Nifty pictures of stocks and commodities, take 3: the latest
I have the latest research from the same fella's that put out the other commodities -vs- stocks commentary I posted last time. The last post had 2 charts from the same guys that were interesting in that they showed the ratio of commodities to stocks in a different position. One was from 2002, one was from 2009. I have no idea at all how to reconcile those different views except calculate everything myself, which would be quite a task. Fortunately, a new paper is out and we can take a look at what it offers.
An enormous challenge facing investors is the availability of information (and opinions). The challenge isn't that we have a hard time finding information, its that so much information exists that it can easily overload us. In his 90's book on contrarian investing, David Dreman presented a study that showed the accuracy of peoples predictions based on how many pieces of information they were given with which to predict, and also their confidence. The more information they got, the more confident they became in their assessments, but accuracy peaked at a very small amount of information. More info made people less likely to conclude correctly, after a point.
And therein lies a big challenge, and the reason why many different investing styles can win and do very well, but "collective" investing attempts are likely to fail. Take 20 good CAPs players or, better, 20 people who made alot of money investing in real life, and give them each 5% of a portfolio to manage. How likely is that portfolio to do really well? Probably not very likely. One guy will say "XL's chart is broken, sell it", another guy will say "sweet, XL is down, lets load up" and so forth. The performance of this "all star collective" will be even worse if you limit each all star to their 1 or 2 or 3 best ideas, probably. Even the best laid plans of the very brightest minds do frequently go awry. And that is why, I think, the majority of great hedge funds are one guy with a research team. Because at the end of the day you have to filter everything back through one mind lest your actions become too random to be effective. And therein lies a challenge for all of us: we need to eventually draw our own conclusions if we hope to perform maximally.
For me, this is relevant, because surfing blogs and reading articles on stocks has sort of become my hobby. And frankly, I think its clouding my judgement via this process of information overload to some extent. I think that the next long, secular bull market is likely to begin when stocks decouple from commodities to the upside, and not before, and that is in fact the signal that I think will mark the onset of the next secular bull, the next time to buy and hold stocks of many kinds.
So, as has been my view for the last year, the literally triple your money question is where are we at in this great commodity bull market?