To Whom Should Investors Listen?
Currently, the global equity markets are passing through yet another volatile period. The dramatic drop in July and August has caught most professionals and private investors off-guard — leaving them wondering what is going on, how did we get here, where are we going?
The current common wisdom is that investors should seek out well-known investment professionals. The financial media is especially good at interviewing such individuals during periods such as this — when global markets move abruptly in a single direction. Such individuals offer plausible explanations and generally make investors feel better by reinforcing the beliefs that “current market conditions are unprecedented” and/or “nobody saw this coming”. Encouraged to make forecasts, they do, offering assumed structure to a difficult environment.
But, should investors take their advice? Such commentary is entertaining, informative, and thought-provoking, and offers guidance. But is that guidance any good?
Individuals, even highly specialized and professional ones, do a surprisingly poor job forecasting the financial markets. A few individuals naturally stand-out making great calls but over the longer term they tend to drift towards the average.
Especially during significant market slides, such as the 2007 -09 global equity bear market, even the cream of the financial crop, hedge funds, lost money, falling more or less in-line with the broader equity markets – as shown in the following image.
If during extraordinary periods in the equity markets, the best-of-the-best end up declining with the market, then an obvious question arises – “To whom should investors listen in difficult market environments?”
They should listen to themselves – not as individuals, but as an amalgamation.
In aggregate, society knows which direction the financial markets will move, as individuals they do not. The collective mood of society is reflected in its consolidated communication- such as the posts, commentary, opinions, and/or news that appear on-line. Through these communications individuals express how they interpret the world. Quantifying this information from many different sources, authors, and regions offers insights into society’s collective mood, which can then be used to determine investment strategy.
The S&P Global 1200, the first real-time investable global index, offers investors efficient exposure to the world economy. Capturing approximately 70% of the world’s capital markets, it is a composite of 31 local markets from seven headline indices, many of which are accepted leaders in their regions. While the returns of the S&P Global 1200 are available in U.S. dollars, the seven regional index components are priced each day in several major currencies.
Index is updated on the 15th or the next business day for the previous month. The Dow Jones Credit Suisse Hedge Fund Index is an asset-weighted hedge fund index derived from the TASS database of more than 5000 funds. The Index consists of funds with a minimum of US $10 million under management and a current audited financial statement. Funds are separated into primary subcategories based on investment style. The Index in all cases represents at least 85% of the assets under management in the universe. The index is rebalanced monthly, and funds are reselected on a quarterly basis. Index NAVs are updated on the 15th of each month. Methodology and additional information are available at www.hedgeindex.com.
Additional Entries...Negative Inversion — Bearish Trend
AmalgaMood’s Mood Index inverted on Friday May 31, 2013 and [...]Impact of Big Data on Financial Market Management Interview Series
Big Data is here is stay. Will people really stop [...]Big Data Innovation and Sentiment Analytics
The Battle of the Quants conference in NYC, and particularly [...]