. Hugely funny!
I understand (don’t know for sure, not an accountant, and don’t own any of these types of things) that (US citizens) may have to pay tax in each jurisdiction where K-1-producing entity operates/produces income. If so, could complicate taxes.
This hedge Fund is now the second largest Hedge Fund in America, thanks to their 31 year old real life wolf of Wall street, Jimmy Levin. He made what is widely known as the best bet on Wall Street in FYE2012 when he bet $5.Bn on restructured debt and made (OZM) a cool $2.0Bn in pure profit. He’s the youngest partner at the firm by over 30 years and made partner when he was just 27!!! He went to Harvard and double majored in computer science and finance, and at the start of 2012, OZM had total AUM of $28.8Bn. Since Jimmy made such a sage bet on debt restructuring, he’s now the Head of Och Ziffs Global Debt , and in the two and a half years since they had AUM of $28.8Bn, he has single handedly increased that number to $45.9Bn, a well over 50% increase in people who put their faith in Jimmy . Given OZM pays a 6.7% dividend and is priced at just $13 and change, as long as Jimmy remains their golden goose, I wouldn’t be at all surprised to see OZM STOCK PRICE INCREASE BY 60-80% OVER THE NEXT YEAR!
Alex has a very good track record overall. No one bats a thousand, but he is very focused on earnings potential, and how he knows which ones to bet on remains unknown though he uses an exhaustive 25 item filter in his momentum trader to find these gems. He also recommends a trailing stop loss, so he doesn’t worry where the market is headed, just his picks.
“Very good” may be relative to an industry full of hucksters. But to those that are used to proper trading, he is “relatively poor”. His average trade % is indistinguishable from noise and the holding period is so long, you will not consistently beat buying a virtually passive S&P 500 fund. Out of all that he edits, the Insider Alert is the relative best and the True Value Alert the relative worst (though it has much less of a trading history).
I think part of the problem here is they position these services as “short term” or even “ultra short term” and they are anything but with the normal expectation of 50% a year. If you’re making an average 1% net per trade that would be great — if you don’t hold it for 90-120 days on average as these services do.
Maybe it all comes down to upfront expectations, but anyone that spends $1200-$2000 a year only to make less than the market average over time is an idiot. It’s not that these services can’t work, its just there’s no incentive for the editors to worry about the direct performance of their picks. They get paid six figures so long as they’re not so terrible that subscribers stop subscribing. It’s not a high bar. They’re not trading for a living.
I think Steve Lindquist captured the reason for this pick.
Since there is no thread to comment on World affairs, I ask your indulgence. It is only remotely related to trading. I will use “my higher power” instead of the G word. G loves us and teaches us, we have a lot to learn. The truth is painful, and may not set us free.
When tragedy strikes, it is to teach us a lesson. We were made mortal and given free will.
When we make mistakes, they cost us, sometimes dearly. We all will die, G’s will, so if some children have to die, then learn the lesson as painfuol as it may be. If we learn our lesson then children will not have to die. If we really want to stop the killing then we can find a way, otherwise all we get are excuses. Yes, I’m am talking about the middle east and Ukraine and Syria and Africa. Our children are crying out for help and we MUst help them, to the best of our ability. Anger and Vengence, will not help. GIGO
North Korea is crying out for our help too, and they are not killing children. With a tear in my eye, I will say goodbye. Thanks for your dd Alan
Thank you Travis, you are truely a gift from God
r3e
Quick logic. Lookin’ good. here’s the linkhttp://finance.yahoo.com/news/quicklogics-cssp-enhances-connectivity-jrc-130000718.html
While not my area of expertise or personal interest, I can report that another analyst Travis and I both like, (Chris Mayer) a former banker and deep value investor has in the past also recommended Och-Ziff but I personally never bought the stock.
Travis: This is manna from heaven. This is a strategy I have long had bouncing around in my head, but I could never find the background info to aid my analysis. Thank you so much for the gem you have handed to me.
Travis,
You say, ” OZM is highly levered (they borrow a lot of money to amplify returns, apparently), but is awfully cheap based on earnings. Per the company’s 2 Q financial report, earnings for the last quarter were $.05 with “distributable earnings of $.18.
How do you determine “awfully cheap” based on earnings? At least for EPS annualized it would not be cheap.
I’m going by “distributable income,” which is the number analysts seem to have accepted as representative of performance. Haven’t looked closely, but it’s probably mostly like a cash flow number that ignores employee stock grants/options, etc. By this measure, they have distributable income over the past year of close to $1.60 and distributions of more than 90 cents, and expectations from analysts that this number will be pretty good for the coming year as well, which looks awfully cheap to me for a $13 stock. Of course, it might be cheap for a good reason — if you expect that earnings will be worse, or just discount for the fact that investment income is lumpy, or think they’ll get sued by the government for something or lose the carried interest tax break or whatever. It’s not cheap relative to their peers, these companies all seem to be valued about the same, but it’s pretty cheap compared to most of the market.
Oh, and you do need to use 12 month numbers — you can’t just annualize based on the last quarter, because usually about half of their income (sometimes more) comes in the fourth quarter.
True Value Alert is making the rounds again, 11 months later, and according to Yahoo finance OZM went in the tank, shortly after their Golden Cross prediction.