PROFESSIONAL WALL STREET AND PORTFOLIO MISMANAGEMENT 101
This market of ours. This enigma that disallows any real understanding of its intentions until it is ready to shape shift entirely. The endless puzzle that attracts hungry, testosterone driven individuals that want nothing more than to be on the winning side of the trade. Every. Single. Day.
It has taken on a new shape recently, this market of ours. A grinding, relentless bull market that seems perfectly content in a near death defying tightrope walk 600 feet up in the air, while curious onlookers from both the bull and bear camps gasp every time it wobbles or twitches. For all that wobbling and twitching, the stuntman that has become the current bull market simply presses on until it reaches points unknown at a time unknown.
It is none of any of our business to attempt to determine when the tightrope walker is going to plunge to his death by throwing money behind the idea that it will happen tomorrow or next week or next month. That act of taking a financial stake in the end of the walk up the tightrope misses the whole point of being involved in the act in the first place. That point is to, of course, profit to the maximum extent possible from such moves. Profitability doesn't occur by running away from the market at the first sign of an uptrend. Yet that's what a majority of those I have witnessed seem to be doing.
Even the so called professionals, who eagerly pontificate about the markets on a daily basis, seem to have forgotten the fact that allowing profits to run without interference from all the sources of noise available to investors today is the key to building wealth for yourself and your clients. It is as fundamental and old school a concept as sandals and the crooked toes that go in them.
But alas we must not forget that the current generation of market professionals has been conditioned, no differently than a circus monkey, to perform the trick of selling rallies at every opportunity. The average fund manager has forgotten that markets do trend because over the past 13 years that have gone absolutely nowhere. Too many times profits have turned to losses. Losses have turned into disasters. Whipping boys no more, an attitude of preservation through quick fingered execution of profit taking, hedging or selling short has replaced a more patient approach.
I say poo poo on you average fund manager. Without two pounds of Suave firm hold styling gel, the leash you wear around your neck to display your subservience to the all mighty dollar and the deep voice you have constructed to cover up your insecurities, your ability to decipher the various nuances of the financial markets are no better than a Gelada monkey attempting to decipher the nuances of a horses ass. Rarely successful but always colorful.
Perhaps I am being too harsh. It has gotten to the point, however, where former fund managers who became some of the world's richest individuals are turning up their noses at the new group of professional participants in the industry that have been able to accomplish little in the way of absolute returns during a 13 year period that absolutely needed a group of heroes. A Justice League of finance. Instead we got crickets.
The point of this diatribe is that very simple: Tried and true rules work in finance. A suit, tie, hair gel and Florida tan are not necessary to realize this simple fact. The act of allowing profits to run in bull markets. The act of cutting losers short in bull markets. The act of allocating properly to winners and away from losers. The act of having a method of risk management that leaves nothing to question. All of these rules of finance work.
Professional Wall Street has done a wonderful job of being absolutely ordinary by becoming conditioned to ignore these rules in the favor of group think and a professional herd like philosophy. The professional of today constructs a portfolio that is an overly-diversified web of mid and large cap names that function exactly as the S&P 500. The only caveat is that the market timing talents of the fund manager actually cause the portfolio to underperform the S&P 500, as the manager pulls the "risk off" trigger at the least opportune times and puts risk back on at the equally inopportune times. Portfolio mismanagement 101.
Winners are cut short. Losers are free to flop in the wind. Risk is controlled, but in a manner that is sloppy and detrimental to the creation of gains. A long road to nowhere.
I've said enough. Goodnight.
