SELECTED ACM COMMENTARY / ACM'S HISTORY OF PRESCIENCE

Ackerman Capital Management employs a structured approach to portfolio management based on key academic insights into the capital markets. We also understand that investing is more than just science. While we avoid mainstream financial media, we value the thoughts and opinions of today’s most intelligent and insightful investors. We know that our investment models can be enhanced by a forward looking view and an understanding of how that may differ from consensus expectations. Below is a chronological record of some of our most important and prescient forecasts.


ACM Predicts the Crash in Technology and Internet Stocks

…we are long overdue for disappointment. And when it comes, it will probably be a big disappointment. Stock valuations in general are at an all-time high, despite rising interest rates…The valuations of many of the technology and internet-related stocks...are so ridiculously extended that extreme price declines are inevitable and imminent.
— David Ackerman, IdeaAdvisor.com, April, 10, 2000
…the speculative bubble in technology stocks has reached its final stage…Investors are now focusing on only the highest risk situations. This is indicative of a peak in speculative enthusiasm and portends that the end of the technology and Internet stock bubble is near.
— ACM Quarterly Commentary, April 20, 2000
We have now entered a period where ‘old-school’ notions of investing should be followed. One of those unfashionable concepts is that corporate profits matter, and that over time a company’s stock price should roughly track a company’s growth in profits. Therefore, the stocks of cash-burning ‘dot com’ and biotechnology companies should be shunned to avoid further losses.
— ACM Quarterly Commentary, July 20, 2000

Technology and Internet stocks crashed in the following two years. The NASDAQ Composite fell 74.9% from the March 2000 highs to the October 2002 lows. The Inter@active Week Internet Index fell 90.2% during this period.


 ACM's Response to 9/11

After the disastrous events of September 11, we were correct in our assessment that stocks were deeply oversold, generally undervalued, and that the widespread fear and bearish sentiment presented an attractive buying opportunity. So while many investors were selling stocks and stock mutual funds at a record pace, we were…increasing our stock exposure. Once, again we were rewarded by not ‘following the crowd’ … we are less excited about potential future stock returns after the strong fourth quarter rally. Stocks in general are now overvalued, while investor sentiment has returned to bullish levels that have usually preceded intermediate-term declines…In fact, in recent weeks we have lowered our stock market exposure across all of our accounts…We would not be surprised to see the major market averages decline for a third year in a row.
— ACM Quarterly Commentary, January 24, 2002

The S&P 500 rallied 19.3% from their September 21, 2000 lows through the end of the year. However, it then fell for the third consecutive year, losing 22.1% in 2002 in one of the worst years for stock investors in modern market history


ACM Calls the Bottom of 2000-2002 Bear Market

…the current level of the stock market represents an attractive investment opportunity…in relation to short-term interest rates, these prices represent the most attractive values investors have seen since the early 1980’s
— ACM Quarterly Commentary, October 22, 2002

The S&P 500 recorded its bear market low that same month and went on to deliver a total return of more than 100% over the next five years.


ACM Predicts 2007-2008 Housing Bust, Recession, Financial Crisis, and Collapse in Stock Prices

While many economists and Wall Street strategists are predicting a “soft landing” for the economy, we are less optimistic. We have long believed that the housing boom was being driven to a much larger extent by aggressive lending practices than underlying fundamentals, and as a result, we believe that we are entering a housing slump that will be deeper and longer than most “experts” are predicting. Given that outlook and the integral part that housing activity plays in our economy, we believe that the risk of an eventual economic recession is fairly high.
— ACM Quarterly Commentary, October 20, 2006
The stock market is overdue for a correction. We suspect that this correction will materialize later this year as stocks discount lower corporate profits and an increasing risk of economic recession, precipitated in large part by a continue slide in housing activity
— ACM Quarterly Commentary, January 15, 2007
We continue to believe that the slowing residential housing market could likely push the economy into recession, and that eventually the stock market will discount this risk. Our focus, going forward, will soon shift towards reducing the risk in our portfolios given the looming correction in stock prices…The performance of the capital markets over the past four years has left many investors complacent about the possibility of losses. It is precisely when other are complacent that our contrarian approach leads us to be more aware of the risk to our portfolios.
— ACM Quarterly Commentary, April 17, 2007
…with investor sentiment reaching bullish extremes, we decisively reduced our equity allocation in late June of this year. Less than a month later, stock prices collapsed over liquidity concerns related to the mortgage markets and worsening data from the housing industry…We have used the recent rally to further reduce the equity exposure in our portfolios (relative to each portfolio’s target allocation). Despite the market rebound and some recent encouraging economic data, we continue to believe that an economic recession is inevitable given the weakness in the housing market.
— ACM Quarterly Commentary, October 17, 2007
Looking forward to this year, we believe that the stock market has not fully discounted the slowing economy. If we are not already in a recession, then we will likely be in one soon. Assuming this is the case stock could fall further…
— ACM Quarterly Commentary, January 16, 2008
While some may still debate the odds of a possible recession, we believe that is began last December or January. Furthermore, we believe that this recession could be deeper and last longer than many might expect. The housing downturn is far from over…As such we anticipate another down move in the markets before things improve. We can envision an eventual market bottom that will be accompanied by very negative investor sentiment in the face of scary headlines about regional bank failures as well as comparisons to the stagflation of the late 1970’s and even to the Great Depression.
— ACM Quarterly Commentary, April 17, 2008
We were not enticed by this recent stock market rally. We continue to believe that stock prices could fall further as they discount an economy that to us, at least, is clearly in recession….Looking forward, we expect to maintain a defensive posture in our portfolios until this market decline has run its course.
— ACM Quarterly Commentary, July 15, 2008

