“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffett
Bear markets and steep corrections reveal the bad actors.
The recent market schmeissing has uncovered these market Fugazzis. I have in the past (and in today’s opening missive) hit these bad actors hard because of the damage they deliver. But, like Warren Buffett, I prefer to criticize by category and not by the individual. We should learn from this reveal in order to better navigate the market’s noise going forward:
* Corporate managements who never met an outlook they didn’t like. In my more than four decades I have interviewed hundreds of managements and observed, in the business media, thousands more. I can not recall one management in my career who had negative observations about his/her company’s secular growth prospects. To paraphrase the Oracle of Omaha again, “corporate managements often lie like ministers of finance on the eve of devaluation.” [Treat their incessant optimism, in the future, with skepticism. Watch what they do (e.g., insider buys) not what they say.]
* Business media moderators who have no skin in the game and are quick to criticize when an investment professional makes an investor boner – reminding me of a wonderful (and oft repeated) quote by Mickey Mantle, “I never knew the game of baseball was so easy until I entered the broadcasting booth.” (There are plenty of value added moderators on the three main business channels, but turn off the channel when these bad actors appear.)
* “Talking heads”– guests who parade in the media – and too often make smug observations and confident market forecasts. Like the bandleader Johnny Mercer they emphasize the positives… but deemphasize or “sweep under the carpet” the negatives, in an attempt to gain viewership, raise their assets under management and/or sell you a service. (Don’t fall for their gambit.)
* The “special sauce” guys who have a special formula to beat Mr. Market. The most venomous are the “unusual call activity” crowd – a constant diet of which will end most up in the poor house. Most have little skin in the game. But, importantly, their consistent failure to memorialize the results of their recommendations is testimony to the mug’s game they use as a “hook” to snare the unsuspecting. I have contempt and little respect for those that show the “rolls” of their winners and too often ignore their trades that go to zero (e.g. out of the money calls bought on (ROKU) , (SQ) , (AAPL) , (TSLA) , (NFLX) , (GS) and many other high beta stocks of that ilk that have recently collapsed).
(There is no special sauce. I give these players – with limited accountability and selective disclosure – no respect at all – for basically trying to deceive the individual investor.)
* “Long only” investors who rationalize poor performance in a steep market decline to their “charter” and take credit for good performance in a broad market advance. (They will reappear in the next up cycle – ignore them and remember ‘what they have learned from history is that they haven’t learned from history.’)
* The hedge fund community that is again, despite a sky-high fee structure, underperforming the S&P Index.
* Leveraged players who dramatically underperform when the tide goes out and exhibit superior returns when the tide comes in. (They mostly will be entirely wiped out and typically will never reappear – as they have likely changed careers.)
* Market strategists who parade in the business media, like self professed investment icons, when the going is good – only to disappear at the end/close of every Bull Market when the seas get rough. (They, too, will return in the next cycle but hide your children and your portfolios from them.)
“When we ask for advice we are looking for an accomplice.” – Saul Bellow
The investment mosaic is complex and Mr. Market is often unpredictable.There is no quick answer or special sauce to capture the holy grail of investment results – it takes hard work, common sense and the ability to navigate the noise.
The common thread of these naked swimmers are self confidence, smugness and the failure to memorialize their investment returns (because the typically are so inconsistent and dreadful).
They are bad and deceptive actors who are in denial to themselves and are artful and accountable dodgers to the investing masses.
“In my next life I want to live my life backwards.” – Woody Allen
Take Woody Allen’s advice (above) – be forewarned and learn from history as common sense is not so common as:
“A nickel ain’t worth a dime anymore.” – Yogi Berra
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Doug Kass, since 2004 Doug Kass has served as President of Seabreeze Partners Management, Inc. He runs a hedge fund and individual managed accounts, co-authored “Citibank: The Ralph Nader Report” with Ralph Nader and the Center for the Study of Responsive Law in the 1970s and wrote "Doug Kass: A Life on the Street" two years ago (John Wiley). Since 2003 Mr. Kass served as a guest host on CNBC's "Squawk Box" and has guest hosted Bloomberg's "Market Surveillance" for the last five years. Along with Jim Cramer, Doug is the principal contributor to Real Money Pro.