January 11th, 2012
Time have been tough for hedge fund managers, big and small. John Paulson, for example, needs to generate a 104 percent return to recoup a 51 percent drop in one of his largest funds after wagers on a U.S. recovery went awry. Until he hits that mark, Paulson will have to forgo his 20 percent performance fee, and will collect only his 1.5 percent management fee. According to the San Francisco Chronicle,
“Hedge funds are on track for their second-worst year in more than two decades. They’ve dropped 7.6 percent from their peak asset value in April, according to Hedge Fund Research. At the end of the third quarter, about 30 percent of the 2,000 funds that make up the firm’s benchmark index were below their so-called high watermark, or previous peak value.”
That’s the herd but what’s happening to the individual investor? According to the NY Times, in an article entitled “Small Investors Recalibrate After Market Gyrations”,
“small investors withdrew hundreds of billions of dollars from American stock funds, and they kept bolting as the market rebounded sharply for much of last year….The timing for those people was off, and now they are being buffeted by the steep drops on Wall Street or bailing altogether. Still others who have been holding on in recent years have had enough.”
Some investors fear that the markets have become dominated by high-frequency traders blitzing in and out of stocks, or by sophisticated hedge funds running mind-bending algorithmic trading programs that can outsmart the ordinary investor. After years of underperformance or losses, some individual investors are questioning whether the long-term outlook that has been drilled into them by Wall Street financial advisers and professionals is really the best advice.
As reported on Yahoo! Finance, “The WSJ says all this volatility is detrimental to the markets … Plus, the swings scare off individual investors, leaving only the big players on the field.”
But the high volatility and lack of trend is a double-edged sword for us financial bloggers. Not only do we struggling like other individual investors to make a reasonable return on our own investments but we also suffer because so many individual investors have thrown up their hands and resigned themselves to sitting on the sidelines or exiting the market all-together and are, therefore, in no mood to plunk down a membership fee.
But having abandoned the market, those individual investors aren’t aware that what we may be witnessing is the withering end of a secular bear market that’s held us hostage for the past 12 years. By remaining uninterested, uninvolved and uninformed, those investors could run the risk of missing out on the quickest and most inclusive of all stock market moves … the exit from a long horizontal trading range.
Rather than turning away, investors should be now looking for the most reliable and objective source for market timing. I believe with our proprietary Market Momentum Meter, the Stock Chartist blog is answer.