A Complaint from the Peanut Gallery
My reader [sic] complains that the OldProf is not offering any easy answers. He is too pedantic. The ideas are too complicated. Even if I point out errors that represent market inefficiency, there is no easy way to profit.
First off, I am writing down my observations about the market because there is a book there somewhere and I would never write it in the traditional sense. I have a few main themes.
- Individual investors do a poor job — proven by behavioral finance literature and many studies. This is not new.
- Wall Street professionals work with a major handicap. They must satisfy ill-informed individual investors in the short run. If they do not, they lose investors, or their jobs, or their subscribers. They are forced to act as if they are in tune with the current market even if that is statistically impossible. This is a new idea, I think, and one that I will develop further.
- Big money mangers wind up chasing performance, doing window dressing, and using models that only cover the last few years because that is the only way to attract funds from ill-informed investors. The most frequent question of an investor is "How are you doing this year?"
- Actual investment results from brilliant theoreticians and managers may lag for a signficant period of time — longer than the patience of investors and bosses.
In short, there may not be an easy answer, but there might be some answer. That is where I am going with this blog to be book. I am mostly writing for this purpose. When I get around to editing the pieces, I will aim it more carefully at the individual investor. For now, my reader will just have to consider the pieces.