Somewhere in the middle of the bear market I did wonder whether as someone who dabbles in stock picking I should try to short the market, go long my picks, and pocket what financial types call the ‘alpha’ – the difference my stock picks make to returns. But as my head says a tracker would be better and my stock picks are likely to under perform – and as and my stomach would lurch at the leverage required to generate equivalent returns – I’ve shelved the idea again.

I entirely agree that this is the reason for the recent popularity of Absolute Return funds.

What Buy-and-Hold advocates miss is that it was the stock market gains we saw in the 1980s and 1990s that made Buy-and-Hold strategies popular. It works the same way at both ends. We had 20 years of promotion of one irrational idea and we now are in the early years of promotion of an idea that I think can fairly be described as equally irrational in the opposite direction.

The Buffett quotes point us in the direction of rationality, in my assessment. When everyone else is greedy, be fearful, and when everyone else is fearful, be greedy. When everyone else believes in what the Buy-and-Hold people say, check out what the Absolute Return people say; and, when everybody else believes in what the Absolute Return people say, check out what the Buy-and-Hold people say.

It’s the emotional extremes that you want to avoid. What makes it hard is that all this stuff has to be marketed and marketing pitches always focus on the emotions. That’s so whether the thing they are selling is Buy-and-Hold or Absolute Returns.

Rob

Forget it. Shorting is something very few can do profitably. This is purely a marketing ploy. The funds know they suck, they just want to sucker some investors….FWIW