This bleak headline from the weekend edition of MarketWatch.com not only sounds depressing, but also it sounds like something out of “The Terminator.” Just give up ‘flesh and blood’ investors the machines are taking over. I mean why bother? You don’t have a chance.
Mark Hulbert of the Hulbert Financial Digest, who is usually a pretty respectable source, penned this little ditty. I’m not sure who wrote the misleading and scary headline (may be the work of MarketWatch editors). Not only is it misleading and discouraging; but also it really does not address the key point of the piece, which is that many institutional investors and market advisory services are not beating the indices that they are benchmarked to. In my mind It has much less to do with computerized trading and much more to do with the insatiable desire of money managers to perform in the short-term.
This lust for performance is, in part, fueled by pension regulations instituted in the 1970s (ERISA) and the flock of pension and investment consultants that the law spawned to help corporate fiduciaries cover their corporate derrieres. Also at fault, were the mutual fund monitoring services, like Morningstar that help focus individual investor attention on the day-to-day, month-to-month performance of their mutual fund holdings. These consultants/rating services have narrowed money manager’s focus to the here and now. How do we outperform today so we get to keep the assets we manage for another quarter. Hence, we have this ever increasing focus on corporation’s quarterly earnings results…not a great way to run a business. Enter the media to hype this even more. It gives them something to talk about; ergo, we now have that most stupid term “earnings season.” And we get one every three months.
Anyway, you have a ton of very smart people trying to gain some illusive advantage for that incremental bit of performance, which leads most of them to underperform. And even if you are a winner it is very hard to stay a winner, according to Mr. Hulbert. All of this leads me to believe that the ‘little guy’ does have a chance against the pros and the machines. He can take a position in an out-of-favor company or industry and just sit. There is no one looking over his shoulder, second-guessing or criticizing. His or her jobs do not depend on whether they are right this quarter or next; and no one will take the money away that he or she is managing ,if they’re not right…and right away!
Another note: “The Fed Bolt From Hell”
We talked about the “Fed Bolt from Hell” (terminology by Jim Cramer), that illusive moment when the Fed pulls the punch bowl (i.e. QE) away in both session 15 and session 18. There was an interesting discussion of this in the weekend edition of the WSJ (The Fed Maps Exit From Stimulus). This may give you some interesting perspective on an event that may roil the markets when it occurs…and it will occur.
Finally, will call this tidbit ‘hubris. The cover story in this week’s edition of Barron’s Magazine is entitled “We Were Right” and it boasts of their call, “Last year we predicted The Dow would hit 1500 in 2013.” For reference The dow closed today (5/13) at 15091.68. Author Gene Epstein is taking a big chance with this bit of hubris. He even goes on to say, “that performance may just be the beginning.” Alas, Gene, pride goeth before the fall!!!
What do you think?
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