Recently, Art Cashin, the UBS Director of floor operations, told CNBC that "...the market can't make up its mind whether it wants to make one more try" for the DJIA to reach 20,000. I'm no fan of Mr. Cashin and his fellow pundits featured on CNBC. I find their "observations" meaningless musings, of no value to investors, and with the potential to cause significant harm to those who rely on them.
An opaque track record
On November 8, 2016, Cashin peered into his crystal ball and "warned" that a Trump victory and a Republican sweep of Congress "would be a slight negative" for the market. According to Yahoo Finance, on that date, the DJIA closed at 18,332. On January 6, 2017, it closed at 19,963. "Massive increase" would be more accurate than "slight negative."
Undeterred and unapologetic, Cashin continues to speculate about the future of the market. There's one question he won't answer: What's the track record of your predictions?
A devious strategy
The strategy of the financial media is to give pundits like Cashin a platform to make guesses about the future of the market, even though there's no evidence he or anyone else has this expertise. Doing so encourages gullible investors to trade, which enriches the brokerage firms that provide CNBC with a steady stream of revenue.
Giving the market a "mind" is a subtle but effective psychological gambit to encourage viewers to rely on those who appear to have the ability to decipher what "the mind" is thinking. Few investors do their homework and check out the accuracy of past predictions. If they did, they would justifiably ask this question: If you couldn't predict what would happen to stocks if Trump was elected, why should I rely on your predictions of how the market will respond to a Trump presidency?
A new twist on "mindless"
A report in BloombergMarkets put another twist on the use of "mind" to explain market behavior. Crispin Odey is a billionaire who runs an $8 billion European hedge fund. Apparently, he bet big that U.K stocks would suffer as a consequence of the Brexit vote. He was dead wrong.
His main hedge fund slumped an astounding 49.5% in 2016. Who was at fault? Not the fund managers, of course. Odey complained that "mindless" passive investing was "driving out" active fund managers.
The poor performance of Odey's fund was not an isolated case. Hedge fund closures outpaced openings in 2016, due largely to poor performance.
A better way
"Mindless" investors who opted for a simple, all-in-one LifeStrategy Fund from Vanguard had a vastly different experience. Vanguard's LifeStrategy Growth Fund (VASGX), which provides a broadly diversified portfolio in a single fund, with an allocation of 80% stocks and 20% bonds, returned 8.33% in 2016. Since inception on September 30, 1994, it has an average annual performance of 7.81%.
You could invest in the LifeStrategy Fund suitable for you at a very low management fee of 0.15%. Alternatively, you could pay 2% of assets under management, plus 20% of profits to a hedge fund manager, or listen to more nonsense from Cashin, Cramer and other pundits.
But that would be really "mindless."
The views of the author are his alone. He is not affiliated with any broker, fund manager or advisory firm.
Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.
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