Wall Street's Frankenstein Takes A Dive While Timeless Investing Ideals Re-emerge
Let's start this post with a quick review of the last three or four years as it pertains to the financial community and investing. There was no one I am aware of in the financial community talking about the risks in China, Russia and emerging markets until it was too late. After these markets imploded and investors lost a lifetime of savings, everyone on Wall Street was there to give an opinion. Even to rewrite history by telling us they anticipated such an outcome. The same can be said with small cap stocks, transportation stocks and commodities. Even within banking there were only a handful of concerned voices that were completely drowned out by the Wall Street herd. The voices of concern across the board were almost nonexistent until the markets crashed. And, may I ask how is that actionable advice or intelligence? Did these voices save any of their client's portfolios? Did they accumulate cash to take advantage of the repricing of risk that was ahead? Did they protect the livelihood of their clientele needed to weather this economic tsunami?
What we did see were a handful of people willing to embrace timeless investment ideals and underlying economic values. Not many were associated with Wall Street but instead most were free thinkers on the fringe of the system. In fact, all but a handful of people expressing very serious concern leading up to this crisis don't even work on Wall Street.
My point is that actionable intelligence or advice is nearly nonexistent on Wall Street. That is, until it is too late. This is something we have discussed often on here. It's easy to be an expert when you can look in the rear view mirror and see a particular market or investment has collapsed. But, how has that helped one's clientele? There are many voices now stating that they expressed concern in some attempt to protect their pocketbooks or careers. Yet, an analysis of reality paints a very different picture.
There are many conclusions we can draw from this. As it pertains to this post we can conclude long term active money management is generally a very shaky proposition at best. Numerous studies which back out many of the false data used to support active money management concludes active money management is just about worthless. The vast majority of fund managers underperform their benchmark indices. 80-90% is probably an accurate metric from unbiased studies I have read. And, active fund managers always charge substantially higher fees than a passive fund while consistently underperforming. These fees contribute to the delta in underperformance. In other words, these fees perpetuate a system that is broken. That could never consistently happen in a free market where underperformance would be punished. I don't care if that refers to an equity or bond hedge fund, an equity fund, a commodities fund, a balanced fund, an alternative investment fund or a bond fund. There are obviously a few exceptions. Those exceptions are typically firms marching to their own drum beat. Free thinkers who deploy a blend of money-making creativity and substantial knowledge of fundamentals. Because they are drowned out, we seldom hear of them.
It was no coincidence Warren Buffet built a war chest of $50+ billion in cash we highlighted on here while the world was partying. It's also no coincidence Buffet prefers to lead a life where he remains in touch with average Americans. While living in a modest house in a regular neighborhood may seen absurd for the wealthiest person on earth, it misses the point. Living outside of Wall Street's bubble sharpens his edge. It hones the blade by which he punishes his competition. And, it is strictly a competition. A competition whose outcome directly impacts your survival. Those that embrace competition and free markets are often the best investors because they are willing to make the investment required for investing excellence. Remember, the dulling of the blade for most who are at the core of this crisis is a timeless reminder of why value investing and its timeless ideals should never lose favor. How many investment professionals could really explain value investing principles as described by the master, Ben Graham? Or his protege, Warren Buffet? And, do so in the detail necessary to qualify them as successful investors? Then actually practice these ideals?
MarketWatch highlights a small cap fund manager who sharpens his edge with the timeless principles of value investing made popular by the greatest investor of all time, Ben Graham. While Wall Street was blowing all of their cash at the very peak of a major cycle top, this fund manager was building his war chest of cash based on actionable intelligence. On timeless truths. Very, very few can actually walk the talk when it comes to the great discipline required for value investing. For the only true method of successful investing. I wrote on here long ago that only fundamentals-based investment knowledge would provide a safe haven in Wall Street's mad world of quantitative Frankenfinance. How true that has become. We live in a world where Graham's principles have been chucked to the curb like a bad habit. Instead I still hear the mindless blabber of physics majors using financial derivatives to hedge factors they don't understand. And none of them can spell economics, sociology, timeless investment ideals or fundamentals. What we see on Wall Street isn't science. It's voodoo backed by funny math.
