A couple of months ago I was about to start an “other blog” (as Google calls it), this one on philosophical reflections on the stock market (PhilStock), but as I cannot even keep up one blog, I wisely discarded that idea after a single post (on high speed trading). So if I dip into that area on this blog, I will warn readers with the “Phil Stock Blog” tag[i]. First and last rule on PhilStock: Never listen to anything I say about the stock market.
It’s a bizarre kind of comfort to see that stock analysts are much less inclined to tout their skills ever since the crash (of 08-09), admitting that, at least with today’s crazy market, performance is more “the result of luck rather than skill”. Take the Financial Page of the latest New Yorker (“Year of the Yo-Yo”, Jan. 16, 2010):
“As myriad studies have shown, investors often put their money into funds that have enjoyed recent success and take it out of funds that have been struggling. This seems logical, but, since most of a money manager’s performance, particularly in the short term, is the result of luck rather than of skill, this means that people often end up in funds that are about to go cold and leave ones that are about to do better. …
Hedge-fund investors, though supposedly more sophisticated than your average Joe, pay a similar price for chasing performance. Investing in actively managed mutual funds or in hedge funds already reduces the chances of beating the market, since, according to Vanguard, over the past decade more than sixty per cent of actively managed mutual funds underperformed the S. & P. , while hedge funds have trailed the market since 2003. But the search for the hot hand takes a bad situation and makes it worse.
….Unfortunately, the same psychological forces that make investors bad at rating money managers also make them bad are market timing: all else being equal, they’re prone to sell at the bottom and buy at the top. And, the bigger and more dramatic the swings in the market, the more likely we are to make the wrong decision.”
I guess this justifies my holding on to some stocks which I regard as “rather promising losers”; notably, DO (Diamond Offshore), finally back over $60–the deep water driller that was integral to beginning this blog[ii]; DAL (Delta) over $9 for a change[iii]; STP (SunTech Power)—down around 3.20, just lost 50 cents today. If I was to predict risky targets for the year, maybe $75, $13, and $5-6, respectively.) I’m also holding on to FTR (Frontier) with its 15% dividend, now $5, predict $6.50? Remember, though: Never everlisten to anything I say about the stock market.
[i] Perhaps if we ever get a handle on this blog, it can be a separate “page”.
[ii] Note: it has a high special dividend, not shown with the usual dividend.
[iii] It’s been in the $7 range for quite awhile; had been $14.
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