Ha, I wish. I haven’t been investing long enough to have a track record yet.
A+ observations/analysis of the situation. You’ve basically got the industry figured out. My observation over the last 15yrs has been that investment mgmt people are NOT actually interested in being good at investment management. This was quite shocking to me at first, but now it’s just something I’ve come to expect from the industry. But if they aren’t interested in investments/markets what is their interest? Their interest is careerism and image-crafting. And in order to succeed in their career they need to create the perception that they SHOULD be good with investing, not actually BE good. This involves image-crafting “I went to this school, I use big words that don’t mean anything, look at my shiny shoes, I might be a genius, you need to invest with me”. This “bigshot image” is the key ingredient in succeeding in their career-ladder and social-ladder climbing interests. They put effort into a goal, and they acheive that goal. Okay good for them, but what about the investors, when does the actual paying fucking attention to the market and investment portfolio happen? The answer is it doesn’t. Actually paying attention and beating the market is way on the back-burner. Just do whatever everyone else does. They spend more time making up excuses for why they almost always underperform “well, on a risk adjusted basis…”. 
And now the positive side – these careerists aren’t even in the same profession as the serious skilled tradesmen. Two totally different professions, with the careerists managing all the big money, and thus being the market. In the US, when we say “the market did whatever”, that’s them. And so there is our opportunity to outperform; just beat these dipshits. 
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” ― John Maynard Keynes, The General Theory of Employment, Interest, and Money The question really ought to be broken down into how investment manager differ depending on whether they serve mass retail, high net worth, and institutional fund managers, but to go into it in depth would require hyperlocution beyond 140 characters that would probably lose market share, hence the naked bust of Aristotle above.
Ackerman is an idiot that only gets mentioned in any performance based context because he spends so much time blustering on TV.
The idea posted above that there’s any level of correlation between amount of detail in a research peice and its accuracy is probably the biggest sell side fallacy. Beyond that, what you see in any buyside note or analysis you come across vs what went into it are two totally different and unrelated concepts.
There are plenty of amazing investors out there. They just aren’t the ones you see blabbering on TV or managing massive funds, they exist quietly out of the spotlight with a likeminded investor pool.
YES! I liked the whole post, but this was the best part.
There is a lot of energy put into making a case for “why” something “should” happen, rather than simply getting right what will happen (with no case for why).
^ So you can tell us what will happen, but may have no idea why that would happen? Do you use classic astrology or tarot for your portfolio? I agree with you that talking heads go on way too much about why the future will be what they think it will be. But what you’re telling me is you know what will happen, better than they do, but don’t know why. That’s insane.
Having an idea why, and explaining it to a bunch of dipshits are two different things.
Nope, but congratulations on demonstrating more small-minded conclusion-jumping. Putting time into being right, and putting time into making up reasons why you should be right, are two different things. People tend to get good at what they focus on.
The proof is in the pudding.
+1
I mostly agree, but it’s interesting to think about why the fallacy is so easy to fall into.
Presumably it has to do with hindsight bias: every time there is some huge up or down movement in a stock, we try to explain it with some kind of story. Usually that story goes back and looks at some event that may or may not actually have been the motivator. Then we assume that anyone following the company in sufficient detail would have been able to spot that motivator and acted appropriately. So we think that the highly detailed articles are more likely to be right than something more quick-and-dirty on a day to day basis.
The problem is that it isn’t just an issue of the number of details. Some details end up being important, and some don’t. So the accuracy gets messed up because although the more details we have, the more chance that we have found a relevant detail, it also suggests that the more details we have, the more chance we have to be distracted by what is ultimately an unimportant one. So I guess this is where experience and some optimal level of detail comes in handy.
Also, it’s worth noting that in hindsight, the explanation that people give for a pop or a drop may have nothing to do with what is actually driving it. Or that the catalyst is just something that makes something previously known suddenly seem more salient.
Just a hypothesis here… do you guys agree or disagree?
I buy into the whole hindsight narrative bias but I don’t think that’s the issue here. It’s much more simple than that.
Basically two factors:
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In the absense of other info, users of research look at all the fancy complexity and “value add” analytics and say, “Wow, these guys really know what they’re talking about” in the same way they nod along at a mathemetician rattling on on about his latest alpha seeking algorithems, an economist confidently blabbering about monetary policy or a healer talking about holistic remedies.
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It’s a matter of overconfidence. I cover commodities. Every once in awhile I’ll run into a PM that wants a detailed cash flow model of a firm exposed to about two dozen market forces and I categorically tell them no. Simply because it’s counter productive. It creates a false narrative that causes people to anchor and I refuse to go down that route for the same reason some Pentagon officials have banned powerpoint. It limits the natural range of thinking around outcomes by providing a narrative. If you need a detailed and concise model to assign a value to a commodity producer, particularly at a time like this, then you should not be investing in the space. But the sell side will model away with 50 variables on someone like FCX with an abysmal predictive track record because they are obsessed with being precisely wrong. The fact is that at any given time in most macro exposed industries, there are really like 3 drivers that dominate and all those little “details” you’re alluding to get washed out. Adding variables only dilutes the noise to signal ratio by overcomplicating things. If you can isolate 3 or 4 key drivers and focus on getting them right (which is often far less complicated than sell side witch doctors (that have never actually had to invest) make it out to be (by adhering to discipline and common sense fundamentals) then you’ll have a far better result.
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I hate not having edit, it really negatively impacts my ability to go back and clean up a post like this (which I often do after writing it). Anyways, just read the first point as “marketing”.
You’ve been a baaad baad boy!
JK, we’re looking in to why this is happening. Meanwhile, I declare victory over anyone who gives a f-.
Technically they are called “Sheeple”
I’d take it further and say that there’s also a fallacy in the industry that there’s a strong positive correlation between the amount of time spent researching a company and the validity of that research. There is up to a certain point but it tails off.
I totally agree about hindsight in ss research, basically it’s just a case of coming up with a very short term forward looking projection and then being able to justify with a story why what happened in reality was different from your projection.
Back to original point on herding mentality: it’s unfortunately just the way things are. ultimately, you need to understand the herd as you need them to herd into your view. If you have an incredible insight on a company and nobody ever agrees, was it ever really insightful? Yes you can be a contrary motherfecker as much as you want but you need to be aware of the consensus view within ss, even if just to laugh at them.
“Google with the same market cap of McDonald’s (a stock I own)?! HA! I believe that it is virtually certain that Google’s stock will be highly disappointing to investors foolish enough to participate in its overhyped offering – you can hold me to that.” - Whitney Tilson.
This guy returned cumulative 3.0% since 2010 when S&P is up 97%, how can anyone let him manage their money?
Exactly, this is how you beat the market. You have to understand how these herd-people (the market) think, and what they think, then form an accurate view of reality, look for large differences between what the herd thinks and reality, preferably differences which will correct over the short/medium term.
Of course this only works when you have no investors LOL. Since investors ARE the herd, if they were capable of understanding the delta between reality and their perceptions, they wouldn’t have those perceptions.
I would say fortunately!
I’m outperforming Ackman 33% YTD. LOL, what a douche…he should just give up, retire the fund.
^As are thousands of chimpanzees. Are you up at craps too?
That’s probably Ackman’s strategy, “shrug, roll the dice”.
“Let’s hold 20% of our portfolio in a 150P/E pharma stock and see what happens…”.