On My Radar: Being Right or Making Money
November 21, 2025
By Steve Blumenthal
“Being right feels good... making money feels better.”
— Ned Davis, Co-Founder of Ned Davis Research
Let’s begin with a quick follow up on last week’s Michael Burry (ofThe Big Short fame) detailed analysis posted on X accusing the major AI hyperscalers (like Meta, Oracle, Alphabet, Microsoft, and Amazon) of overstating earnings by extending the depreciation timelines on AI hardware (e.g., Nvidia chips and servers) from 2-3 years to 5-6 years or more, potentially understating depreciation by ~$176 billion from 2026-2028. Burry is shorting the sector, believing valuations are far higher than they already are and that the stock prices will decline.
One of my clients builds and manages large data centers. His clients are the major hyperscalers - names you know. We spoke this week, and I was eager to hear his take. He agrees with the fast pace of chip innovation, but added that chips are in productive use for 5-6 years and, in some cases, longer. This is far more than 2-3 years. He thinks Burry has got it wrong. Bottom line: There is utility in the aged chips. The open question is the pace of innovation, which seems to be accelerating exponentially.
Perhaps the depreciation math is neither 2-3 years nor 5-6 years. Maybe it’s in the middle. That would mean operating earnings are not as overstated as Burry believes, but it would still constitute an accounting mismatch. Perhaps the AI hyperscalers grow their profits faster than current projections.
We know AI is a game-changer. Remember Moore’s Law? It is an observation (and long-term planning principle) that the number of transistors on an integrated circuit (microchip) approximately doubles every two years. At the same time, production costs either remain the same or decrease. Maybe AI speeds up Moore’s Law. What an interesting area.
In this same direction, you’ll find a link to a short clip (interview) with Howard Marks. He discusses three signs of an AI bubble, reflects on the internet bubble (winners and losers), and offers sound advice for all of us.
Grab that coffee and find your favorite chair. I listened to several investment webinars this week, and I must say my favorite was my dear friend Robert Schuster interviewing Ned Davis, Co-founder of Ned Davis Research. Today, I want to introduce you to a foundational thinker whose philosophy and approach to life are near and dear to my heart: Ned Davis.
On My Radar:
Being Right or Making Money, by Ned Davis
Howard Marks - 3 Signs of the AI Market Bubble
Trade Signals: November 20, 2025 Update
Personal Note: Happy Thanksgiving
OMR is for informational and educational purposes only. No consideration is given to your specific investment needs, objectives, or tolerances.
Please see the Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion and educational purposes only.
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Being Right or Making Money
Many investors, and yes, I mean the talking heads on financial television, obsess over being right. They want to predict the next market move, the next crash, or the next bubble. Frankly, I obsess about risk with an eye open to what might blow things up.
What Ned articulates so clearly in his book, Being Right or Making Money, is that investors should understand their own emotional biases and, more broadly, the psychology of crowds. Most investors let emotion rule reason and buy and sell at the wrong time. His core insight is simple yet profound: In investing, your ego is your greatest enemy. He believes success comes not from having the right opinion, but from having a reliable, objective system.
Ned Davis’s entire career, and the massive research firm he built, is a testament to this principle. Instead of crystal balls, he advocates for a disciplined, rules-based methodology; what he calls the “weight of the evidence.” We need to check our feelings at the door and instead follow what the market's own signals are telling us, a concept we know well from his famous mantras: "Don't fight the tape" (follow the trend) and "Don't fight the Fed" (respect monetary policy). I’d add to this by saying “Don’t fight the Federal government” (fiscal policy) as well, given the massive spending, debt, and deficit problems in Washington.
If I had to sum it all up, I’d say Ned’s approach is not about making perfect predictions; it’s about managing risk and positioning our portfolios to benefit when the objective indicators (price action, sentiment, and liquidity) line up in our favor. The ultimate goal isn't about being right; it's profitability.
The Big Three Tactical Rules (from his book)
1. Don't Fight the Tape: The "Tape" is the market's price action and underlying momentum (or trend). This is purely objective. If the indicators show the market is trending up, you should be favoring the long side, regardless of your personal fundamental opinion. Or vice versa.
2. Don't Fight the Fed: The Federal Reserve and global central banks control liquidity and the cost of money. Money moves markets. When the Fed eases policy (adding liquidity to the system), it acts as a massive tailwind, pushing markets higher. When it's tightening, it's a headwind. Align your exposure with the direction of monetary policy.
