Rusty was big on this and I think he was right (although I don't like the conspiracy allusions that are usually drawn with it), and it is not something that you see too much written or talked about.
During the crisis when everyone hit the exits at the same time, quality company large cap stocks got hit just as much, if not more, compared to low quality stocks. The reason being that they were liquid and provided an avenue to exit when other avenues were not as attractive.
In theory this should create an inefficient situation where information based investors (ie. value investors) step in to take advantage of the temporary oversupply in the market. Unfortunately, much of the oversupply was probably being created by value investors as much as any other type of investor and that is why the window of opportunity was so great and the time period for taking advantage greater than normal.
Timing is everything. Contrarians likely bought too soon. Value managers were so abused that they were stuck on the sidelines too long. Growth and momentum guys were just dazed and confused.
But the reality was in a panic, high quality large caps are hit just as much as any other segment precisely because they are a store of value and a ready source of funds.
Monday, June 15, 2015
Pet Peeve
I really hate (hate is proverbial and hyperbole...dislike is the more appropriate word) all the crap research that comes out matching S&P 500 performance or industry/sector performance or company specific performance with things like presidential election years, interest rate changes, currency changes, geopolitical crisis or any other market factor. I think it is junk science and junk information. It tickles the fancy, but is ultimately not worth much.
Taking Another Shot At Market Efficiency
The market is inefficient.
What I mean by this is that the market is always in a state of controlled chaos. Some may consider this equilibria, but it is equilibria in a very limited sense of the word. Equilibria is not the same as intrinsic or fundamental value (which is also in the eye of the beholder).
Because market prices are a function of consensus feelings, emotions, expectations and sentiment regarding earnings, interest rates, risk and the future (in other words they reflect the current zeitgeist of the day and embed some feelings for the future), they are necessarily wrong all the time. No one knows what the future holds. Of course as markets correct and swing from overvalued to undervalued and vice versa, they must by definition pass through some median or fair value point. The problem is they rarely trade at the fair value point for any steady state period of time.
Getting cyclical trend and momentum right are consequently the most important ingredients to long term active investing, while have a mean reversion contrarian disposition can help cut off the excesses of the tails. The problem is we never really know beforehand the timing, time or magnitude of any new cycle.
Therein lies the problem.
What I mean by this is that the market is always in a state of controlled chaos. Some may consider this equilibria, but it is equilibria in a very limited sense of the word. Equilibria is not the same as intrinsic or fundamental value (which is also in the eye of the beholder).
Because market prices are a function of consensus feelings, emotions, expectations and sentiment regarding earnings, interest rates, risk and the future (in other words they reflect the current zeitgeist of the day and embed some feelings for the future), they are necessarily wrong all the time. No one knows what the future holds. Of course as markets correct and swing from overvalued to undervalued and vice versa, they must by definition pass through some median or fair value point. The problem is they rarely trade at the fair value point for any steady state period of time.
Getting cyclical trend and momentum right are consequently the most important ingredients to long term active investing, while have a mean reversion contrarian disposition can help cut off the excesses of the tails. The problem is we never really know beforehand the timing, time or magnitude of any new cycle.
Therein lies the problem.
Thursday, June 11, 2015
Fed Rate Hike
Will they or won't they...hike in July, September...some time this year.
I don't think so. There is no reason to hike. Inflation is low. Growth is subdued. Other countries are cutting their interest rates. Why should the Fed raise rates. The only reason would be if the markets really take off.
I don't think so. There is no reason to hike. Inflation is low. Growth is subdued. Other countries are cutting their interest rates. Why should the Fed raise rates. The only reason would be if the markets really take off.
Friday, June 5, 2015
You Only Get One Chance...Can't Go Back To The Well
My experience has been that you only get one chance with people when you ask for their help. There is a short window after the initial meeting where they are willing to help, but you can't keep going back to them asking for help. They turn off.
Tuesday, June 2, 2015
ETFs Made Factor Investing
Factor investing has been around a long time, but it was not until the advent of ETFs and the regulatory requirements for approval that factor investing came to the fore.
Why Good News Is Bad News
Bad news has been good news for the markets for a long time now. The basic premise has been bad news spells more liquidity as the authorities fight any and all negative notions.
We may be entering a new stretch where the market (and the CBs) are finally able to feel better about life. When good news starts spelling bad news for the markets, this will be the sign that the market is calming down and beginning to clear, ie. equalize valuations.
We may be entering a new stretch where the market (and the CBs) are finally able to feel better about life. When good news starts spelling bad news for the markets, this will be the sign that the market is calming down and beginning to clear, ie. equalize valuations.
Subscribe to:
Posts (Atom)