The Hirsch Organization’s Jeffrey Hirsch talks with Opportunist’s Managing Editor Leslie Stone about the history of his firm, its market forecasts and which industry sectors he believes hold the most promise.
Jeffrey Hirsch is president of the Hirsch Organization, where he is editor-in-chief of the venerable Stock Trader’s Almanac. Created by Hirsch’s father, Yale, in 1967, the Stock Trader’s Almanac has delivered stock market insights and strategies to investors for nearly 50 years. Known for its accuracy at predicting the movement of the markets, the publication has originated such notable market phenomena as the “January Barometer” and the “Santa Claus Rally” and popularized other tradable strategies, such as “The Best Six Months Strategy” (commonly known as “Sell in May and Go Away”) and the four-year Presidential Election Cycle.
Hirsch is sought after for his expertise on market cycles, seasonality, trading patterns and forecasts, and historical trends, and frequently appears on CNBC, CNN, Bloomberg, FOX Business, and numerous other media outlets here in the United States and abroad. He also edits the firm’s digital toolkit, Almanac Investor, a subscription-based product including investor alerts, market data, and research tools, and is coauthor of the Commodity Trader’s Almanac and author of The Little Book of Stock Market Cycles and Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It.
Opportunist: For those who don’t know, can you tell us the history of the Stock Trader’s Almanac?
Jeff Hirsch: I like to say that I was born, raised, weaned and bred on the Almanac [Laughs] because we are both the same age and each year the new edition of the Almanac matches my own age. Dad had been COO with the Indicator Digest, where he ran operations, research and direct mail, and after five years he got an epiphany to take all his research and put it in annual calendar form so people could follow the market’s calendar along with their own calendar. He hired a salesman to pound the pavement and show it to brokerage firms and ended up selling about 20,000 that first year. The following year the Almanac came out even stronger, and after a few more years people were clamoring for more.
I remember looking at charts over dad’s shoulders in my pajamas as a child, and he would ask: ‘What would you do, Jeff?’ It was always in the house. He eventually grew tired of traveling into the city so he moved his operations home and converted our garage into a full office. When I was still in grade school I started helping in the mailroom, where I would pack books and ship them out to all the brokers. When I got home from school in the afternoon the UPS guy would show up and I would help him load the truck. I would do statistical work in the summers, with an adding machine and handwritten spreadsheets.
Opportunist: Did you always know you would follow in your father’s footsteps?
Jeff Hirsch: No. I sort of fought coming into the business at first. When I left school in 1989, I took a vacation with a buddy of mine where we traveled around the country, touring the national parks for about six weeks. I was into landscaping at the time—I love gardening and still do my own yard, by the way—and my friend encouraged me to go into business with my father.
In 1990, I joined the company full-time with a V.P. title—and a modest salary—and began studying the business from the ground up. I learned direct marketing, stock picking and research. Being Yale’s son, and yet not having the exact kind of mind—he has a special mind and is an iconic thinker—the apple did not fall too from the tree. [Laughs] So I was able to understand his way of thinking and improve upon some other things. We did a lot of work together and I was instrumental in converting all of his research and strategies to Excel back in the early days—Excel for DOS in 1992, actually—and migrating everything to Windows 3.1. I remember thinking ‘Wow!’ because it was amazing to be able to do everything on the computer instead of graphing it out by hand with calculators and adding machines. Of course I received tips from Yale along the way, and together with my business partner, Chris, was able to basically convert everything from Yale’s brain and ours into the computer. We programmed all the information into an internal database that is equipped to handle a series of canned functions. If something new comes up, we write some code that enables us to look at things in different ways and expand the Almanac in exciting ways.
Opportunist: When did you officially take the reins?
Jeff Hirsch: We had a succession plan, and in 2001 I took over. Yale is 90 years old now and counting. At 90 everyone loses half a step in some things, but I’m proud to say he is quite solid.
Opportunist: Your work involves a lot of technical writing and research. Were you a natural at deciphering complex data?