3. Beware of the Crowd at Extremes: This is your contrarian check. When sentiment indicators (the collective mood of investors) hit extreme levels of optimism, the market is often ripe for a top. When fear and pessimism reach their extremes, a powerful bottom often forms. The crowd is usually wrong at the emotional turning points.
The Foundational Rules
In his book, Ned also writes about behavioral and risk principles that truly separate the winners from the losers:
Be Disciplined: Stick to your tested plan and indicators. Do not let market "noise" or emotional reactions sway your decisions. The system drives the decision, not your gut.
Risk Management: This is the most essential component of Making Money. Winners, Ned notes, make small mistakes; losers make big ones. This means cutting losses short, letting profits run, and sizing positions appropriately to ensure that no single error destroys your capital.
Remain Flexible: Market environments change. What worked in the 1980s might not work today. You must be humble enough to adapt your indicators and models when the objective evidence proves their effectiveness has waned.
This entire framework is designed to replace hunch and ego with process and probability.
Where are we today?
Let’s look at the state of play, considering Ned’s Big Three Tactical Rules (plus a few other indicators I personally watch each week):
Don’t Fight the Tape. There are many ways to measure market price trends. One straightforward rule is to compare the current price of the S&P 500 Index to its 12-month moving average. If the price is above, then the trend is bullish. For most investors, looking at the monthly data on the first of each month can give them a good sense of the price trend. As of the end of last month (October 31, 2025), the S&P 500 Index is above its 12-month moving average. The trend is positive.
Don’t Fight the Fed / Don’t Fight Fiscal Policy - Both of these are bullish. The Fed has been lowering interest rates, and they are ending QT (quantitative tightening - selling bonds previously bought from their balance sheet). The government is spending $1.6 trillion more each year than it takes in. The Treasury is issuing more debt to finance the government. There is a high probability that this continues. Watch for a return of QE, where the Fed prints money and buys government bonds. The Fed’s balance sheet will go up.
One way to measure this is to see what is happening to interest rates. For example, you can look at the Weekly MACD (trend indicator) of the 10-year Treasury Yield. It is currently pointing to higher interest rates. Alternatively, one of my favorite indicators is the Zweig Bond Model. It turned bearish this week, signaling higher interest rates. Ned likes to look at the yield on 3-month commercial paper and compare it with its 10-month smoothed moving average. If lower, that’s bullish. That was the case at the end of last month.
Ned looks at both the Tape (number 1) and Fed (number 2) monthly. At the end of October 2025, the S&P 500 Index was above its 12-month smoothed moving average, and the yield on 3-month commercial paper, 3.93%, was below its 10-month smoothed moving average of 4.24%. Both indicators were “positive.” In instances dating back to 6-30-1968, when both were positive, the S&P 500 Total Return performance was 18.44%, and investors were invested 44.75% of the time. When one was positive and one was negative, the performance was 4.73% (43.9% of the time), and when both were negative, the performance was 4.47% (11.35% of the time)—source: Ned Davis Research Chart Davis11B. This is a good process for investors who can stay disciplined without having to put in much work. Set your calendar and review the data on the first of each month. Hedge or reduce risk with one or both is negative. One last important note: This is not specific investment advice for you. If you are young with many investment years ahead of you, use the major market dislocations to add more to your investments. If you are older and heavily exposed to the equity markets, ask yourself if you have the time and stomach to overcome a 50% market correction. It may take years to recover. For you and me, at our ages, risk management is essential.
Send me a note if you’d like to see the data.
Investor Sentiment. There are several investor sentiment polls you can follow. I look at the NDR Daily Sentiment and the NDR Crowd Sentiment data. It reminds me of a quote from the late great Sir John Templeton, “The secret of my success is that I buy when everyone else is selling and a sell when everyone else is buying.” Sentiment extremes happen infrequently and are best used in tandem with extreme valuations, both overvalued and undervalued.
There are others sentiment indicators you can follow. Do an AI serch for details. Here are a few ideas:
Most-Watched “Combo” Signals (used by pros)
AAII Bearish % + Equity Put/Call + VIX all at extremes → very reliable contrarian signal
NAAIM + BofA cash levels diverging from price → often marks short-term turns
CNN Fear & Greed in Extreme Fear while price makes a new high → classic “blow-off top” warning
Quick Reference Cheat Sheet (contrarian interpretation)
Extreme Bullish (potential top) Extreme Bearish (potential bottom)
AAII Bullish >65%, AAII Bearish >55% Put/Call Bullish < 0.6, Put/Call Bearish >1.15 (equity-only)
NAAIM >100% NAAIM <30%
VIX <15 VIX >40
BofA cash <4.5% BofA cash >6%
II Bulls/Bears >3.5 II Bulls/Bears <1.0
*These are the ones you’ll see cited constantly on Bloomberg, CNBC, X trading accounts, and in hedge-fund letters. Track 3–4 of the top ones, and you’ll have a good pulse on crowd psychology.
