23 Aug

Recommended Reading: Bernstein’s ‘Charts for the Beach’

WRITTEN BY David Ashworth

The annual chart edition

“A picture is worth a thousand words,” the adage goes. And Richard Bernstein Advisors seems to take this to heart, as the founder and chief investment officer, Richard Bernstein, who writes a monthly newsletter called Insights, dedicates one issue a year entirely to charts.

According to Bernstein, these charts are “five of our favorite charts that highlight what we think consensus is currently missing.” Richard Bernstein Advisors focuses on top-down research. The firm sticks to its top-down approach whether it’s style, size, or geography. Its focus is on corporate profits, whose trend can be seen from the graph below.

[{"interval":0,"data":[{"date":1183266000,"value":1285300000000},{"date":1191214800,"value":1313700000000},{"date":1199163600,"value":1203500000000},{"date":1207026000,"value":1229600000000},{"date":1214888400,"value":1188800000000},{"date":1222837200,"value":671400000000},{"date":1230786000,"value":1044300000000},{"date":1238562000,"value":1120600000000},{"date":1246424400,"value":1273200000000},{"date":1254373200,"value":1374400000000},{"date":1262322000,"value":1450200000000},{"date":1270098000,"value":1436800000000},{"date":1277960400,"value":1499100000000},{"date":1285909200,"value":1494500000000},{"date":1293858000,"value":1350200000000},{"date":1301634000,"value":1423100000000},{"date":1309496400,"value":1430400000000},{"date":1317445200,"value":1507100000000},{"date":1325394000,"value":1727400000000},{"date":1333256400,"value":1654800000000},{"date":1341118800,"value":1686600000000},{"date":1349067600,"value":1663900000000},{"date":1357016400,"value":1679500000000},{"date":1364792400,"value":1658100000000},{"date":1372654800,"value":1685600000000},{"date":1380603600,"value":1730300000000},{"date":1388552400,"value":1657800000000},{"date":1396328400,"value":1733300000000},{"date":1404190800,"value":1758000000000},{"date":1412139600,"value":1771500000000},{"date":1420088400,"value":1636700000000},{"date":1427864400,"value":1664300000000},{"date":1435726800,"value":1610800000000},{"date":1443675600,"value":1423400000000},{"date":1451624400,"value":1550500000000}],"units":"$","start":false,"end":false,"name":"Corporate Profits After Tax (without IVA and CCAdj) (Quarterly)","metric":null,"source":"US. Bureau of Economic Analysis","observation_start":-725828400,"chart_type":"line"}]

Top-down research is one of two research approaches. The other one is bottom-up research. In top-down research, the focus is on macro factors like economic and geopolitical environment and their impact on financial markets. On the other hand, bottom-up research focuses on companies rather than the macro environment. The underlying belief in this approach is that even in bad times for their sector or industry, strong companies will continue to do well.

Actively managed mutual funds (ASMMX) (IGEAX) mostly employ bottom-up research to select stocks unlike passively managed ETFs (IWF) (IWB) whose composition changes only with a rebalancing or reconstitution of the underlying index.

In this series

The August edition of the monthly Insights newsletter is the annual “Charts for the Beach” edition. In this year’s publication, Richard Bernstein focuses on five things from fear about equities (SCHB) (RSP) (VUG) to the fallout of Brexit that markets are either not paying attention to or fearing unnecessarily.

The first chart compares the 1999–2000 market to the present market.

Latest articles

Tech stocks eBay (EBAY), PayPal (PYPL), and Lam Research (LRCX) are moving in after-hours trading after today's earnings reports.

Ford plans to produce autonomous cars for ridesharing by 2021. GM acquired Cruise, a self-driving startup, to kickstart its autonomous driving plans.

PayPal stock (PYPL) is trading down today. With earnings due after the market closes, you should buy PayPal stock on the current dip.

This year has been rough for cannabis companies, including Aurora Cannabis (ACB), whose stock is already down 27.82% year-to-date.

The road for Netflix is getting rockier by the day. As it prepares for the imminent streaming wars, it's been caught off guard by a new development.

A Senate bill introduced this week could force Facebook (FB) to support the growth of rivals such as Snapchat. Let's take a closer look.