Thursday, December 16, 2021

"Hissy Fits in Both Directions"

image: Wikimedia commons (link).

The algorithmic market in which we live:
We have been seeing bouts of wild volatility -- in both directions -- separated by periods where markets go basically nowhere. It is clear that there is no fundamental reason behind this behavior but rather the fact that the humans have basically handed over control to algorithms, like a Tesla-owner letting go of the steering wheel, but the auto-pilot doesn't drive very effectively.
Fed rules the world?
In our many decades of professional investment management, it never ceases to amaze us how the markets hang on every word from the Fed. Last we checked, the Fed wasn't in charge of any of the businesses we own for our clients.
Hissy fits in both directions:
The conventional wisdom and various media market commentators are spewing out memes which are shallow and not well-informed, from "small-caps will get hurt in this environment" to "value is outperforming growth today" to the general "risk on: risk off." If you are trying to manage capital based on chasing those kinds of ignorance, heaven help you. We follow the mantra: "Be centered, be still." On days of non-fundamental volatility, we typically wouldn't make any changes.
Everyone is pushing portfolio management "into a box"
They want to categorize companies -- and managers -- into little boxes and try to guess which category is going to go up today. Why would anyone want to be so reductive and shallow? Because no one wants to make investment decisions based on business fundamentals anymore! This situation provides an opportunity for those who are willing to take the time and effort to do the fundamental work.


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