Finally, there are some other indicators I watch to keep a pulse on the markets:
Volume Supply vs Volume Demand - this is an actual reading of the total volume of declining issues vs. the total volume of advancing issues, using a broad-market equity index. Currently bullish
Market breadth. Currently bullish
Valuations - currently extremely overvalued. See the most recent OMR post here.
The direction of interest rates - The Zweig Bond Model
Inflation and the dollar - currently moderate inflation. Concern rises when inflationary pressures are high.
Several others…
I hope this helps you get a few ideas for thinking about risk management, emotions, and opportunities. And check out Ned’s book, Being Right or Making Money! I highly recommend it.
Please note that my firm is a long-time client of Ned Davis Research and that there may be conflicts of interest and biases arising from my longstanding appreciation for their work and relationships with their employees.
Not a recommendation to buy or sell any security. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. See important CMG and NDR disclosures below.
Howard Marks - 3 Signs of the AI Market Bubble
Sage advice - click to watch.
Source: @marketsentiment, Global Money
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Not a recommendation to buy or sell any security. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Trade Signals: November 20, 2025 Update
Trade Signals is Organized in the Following Sections:
*Trade Signals basics: The Market Commentary section summarizes notable changes in the core key indicators: Investor sentiment, market breadth, stocks, treasury yields, the dollar, and gold. The Dashboard of Indicators provides a detailed view of all Trade Signals indicators.
Market Commentary - Zweig Bond Model (Signaling Rising Rates)
Notably, the Zweig Bond Model moved to a sell signal. This is a bearish reading for bonds signaling higher interest rates.
The model indicators are listed in the upper-left-hand corner (CAPMGNT02). The middle section plots the score. Readings range from +5 to -5. A positive score is a bullish signal for bond prices; a negative score is a bearish signal. The current reading is -1. The “On Sell” highlighted in yellow is the current signal. It triggered earlier this week. Lights on.
Inspired by the late, great Marty Zweig in the 1980s. I worked with NDR to recreate the model many years ago. You can see in the data box that bonds do better when on a buy signal (“On Buy”).
Not a recommendation to buy or sell any security. Used for risk management purposes. Consult your advisor.
You’ll find a detailed description of how it works in Trade Signals.
Key Macro Indicators - Investor Sentiment, Market Breadth, The S&P 500 Index (Stocks), The 10-year Treasury Yield (Bonds), and the Dollar
About Trade Signals
Trade Signals is a paid subscription service that posts the daily, weekly, and monthly trends in the markets (and more). Free for CMG clients. Not a recommendation to buy or sell any security. For discussion purposes only.
“Extreme patience combined with extreme decisiveness. You may call that our investment process.
Yes, it’s that simple.”
– Charlie Munger
TRADE SIGNALS SUBSCRIPTION ACKNOWLEDGEMENT / IMPORTANT DISCLOSURES
The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.
Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Personal Note: Happy Thanksgiving
I’ll be golfing on Black Friday with my children at Stonewall Golf Club for the annual Black Friday team scramble. We play from the forward tees; everyone tees off. The best drive is selected, and everyone then hits from there. The challenge is on the greens. Each year, the greenskeeper puts the pin placements in extreme locations (think, on a severe slope). It’s usually cold, and the event is followed by a late lunch and some drinks.
Stonewall Old Course - Hole #9 (on an early morning warm day). Pictures to follow next week.
Thanksgiving is my favorite holiday, and this year the house will be full. We’ll have Grandma Pat, Jim, and Susan’s three children, and my three home along with a few significant others. Our children are grown now, and it is wonderful to watch them create. We are blessed and grateful.
Here is a toast to you and your beautiful family. Glass of red wine held high… “to love and to life!”
Wishing you and your family a warm and wonderful Thanksgiving!
Steve
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Stephen B. Blumenthal
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CMG Capital Management Group, Inc.
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.
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This document is prepared by CMG Capital Management Group, Inc. (“CMG”) and is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives, or tolerances of any of the recipients. Additionally, CMG’s actual investment positions may, and often will, vary from its conclusions discussed herein based on any number of factors, such as client investment restrictions, portfolio rebalancing, and transaction costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This material is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. This material does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors which are necessary considerations before making any investment decision. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including legal, tax, accounting, investment, or other advice. The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice.
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