Of course, the second half often runs: “…not as I do.”

For many Wall Street operators, it would appear that this famous nostrum has been truer than ever during the financial crisis. While big name financial gurus from blue chip financial firms exhorted the masses to stick with the program (ie. “Buy and Hold”), it seems that many have been implementing a different strategy: “Duck and Cover” perhaps?

This week, one of the Wall Street Journal’s reporters dug around into what some high powered investment types were doing with their money. From this article, it would seem that many big name financial executives do not bother shopping at their own firms for investment advice. It is a good article which could have ended with a well thought out Caveat Emptor.

However, it does not.

Ironically, the most telling line in the article comes towards the end:

“Should our 401(k)s follow Wall Street’s finest into the low-yielding safety of cash and bonds? Not according to the experts.”

It goes on to explain that “they” live in another world where capital preservation is important while you, dear reader, and I had better get comfy with the volatility at the whip end of the risk curve.

What does this mean for investors?

Essentially, it boils down to three choices:

  1. Shut out all the noise and invest in tomorrow’s winners.
  2. Continue to listen to what “Wall Street” says.
  3. Watch what “Wall Street” actually does.

If you know what tomorrow’s winning investment is, by all means ignore the rest of us and get to it. Bill Gates, Steve Jobs, Warren Buffet and George Soros did not amass their billions by broadly diversifying their investments.

Good luck and I may even buy your book in 10 years time.

The only exception to my good wishes is for gold bugs. My email box is full of “Doom and Gloomers” who tell me that Gold is the answer to all my problems mainly because the trade has worked well over the last 10 years. For the more fanciful forecasts ($6,000 an ounce), alot of very bad things need to happen. So, from my own selfish motives, I hope that their vision of the future does not come to pass.

But, if you are like most of the rest of us, you have to be honest and admit that you are not certain what the sure fire investment of tomorrow is.

For the great majority of us, we have to choose from options 2 and 3. We either listen to what the experts say or we watch what they do.

What is wrong with listening to the experts?

When the markets are undergoing a secular bull market (as they were in the 80’s and 90’s), listening to the experts is fine. Everything is going up and we are all making money. That is the point of investing…to make money. If listening to the gurus in a raging bull market gets you to that goal, who can argue against it.

However, we are not in a raging secular bull market right now.

Right now, it is more important to watch what the experts are trading. That is where the gurus are actually placing their bets with real money. Does that make them right? Well, yes and no.

Yes, it does make them right in the short and medium term because most financial markets are dominated by institutional players (from 80% to nearly 100% of daily turnover).

And No, in the long term the herds of institutional investors who have chased the 10 year Treasury bond to 2% (now back to 2.25%) are obviously not thinking rationally about the most likely course of inflation between now and 2021.

The premise of the Fund King System is that it allows you to “see” the strength of the various market sectors today so that you can make a rational investment choice based on where capital is being deployed.

The choice is yours: do as they say or do as they do.

I know what I am going to continue doing.

If you want to see what the system is telling us, go to the ETF Top 20 Page. The financial press will tell you that the “risk trade” is back on ahead of Mr. Bernanke’s Jackson Hole speech. The Fund King System has been telling a different story for several months. There will be a change at some point and we are fully prepared to miss the absolute bottom by a few weeks. But, we have “preserved” a fair amount of capital since the end of April by paying attention to what the system has been telling us.


Tagged with:

Filed under: Uncategorized

Like this post? Subscribe to my RSS feed and get loads more!

Possibly related posts