Pring, Investing in the Second Lost Decade

In early 2013 the authors, all principals of Pring Turner Capital Group, plan to launch the Pring Turner Dow Jones Business Cycle ETF “to advisors and investors who have been searching for an ‘all-seasons’ investment vehicle.” Investing in the Second Lost Decade: A Survival Guide for Keeping Your Profits Up When the Market Is Down (McGraw-Hill, 2012) by Martin J. Pring with Joe D. Turner and Tom J. Kopas explains the rationale for the fund and, more generally, for using financial and business cycle analysis.

As the title indicates, the authors believe that we have another ten years to go in the current secular bear market. Actually, in the best case scenario we could put in a bottom in 2016; in the worst case scenario the bear market could last until 2022 or beyond.

Although the stock market is “probably in for rough sledding for the bulk of another decade,” there is a secular bull market in inflation-sensitive real assets. Even though there will be cyclical corrections along the way, “if you are observant and fortunate enough to spot a new cyclical commodity bull market as the secular uptrend resumes, there are a host of rewarding vehicles.” (p. 66)

Business cycles are much shorter than secular trends; typically business cycle swings last four to five years; secular trends, 20+ years. A business cycle normally has six stages, moving from economic contraction to economic expansion. The six stages move sequentially approximately 85% of the time, so the investor can use them as a guideline to dynamically adjust his portfolio’s asset allocations. Following these stages, he would buy bonds, buy stocks, buy inflation-sensitive, sell bonds, sell stocks, and sell inflation-sensitive.

Nothing, of course, is ever so clear-cut. Pring Turner has a proprietary barometer for identifying business cycle stages—the Dow Jones Pring Business Cycle Index, which will serve as the basis for their ETF. For those who want a dumbed-down version, the authors provide a “generally reliable” cheat sheet for identifying the current business cycle stage, using the 12-month moving average of each asset class (stocks, bonds, commodities).

Although the authors provide a little more meat in appendixes to the text, the retail investor would be hard pressed to undertake active cycle-based portfolio management using only this book. Hence, of course, the ETF.