Warren Buffett is a modern cult figure, but if you were to ask the men and women who manage hundreds of billions of dollars who they read and listen to, many would first say Byron Wien.
Wien has been ranked as the most widely read man on Wall Street and, over the years, quite influential in the investment world.
Let's discuss someone who, for years, has written about "the smartest man in the world." More importantly, let's review some of the wisdom he has been imparting to the giant institutional investors who have been his clients for nearly 40 years.
A bit of background. The 86-year-old Wien was a portfolio manager for 20 years before becoming the chief U.S. market strategist at Morgan Stanley (ticker: MS). He is vice chairman of the private wealth solutions group at Blackstone Group ( BX).
Wien is widely followed for his "smartest man" essays and the annual "10 Surprises" list of economic, financial market and political predictions for the coming year.
Over the years Wien has been named "one of the 16 most influential people on Wall Street" by New Yorker magazine, "one of Wall Street's most influential investors" by Smart Money and the "most widely read analyst on Wall Street" by First Call.
Personally, decades of closely following Wien's market and investment outlooks and strategies has benefited my clients. Here is a condensed recounting of some of his wisdom with the thought readers may benefit as well.
Be a contrarian to general investor sentiment. Wien carefully tracked the bullish and bearish sentiment of the investing public. When a majority of investors were bearish, the more upside potential.
Conversely, Wien believes that there is less money to be made when the investor sentiment was positive. The proverbial saying, "markets climb a wall of worry" applies.
He believes crowded trades to be dangerous ones.
Use the dividend discount model. Everyone wants to know if the market is going up or going down. Is it undervalued or overvalued? Invest now or wait?
Without going too deep in the mathematical weeds here, Wien is an advocate of a mathematical model that helped investors determine if the market was undervalued, fairly valued or overvalued.
Simplified, the model is this. The market is at competition with risk-free Treasury bonds. The underlying value of the S&P 500 is the dividend plus the earnings or profits. Compare that to what one can receive in a 10-year Treasury bond. Factor in the equity risk premium and you get the fair market value.
Invest globally and find value in all asset classes. Wien and his fellow Morgan strategist Barton Biggs were early advocates of the benefits from investing globally.
And history has proven them correct.
Wien recommended Asia early and his asset allocation will often include asset classes such as emerging markets, companies providing clean water, cotton and alternative asset funds.
Find the big idea. Be it Asia, currencies, emerging markets, biotechnology or technology, Wien urged investors to search for investing trends with exceptional long-term investment return potential.
Beware of "group market think." Unlike the ever-quotable Buffett, Wien's target audience has been sophisticated large institutional clients. His advice was couched in long, multi-faceted statements and not easy to quote.
As such much of the insight listed here was distilled via summary and interpretation. This one is not. It is clear. It is to the point. And Wien meant it to be.
"I have been an observer of strategists' estimates for half a century," he says, "and I can tell you that as a group they always think the market will be up 10% in the following year whether stocks were up 20% or down 20% in the previous year."
A market correction is normal. Corrections are to be expected in any normal stock market, Wien contends.
"All bull markets can expect a 10% correction," he says.
While these six insights from Wien are straightforward when read, the wisdom is profound. And in the heat of market turbulence, 24-hour news cycles and seemingly crisis after crisis, his opinions can be hard to follow.
The next time the financial market histrionics are elevated and one is tempted to make significant changes to an investment portfolio, pull out this article and see if any of his truisms are applicable. And go have a glass of iced tea or favorite beverage.
Disclosures: Investment advisor representative of Spire Wealth Management LLC. Advisory Services offered through Spire Wealth Management LLC, a federally registered investment advisor. Securities offered through an affiliate, Spire Securities, LLC. Member FINRA/SIPC.
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