For all of the tens of billions of dollars spent building an edifice of bloat we call quantitative finance, it was only the timelessly tiring work required to understand fundamentals that have saved investors. A refreshing article espousing many true values of great investing - the lost art of value investing. Congratulations to someone who embraces investing excellence. Congratulations John Deysher.
What we did see were a handful of people willing to embrace timeless investment ideals and underlying economic values. Not many were associated with Wall Street but instead most were free thinkers on the fringe of the system. In fact, all but a handful of people expressing very serious concern leading up to this crisis don't even work on Wall Street.
My point is that actionable intelligence or advice is nearly nonexistent on Wall Street. That is, until it is too late. This is something we have discussed often on here. It's easy to be an expert when you can look in the rear view mirror and see a particular market or investment has collapsed. But, how has that helped one's clientele? There are many voices now stating that they expressed concern in some attempt to protect their pocketbooks or careers. Yet, an analysis of reality paints a very different picture.
There are many conclusions we can draw from this. As it pertains to this post we can conclude long term active money management is generally a very shaky proposition at best. Numerous studies which back out many of the false data used to support active money management concludes active money management is just about worthless. The vast majority of fund managers underperform their benchmark indices. 80-90% is probably an accurate metric from unbiased studies I have read. And, active fund managers always charge substantially higher fees than a passive fund while consistently underperforming. These fees contribute to the delta in underperformance. In other words, these fees perpetuate a system that is broken. That could never consistently happen in a free market where underperformance would be punished. I don't care if that refers to an equity or bond hedge fund, an equity fund, a commodities fund, a balanced fund, an alternative investment fund or a bond fund. There are obviously a few exceptions. Those exceptions are typically firms marching to their own drum beat. Free thinkers who deploy a blend of money-making creativity and substantial knowledge of fundamentals. Because they are drowned out, we seldom hear of them.
It was no coincidence Warren Buffet built a war chest of $50+ billion in cash we highlighted on here while the world was partying. It's also no coincidence Buffet prefers to lead a life where he remains in touch with average Americans. While living in a modest house in a regular neighborhood may seen absurd for the wealthiest person on earth, it misses the point. Living outside of Wall Street's bubble sharpens his edge. It hones the blade by which he punishes his competition. And, it is strictly a competition. A competition whose outcome directly impacts your survival. Those that embrace competition and free markets are often the best investors because they are willing to make the investment required for investing excellence. Remember, the dulling of the blade for most who are at the core of this crisis is a timeless reminder of why value investing and its timeless ideals should never lose favor. How many investment professionals could really explain value investing principles as described by the master, Ben Graham? Or his protege, Warren Buffet? And, do so in the detail necessary to qualify them as successful investors? Then actually practice these ideals?
MarketWatch highlights a small cap fund manager who sharpens his edge with the timeless principles of value investing made popular by the greatest investor of all time, Ben Graham. While Wall Street was blowing all of their cash at the very peak of a major cycle top, this fund manager was building his war chest of cash based on actionable intelligence. On timeless truths. Very, very few can actually walk the talk when it comes to the great discipline required for value investing. For the only true method of successful investing. I wrote on here long ago that only fundamentals-based investment knowledge would provide a safe haven in Wall Street's mad world of quantitative Frankenfinance. How true that has become. We live in a world where Graham's principles have been chucked to the curb like a bad habit. Instead I still hear the mindless blabber of physics majors using financial derivatives to hedge factors they don't understand. And none of them can spell economics, sociology, timeless investment ideals or fundamentals. What we see on Wall Street isn't science. It's voodoo backed by funny math.
For all of the tens of billions of dollars spent building an edifice of bloat we call quantitative finance, it was only the timelessly tiring work required to understand fundamentals that have saved investors. A refreshing article espousing many true values of great investing - the lost art of value investing. Congratulations to someone who embraces investing excellence. Congratulations John Deysher.
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