Jan

5

What has struck me most since 2003 is that an increasing number of people (brokers, money manager, individual investors) seem to have become “do-it-yourself” little hedge fund managers (at least in their imagination). You notice it mainly in their use of market language: “CME, futures, shorting, active trading, modeling, soft commodity, stop-loss, technical analysis, macro this and that.”

It all brings me back to Vic’s good old theory on the “ever changing cycle,” as many smart people (again!) have been proven wrong since the post-2000 period.

Just as the crowd (doesn’t exclude investment banks’ analysts) got used to the new ‘99 economy of one-way price behavior (irrational only for those who didn’t participate!), and as (almost) everyone became a dot-com expert with a dot-com style language, the market began to … well, we all know the story.

Post 01′ everyone began to put their brain at work trying to adapt to a new environment (basically high volatility, one-way down with a few false starts). While the crowd finally repositioned away from equity into hedge-funds, bonds and structured products–there we go again: U-turn big time (low volatility, one-way up!). Most people found their portfolios on the wrong-side (again!).

Ironically, the best performers over the past three years have been the good-old fashioned money managers with a well diversified equity portfolio, watching their boring positions beat most hedge-funds (with a few exceptions) with probably much less work involved and more flexibility (liquidity).

This is oversimplifying of course, but somehow sadly true … and I can’t wait for the next cycle, as many investors are still stuck in real estate, hedge-funds and protected notes.


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