Jeff Hirsch: Considering the battle we had at home whenever I had to complete school papers, I sometimes find it amazing that I now write for a living. [Laughs] There was another guy, Bob Caldwell, who came out of Indicator Digest after Yale was there, who was instrumental in showing me a great deal about writing and analyzing data. I also found my own voice. I learned how to write so that things make sense, which is hard to do in this day and age when you have to put things out pretty quickly. Unbeknownst to me at the time, the most beneficial course I took in college was probably creative writing because I learned that the key to writing is probably rewriting. I learned how to explain complex topics in 15 words or less while caressing the details. That has helped me quite a bit, especially when writing about the sometimes stale subject matter of finance—although there is certainly plenty of action to talk about.
Opportunist: Does your organization still publish Ground Floor, the newsletter that featured micro-cap stocks?
Jeff Hirsch: We started Ground Floor in 1981 and eventually combined it with several other newsletters. Now it’s a digital subscription and consolidated into one subscription-based service called Almanac Investor. We don’t feature just ground floor stocks, but all stocks. And we generally concentrate on the bulk stock recommendations around the October time frame when the market begins to make its move up after a usual pullback and seasonal move. We always feature a nice basket of stocks that we screen both fundamentally and technically. We look for increasing revenues and earnings, as well as good margins and debt and cash situations. Of course, if there is a special sauce or interesting story that is included too. We look for positive action but not necessarily a stock that has totally run away. On the flip side, we are also looking for things that are weak, such as our short suggestions from cyclical and materials sectors that tend to go down in the summer months and respond negatively to weak economics. Recent GDP numbers say we may not be expanding at such an accelerating pace, so we look for stocks that we want to short with a recent history of a decrease in revenues and earnings and valuations that are elevated and breaking down on the charts.
Opportunist: What is the Stock Trader’s Almanac’s formula for success?
Jeff Hirsch: It’s kind of like staying in shape and keeping excess weight off. There is no secret to it. You simply watch what you eat and exercise regularly. On top of all the consistently recurring seasonality and cycles in the markets that we track, we incorporate solid technical analysis and fundamental analysis on indices, sectors and individual stocks. We will overlay some sentiment and psychology, as well as politics and macroeconomic events. So it’s really not a secret. We are just applying all the disciplines and analyses. I guess the secret is the basis and foundation in historical patterns and seasonality.
Opportunist: Speaking of patterns, it seems the markets move on the Fed Chairman’s every word. Do you believe the stock market will eventually stabilize once the Fed has exited from quantitative easing?
Jeff Hirsch: There has been some short-term volatility, but the stock market has certainly been on an upward trajectory in the last few years. Janet Yellen is as qualified as the others, and I think she was handed the same playbook that Greenspan handed Bernanke. She will make her own changes to it. Q/E tapering has resulted in some tightening, but tapering is just the removal of that extra special juice—the Kool-Aid—that we have been given. Aside from a couple of mixed cues, the Fed has been very forthright in communicating this and continued to taper despite a flat GDP and unemployment that is up slightly. Even when Q/E is gone we will still be at zero interest rates for at least a year if not two. There is still a huge balance sheet of bonds and the interest from those is still being invested. As long as tapering is done in a way that it’s not a shock to the market, I don’t suspect major fears will occur unless something happens in the marketplace. The first-quarter GDP will be revised and won’t be as bad as the initial preliminary reading was. Janet Yellen is a fine individual and a responsible economist. I believe she is sincere about how she cares about people and the country.
Opportunist: What industry sectors are you bullish on, and why?
Jeff Hirsch: We have what we call our MACD seasonal six-month sell signal, which we do every year and email out to subscribers. During the worst six months for stocks the one sector that has done best is utilities. That partly has to do with the end of winter’s heavy heating, light bulb and electricity usage season that we just got out of and the hot A/C season we are about to enter where utilities will be cranking a lot of gas to make electricity. That trend tends to keep utilities strong for the March through October period. Oil also tends to be strong through July, with some driving season impact in addition to the utility aspect. Lots of those companies are supplying the gas there as well. We are pretty bullish on oil. Technology has a seasonal move that goes until June. We are very happy with our position and those are three main areas where we are bullish on the long side: technology and oil into June and July, and utilities into the fall.
Opportunist: Can you share some of your favorite stock picks with our readers?
