Unlike many other market observers, we just don’t see the point in discussing or debating the macroeconomics driving overall markets, volatility, or sentiment. We’re in the camp that thinks successful prediction of market direction is, broadly, a coin flip. Well, we’re sure that we don’t have the skill; although we’re happy to concede that some of our top-down macro friends appear to do this quite well. However, over any time horizon that isn’t decades long, it is extremely difficult for any of us to know whether their “success” is due to luck or skill.
Several months back we joined a call with colleagues who were interviewing Larry Fink, the CEO of Blackrock. Blackrock – already a very passive, ETF driven shop – had just announced that it was firing several prominent active fund managers, and that a more quantitative, passive, or systematic, manager (aka a robot) would replace them.
It’s October of 2017, and that makes me old. Old enough that I’ve seen quite a lot in the world of psychology and investing, but wise enough to be certain that I don’t know everything there is to know, and never will. Thirty years ago, in the autumn of 1987, I wasn’t old enough to know much of anything at all, and too young to know how little that was.
We are human. Human beings make mistakes. We make lots of mistakes. We’re always trying to identify and eradicate them, but they happen. As we investigate fundamentals, much of our work revolves around meeting with management teams, and developing conviction in their ability to steer a business down the road.