"We tell lies when we are afraid... afraid of what we don't know, afraid of what others will think, afraid of what will be found out about us. But every time we tell a lie, the thing that we fear grows stronger" Tad Williams
There is a very legitimate reason for many investors to now call their 401k plans by a catchy new name - "201k"- According to the most recent data compiled by WSJ- one of ten mutual funds with at least a one-year track record- had lost at least half of their value in the previous 12 months and more than 100 funds were down at least 60%! Yes, I am not kidding- these so called "investing experts" actually charge money to lose half of their investor's cash...Are you kidding me? After periods like this, why would anyone in their right mind be surprised about the public's "backlash" against the Wall Street bonuses, bank bailouts and sustainability of the capitalist system in general?
But what surprises me the most that these "experts" actually have a nerve and arrogance to come on TV and say something like this: "You know, our models utilize a very long term strategy and thus the fact that we lost half of your money is really irrelevant in the short term...?". Or maybe even something like this- "based on X historical trends and other X factors the intrinsic value of securities in our portfolio represents a very attractive proposition and these price declines are only temporary...?" What a joke... Never mind the fact that historical numbers especially the infamous P/E ratio, are completely irrelevant and even misleading, or that dividend on many common stocks have no chance of staying at the current level...
I mean, let's get real here- these so called experts- "talking head- managers" should not only be left without bonuses for the next five years, but as far as I am concerned they hardly deserve a "minimum wage" and should pay back all the bonuses earned during the "boom times"...Now, let me make it clear-the statements above should not be in any way considered an endorsement of any form of a socialist redistribution of wealth. As someone who was born in a "true" socialist society, I can tell all the "socialist dreamers" out there- be careful what you wish for- communism (socialism) in any shape, size or form does not and will not work, period! But what surprises me and makes me angry today, is how quickly and blindly an average investor out there seems to forgive their "brilliant managers" because of some past accomplishment...
For some magical reason, the American public is way too quick to idolize good short term investing outperformance by attributing all of it to the brilliance/genius of the manager/analyst that happened to be at the wheel when things were looking up... I don't know why this is the case, but for some reason even pretty routine events, like for example Goldman Sachs analyst's report calling for $100 a barrel oil price all of a sudden make people believe that this person is a true "oil expert" bordering on genius, and thus his next prediction of $200 a barrel oil must come true just as easily... What a joke?!
Never mind the fact that there is always a 100% probability that someone out there will call an event X right simply because of the binomial nature of all market opinions/bets made every day on every asset- For someone selling at price X- there is some buying at price X- pure and simple- so I guess one of them is always a genius, heh?
Does it really matter that Bill Miller's Legg Mason Value Trust outperformed the S&P for fifteen years straight some time in the past? Why would anyone who invested their money with him in 2007 or 2008 care about that history after losing 60% of his/her hard earned money?!
I think that's the whole problem with the Wall Street today- idolization of "luck". We need to stop creating the heroes out of the superstar investment managers out there and instead seriously examine if they really deserve all the praise and multimillion dollar pay days or were they simply fortunate to be at the right time in the right place?
Was Ken Heebner of CGMFX fund really the"best investor since Warren Buffet" as media called him, or was he simply following a risky strategy of making a concentrated bet on one trend/sector until it finally stopped working? I guess we won't really know until it's too late...
Something is really broken in Wall Street's compensation system, if one could simply collect a huge bonus during the "bull" year, and then give up nothing during the "bear" year? Is this really the capitalism we are looking for or maybe it is simply "socialism in disguise"? Is this the true "creative destruction" ingenuity as defined by Schumpeter or did Wall Street simply figure out how to bend the original capitalist "pay for performance" compensation structure and instead made it a socialist "pay for seniority and "Ivy league" piece of paper" system? It seems as the latter is a lot likelier...
Anyway, I am not really trying to single out any manager, company or fund in particular, but simply stating the obvious and warning the investors out there - be careful, don't simply buy into or listen to everything you see on TV. Just because someone has graduated from Harvard or worked for Goldman Sachs does not make them an "investing expert". Instead, try to listen to the "expert's" logic and seek to understand the true rationale behind their argument. The main question you have ask yourself is whether you are too late.
It is, indeed, very likely that at the time you hear about the next sure thing "great investment opportunity", you are way too late and thus the most likely outcome is that you are buying at the peak...I hate to be brutally honest, but in most cases if you don't have the time or experience to analyze the investments on your own- you would be much better off investing into a low cost index ETFs instead of the "fancy" mutual funds or some "terrific Cramer" idea- at least you'll know how well you will perform when compared to indices each year...
Ignore the big words and "fancy suits" and instead ask your money manager how is his/her interest aligned with yours? Does he/she have the majority of his own net worth tied up the same asset they are selling to you? What will they do if fund starts posting losses- cut losses or let them go? If you hear the word "hope" or "long term" too many times - simply run away...Remember- "hope is not a strategy" and in the "long run" we are all dead"
Stay safe out there, skepticalcapitalist@gmail.com