Jeff Hirsch: There are several recent shorts I will mention. Rentech Nitrogen Partners [NYSE: RNF] is one that has not had successes yet for us, and we are looking to short that. Kraton Performance Polymers [NYSE: KRA] in the mid-cap area, and Intrepid Potash, Inc. [NYSE: IPI], a company that produces and a low-chloride potassium fertilizer, are two others. We are waiting for IPI to break down. Bunge Limited [NYSE: BG] is one of the largest agricultural outfits in the United States and throughout the world. BG is already down from its short price.
On the long side, we like Hershey. I don’t own any of these personally, nor are they in client accounts; we just started considering them. Aside from the mentoring and expanding our reach and going digital, the key for me is managing people’s assets with all the strategies we have devised. Most of our stock predictions are on hold right now. The only ones that aren’t are a couple of the shorts we are looking at. On the ETF [Exchange Traded Funds] side, we just entered the period we call the ‘Worst Six Months’ in the Almanac. This is something Yale first discovered while putting together the 1987 edition.
Opportunist: What exactly is the ‘Worst Six Months?’
Jeff Hirsch: What we discovered is that the months of May through October are generally much weaker and some years are quite negative. If you are familiar with the TV series, ‘Downton Abbey,’ you will recall the reference to the ‘London Season.’ For several hundred years—even to this day—the upper class of British society travels to the country during the oppressive summer months and does not return until St. Leger’s Day, which is the second Saturday in September and the final leg of the British Triple Crown. This is where the saying ‘Sell in May and go away, and come back on St, Leger’s Day’ comes from. It’s basically the summer doldrums and is similar to the lull we experience here in the states from Memorial Day to Labor Day when people typically take vacation.
Opportunist: What happens after that period ends?
Jeff Hirsch: Through our research, we discovered that most of the market’s gains are made from November through April. That being said, November, December and January are very strong, as are March and April. The average move of the DOW from Oct. 31 to April 30 closed is 7.5 percent from the April 30 close, and the Oct. 31 close average is 0.3 percent. This is something that has not been going on forever in this country. Before 1950, for example, the United States was a very agrarian society. We can see it was almost the flip side back then, as lots of money and cash started to move and get generated around harvest time.
Jeff Hirsch: The Almanac has made some pretty incredible calls. In October 1974, Yale had the word ‘buy’ printed across the top 18 times. It came true. It was a bull’s eye. When inflation tapered off, the market caught up and he had made a call in 1976 for a 500 percent move in the DOW. His forecast was DOW 3,420 by 1990. The S&P made a 500 percent move, and the DOW made it in May 1992, which is pretty close for government work I think. [Laughs]
In 2010 we put out a similar projection for another 500 percent move off the 2009 lows to DOW 38,820 by the year 2025.
Opportunist: Are your forecasts ever wrong?
Jeff Hirsch: Sure, it doesn’t work all the time. There is often an indication that some more powerful forces are at play if the market doesn’t go up during the bullish. The period from October 2007 to April 2008, for example, was an indication that we were in for some serious trouble in the stock market.
Opportunist: What do you foresee being the biggest financial story of 2014?
Jeff Hirsch: That is a tough one. I’m not sure there will be any major stories. I think we had a lot of them already, especially with the biotech up so much and getting slammed. It may be that utilities is a big performer. That sector was so horrible last year, so it might be interesting to see how it goes this summer—with maybe a correction in between. Washington and Wall Street are inextricably linked, so the big story may be how the Republicans do in the mid-term elections. I don’t believe they will have as big a win as is expected and take back very many seats in the House or the Senate.
Opportunist: What’s next for you and the Almanac?
Jeff Hirsch: I will be at the Las Vegas Money Show from May 12 through 15. In terms of the next edition of the Almanac, we are looking at putting some new things into our 2015 edition. It will obviously continue in its desktop version, but we are gravitating toward a digital, electronic version or mobile arena. We are also expanding other subscription services in an effort to expand our reach.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @lescstone.
Stock Trader’s Almanac -http://www.stocktradersalmanac.com
MoneyShow Las Vegas - http://www.moneyshow.com/tradeshow/las_vegas/moneyshow/?scode=035207