You Don’t Need A PhD from Harvard To Pick Stocks Right by Sara Grillo, CFA, President at Grillo Investment Management via LinkedIn
I’ve recently decided to stop writing, and more importantly, to stop reading, blogs with titles like, “Where Stocks are Headed this Year” or “Global Economic Forecast”. In my decade of experience with the markets I’ve found there is no way to predict the economy. If there were, somebody other than Abby Joseph Cohen of Goldman Sachs would have figured it out by now. Actually, Nouriel Roubini was the only one who predicted the global collapse of 2008, but he hasn’t done anything notable since. If you needed a PhD in economics from Harvard to know how to make money in the stock market, then why is it that many of the best investors are the least book smart? Contrary to what the rest of the world thinks, investing money is not an intellectual activity.
From what I’ve seen, investment success is negatively correlated with intelligence. Why? Because the people who have the courage to buy when the market is truly down, instead of sell, and sell when the market is high, instead of buy, have to be seriously backwards people. They have to be stubbornly arrogant and semi -delusional to believe they are right to run into the burning building when everyone else is running out. An intelligent person would let their logic interfere with that decision.
There are many people earning a living as economists. They make a prediction about the direction of the world economy, and then most of the time the opposite comes true. And they never get fired, which I think is unfair. They generally have a less than 50% success rate in predicting what is going to happen. If my dentist took out the wrong tooth 1 out of 10 times he did surgery, he’d be shunned, sued, lose his license, and go broke, in that order. If Mi Amor Antonio missed his sales quota even 2 out of 7 days he went to work, he’d be fired on the 8th day. But these economists dress up in their Zegna suits and stand up making a slide presentation at these conferences and sound smart when they talk, so they get to keep their jobs. Yet they have zero accountability for what they say. Unbelievable.
In some ways, though, I am very glad that the economists with their heads in the sand missed the coming of the 2008 crisis. The collapse was very good for finance because it cleared out all the junk like these sham hedge funds. I especially despise the ones who proudly recited the famous tagline “our fund exhibits stock like returns with bond like volatility.” What does that even mean, anyways? What number exactly does stock-like return represent? What standard deviation qualifies as bond like volatility? And how could some instrument that is neither a stock nor a bond possibly in heaven’s name act like both at the same time? What is it, magic or something? The statement is too stupid for words. Most of those hedge funds were casualties of the 2008 market collapse and the people who worked at them are now selling portfolio analysis software or index data subscriptions to put their kids through college.
Remember the days when Moody’s thought they had it all figured out? Right, until they discredited themselves by failing to acknowledge the spectacularly high levels of debt hidden on corporate balance sheets of every major corporation that they covered. Probably because the subject companies themselves were the ones paying Moody’s a fee for the analysis in the first place. What I want to know is this. How come that doesn’t work with speeding tickets? How come I can’t pay for the judge’s lunch the day that I get taken to court for my speeding ticket. Because in the real world it doesn’t work that way.
In summary, I think that these overly intellectual economists have no place in the practice of investment management. The crisis discredited them all in my view. Good. Burst, bubble, burst! Let them all go and get real jobs like the rest of us where they are held accountable for what they do, instead of spewing their senseless babble into the universe and making the stock market a La La Land.