Our Investment Philosophy
Business Cycle Research Forms the Foundation of Hugh Johnson Advisors’ Portfolio Structuring and Management Philosophy
The Message of the Market
By measuring and monitoring meaningful trend changes in these important market variables, we gain a moving picture of investors’ collective risk appetite and outlook for the future. However, even collectively, investors are prone to emotional extremes. Therefore, we need a “reality check” to the “message of the market.” Our reality check is a rational analysis of forward-looking macroeconomic and monetary statistics. Examples include:
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General stock market trend
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Relative performance of large-, mid-, and small-capitalization stocks
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Relative performance of the key stock market economic sectors
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Direction of interest rates
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Risk premiums in the corporate bond market
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Shape of the yield curve (difference between short- and long-term interest rates)
Reality Check
Applying a proprietary blend of quantitative filters, we seek to determine where we stand in the business cycle stage by reconciling the “message of the market” with important forward-looking macroeconomic and monetary statistics and adjust portfolio composition to reflect that insight. Investors collectively synthesize all knowable information at any given time and efficiently forecast the future by signaling their collective risk appetite. To do this, we analyze several key indicators:
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Index of Leading Economic Indicators and its subsets
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Labor statistics
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Index of Leading Inflation Indicators
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Commercial loan growth
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Monetary and liquidity growth statistics