By DAVID MOON, Moon Capital Management,
July 13, 2008
Three months ago, 42
percent of money managers surveyed by Russell Investments believed U.S.
stocks were attractive. After the Dow Jones Industrials declined 7.44 percent in
90 days, you might have expected some managers to find more stocks
Not so. The percentage of bullish investors dropped 10
percentage points, to 32 percent.
So much for the buy-low part of "buy low, sell
Three months ago, health care was the most popular
sector, favored by 71 percent of the surveyed managers. After the S&P 500
Health Care sector declined 1.73 percent last quarter, only 54 percent are now
bullish on the group.
Have you ever seen a school of fish swimming along
together, and then all make a single change in course in unison? That's Wall
Except that the managers on Wall Street get paid huge
fees for their supposed independent thinking and insightful
Index funds typically charge low fees because they don't
actually manage anything at all. These fund sponsors readily admit mimicking
someone else's stock picks.
But plenty of other advisers and fund managers mimic
other investors without admitting it − either to their clients, themselves, or
both. Perhaps they think they are making independent rational decisions when
their emotions are actually in charge.
Emotions impel some irrational things, like trying not
to be different, not to stand out from the crowd.
Even if you agreed with the process of the herd-like
managers highlighted in the Russell survey, it would be difficult to actually
implement their advice. They don't like stocks. More of them are bearish.
What's more, fewer of them like Treasury bonds than 3
So if you sell your stocks and bonds, where should you
put the proceeds? Only 24 percent of the surveyed managers favored cash, a
decline of 22 percent from the first quarter.
Oil futures? What investments are
In late June, the Wall Street Journal headlined a story
on the Russell survey "Money Managers Turn Bearish." That hardly seemed like
news, since June was the worst month for stocks since September
The survey detailed changes in investor expectations
about a number of different asset classes and sectors.
The article didn't reveal, however, that the easiest way
to predict institutional expectations about a particular asset class was simply
to take recent changes and extrapolate them.
The 335 professionals interviewed didn't appear terribly
sophisticated in their forecasting techniques. If something had gone down
recently, more of them expected it to continue to go down. Same thing if it had
Make room on the bandwagon,
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).