Simply put markets have a habit of rising over a long period. Form 2003 to 2007 the FTSE grew by almost 100%. In you were involved in property or the stock market before the crash and you made a fortune you had simply done nothing and if you made a ludicrous fortune perhaps you did something. It’s not hard to make money, what is the challenge is the elusive alpha: returns over and above market growth. The problem is many of these analysts are too close to the market, too incestuous. By focusing on market gossip and movements they fail to see the bigger picture. Let’s consider a recent piece in Investment News. Here we see that only a tiny minority of advisors ever issue advice to sell. In fact “Among 1,890 analysts tracked by Bloomberg for this story, fewer than 1% advised investors to unload a Standard & Poor's 500 stock that later showed a decline, or rose only after they upgraded it, the data show.” Put another way only about 18 out of 1,890 actually gave the right advice! Of course they are always right when the market rises – but as we have seen the market always rises over the long term. For such a metric intensive industry you really would thing some better KPIs could be developed.
As many of you know I advocate a sort of value/growth investment strategy – maybe I will blog on the tension between those two terms soon – I like playing definitions. This approach is what I call business. A silly expression you might say but by this I mean looking at the strategy of a business entity and the markets in which it operates and making a judgement about its ability to generate positive cashflows. I have no time for speculation (simply a posh name for gambling) and see portfolios as a kind of obvious cop out (see earlier blog). In amongst all of this we can look at the role of so called analysts – an interesting bread, often seen on new shows talking as if touting on a horse race – given the glacial speed at which business operates I’m not sure what the rush is in the conversation. Nevertheless these modern day rune readers are followed like the mystics of old. Always interesting to see what they have been up to and always quite funny.
Simply put markets have a habit of rising over a long period. Form 2003 to 2007 the FTSE grew by almost 100%. In you were involved in property or the stock market before the crash and you made a fortune you had simply done nothing and if you made a ludicrous fortune perhaps you did something. It’s not hard to make money, what is the challenge is the elusive alpha: returns over and above market growth. The problem is many of these analysts are too close to the market, too incestuous. By focusing on market gossip and movements they fail to see the bigger picture. Let’s consider a recent piece in Investment News. Here we see that only a tiny minority of advisors ever issue advice to sell. In fact “Among 1,890 analysts tracked by Bloomberg for this story, fewer than 1% advised investors to unload a Standard & Poor's 500 stock that later showed a decline, or rose only after they upgraded it, the data show.” Put another way only about 18 out of 1,890 actually gave the right advice! Of course they are always right when the market rises – but as we have seen the market always rises over the long term. For such a metric intensive industry you really would thing some better KPIs could be developed.
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Dr Bryan Mills"There he goes. One of God's own prototypes. Some kind of high powered mutant never even considered for mass production. Too weird to live, and too rare to die" Hunter S Thompson describing the author in 1971. Archives
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