Barry Ritholtz
Barry Ritholtz
Barry Ritholtz is an American author, newspaper columnist, blogger, equities analyst, CIO of Ritholtz Wealth Management, and guest commentator on Bloomberg Television. He is also a former contributor to CNBC and TheStreet.com...
NationalityAmerican
ProfessionAuthor
CountryUnited States of America
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Despite all the media coverage, glitz and glam of hedge funds, they have not done well for their investors. They have high - some say excessively high - fees; their short- and long-term performance has been poor.
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Footage of people camped out at Best Buy or elsewhere is not remotely a celebration. Rather, it's a reminder of just how economically distressed a large percentage of our populace is.
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Hedge fund managers charge so much more than mutual fund managers; alpha is even harder to come by. They end up selling a variety of things beyond mere outperformance.
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Hedge funds are not especially liquid. Many are 'gated' - meaning there are only small windows when you can withdraw your money. They typically have a high minimum investment and often require investors keep their money in the fund for at least one year.
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Here is a dirty little secret: Stock-picking is wildly overrated. Sure, it makes for great cocktail party chatter, and what is more fun than delving into a company's new products? But the truth is that individual stocks are riskier than broad indices.
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Investing is about making probabilistic decisions with limited information about an unknowable future. The variables are well known, as are the possible outcomes.
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Investors tend to discover 'hot' mutual fund managers just after a successful run and just before the inescapable force of mean reversion is about to kick in.
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Often, investors will discover a manager after he's had a terrific run, usually when he lands on a magazine cover somewhere. Invariably, funds swell up with new investor money just before they revert to their long-term averages.
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Outcome is simply the final score: Who won the game; what numbers came up in a roll of the dice; how high did a stock go. Outcome is the result, regardless of the method used to achieve it. It is not controllable.
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Secular cycles are the long periods - as long as decades - that come to define each market era. These cycles alternate between long-term bull and bear markets.
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Truth be told, most financial television bores me. Two or more people discussing the latest economic trends or hot stocks is not especially entertaining.
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We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.
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What you pay for an investment is the single biggest determinant for how successful that investment will be. When equity prices are high, your returns will be lower. When they are cheap, your returns will be higher.
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With Twitter, you can build your own virtual trading floor and research department, populated by the smartest people on earth. Almost any subject or sector has you can think of, you can find a few people with an expertise in that area.