The financial crisis of 2007-2009 is considered to have been the worst economic crisis since the Great Depression of the 1930’s. The S&P 500 declined nearly 43% from its October 2007 highs to its March 2009 lows. The crisis was triggered by a collapse in the subprime housing market which pushed major U.S. financial institutions and those around the world to the brink of collapse. Governments and central banks were forced to bail out many of these companies and had to respond with unprecedented monetary and fiscal stimulus. The Great Recession was later determined to have begun in December of 2007.


ACM Pinpoints Bottom of the Stock Market in the First Quarter of 2009

We added significant equity exposure at or near the exact market lows in March that preceded the current market rally. In most cases the amount of equity exposure added ranged from 10% to 15% and was concentrated in depressed value funds. Looking back many years from now, it will be clear that this period represented a good opportunity to buy stocks at attractive levels.
— ACM Quarterly Commentary, April 23, 2009

ACM Is Well Positioned for the 2011 Stock Correction and Plunge in Bond Yields

Generally speaking, the equity allocation in our portfolios are at or near the low end of investment policy ranges, and, conversely, our fixed income allocation are at or near the high end of their allocation ranges. In both asset classes out primary focus is “quality.”…We are avoiding exposure to commodities, commodity-oriented stocks, emerging market stocks and bonds…Today these investments are far too popular with the investment “crowd”…we believe these areas of the markets are vulnerable to significant price declines.

We positioned our portfolios in an appropriate defensive manner (relative to each client’s investment policy). More specifically, allocations to “risk assets” were kept at minimum target ranges…we shunned any exposure to small-capitalization stock funds, commodities, and emerging market stocks. Within fixed income we held a…quality bias and eschewed funds which would have increased our credit risk. In addition, we made a significant allocation to a long-term U.S. Treasury fund in tax-deferred accounts in order to enhance our return as interest rates declined. This proved to be our most profitable investment last year. Overall, last year was a year in which we correctly and profitably stood apart from the investment crowd…our relative performance compared to similar balanced accounts was quite strong
— ACM Quarterly Commentary, May 12, 2011

From July to September 2011, the S&P experience a peak to trough decline of 18.4%. The Bloomberg Commodity Index fell 22.3% peak to trough in 2011. The S&P 500 Basic Materials Index corrected 28.7%.  Emerging market stocks fell 40.9% and emerging market debt declined 13.7%. Investment grade bonds, as measured by the Barclays Aggregate Bond Index, meanwhile, delivered a more than 9% gain in the second half of 2011.


ACM Adds Risk Exposure Near 2011 Market Lows

…we were in an excellent position to take advantage of lower prices. Across our portfolios, we took profits in our long and intermediate bonds and meaningfully increased our equity exposure at or near the market lows in August.
— ACM Quarterly Commentary, October 27, 2011
Given the relative magnitude of the summer stock correction and bond market rally, we responded by increasing stock market exposure significantly and moderating our quality bias within that exposure. Conversely, we lowered our bond market allocations and reduced the interest rate sensitivity of our remaining allocation. These moves allowed our portfolios to better participate in the strong stock market rally over the past six months.
— ACM Quarterly Commentary, April 23, 2012

The S&P 500 bottomed on October 3, 2011, and rallied 15% through year end. The S&P went on to gain 16% in 2012.


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