Sunday, May 07, 2006
Sell Signal on the S&P 500 and Dow Industrials
The S&P 500 and Dow Industrials rallied strongly on Friday (punching through the 34 day Bollinger Bands indicator I like to use). This triggered the same sell signal on these two indices that occurred for the NASDAQ 100 index a few weeks ago. In 2000 the NASDAQ indices also started the big decline before the S&P 500 and Dow Industrials did. It could happen again.
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4 comments:
mOOm. Perhaps I need remedial help in blogging. The best report of passive vs active data is at standard and poors. Since I can't seem to link it correctly, just google sp passive vs active investing and most of the top spots will reference this data. They even look at international markets. It is not flattering to the broad based active funds, but as I can argue most high priced bad performers remain that way and most good funds don't. Always enjoy your comments and I have been trying to temper my verbal explosions....
Thanks for the link to the relative performance of active vs. passive management you sent me. I would guess that active management is better when stock indices are weak and vice versa. The economic theory argument in favor of investing with passive managers would be that skilled managers should get rewarded for their performance. Their wages or the fees of management firms that have winning systems should be bid up until they absorb all the excess return. So in equilibrium active and passive funds should have the same after expenses returns in the long-run. There are limits though on the expense ratios one sees. But anyone who makes really exceptional returns will migrate to a hedge fund where they can get 20%+ of the profits. Question is whether hedge funds can make outsize returns? I'm puzzling this out . At first glance the same argument might apply. 20% of profits is the size of the excess return. But maybe there are returns to investors for the risk of investing with an individual hedge fund manager? And maybe this applies to mutual funds too - riskier funds have higher expected returns. In both cases the manager would be prepared to share some profit to get the fund inflow that will increase their absolute number of dollars of profit. Probably, some finance theorist has worked all this out before :)
I am also interested in the whole Hedge Fund vs Mutual Fund debate. Certainly good managers are pulled from the Mutual Fund world to make the really big bucks in Hedge Land. My very uninformed opinion is that Hedge Funds are more a social status investment and a lesser true return success story. Tpo back up my very vague view, I have a neighbor who's publicly traded company returned a whopping 2.2% with their collection of hedge fund managers in 05. I returned a more respectable 6.7%. Beating the S&P with a beta of around .8ish in my family accounts. Also, I will comment further on taxes and kids as they relate to social engineering of the tax code. I have opinions too. Always enjoy your comments....
Hard to get good data on hedgefunds. Evidence seems to be that a portfolio of hedge funds is less volatile than stocks over the long term but probbaly doesn't return a lot more or even less in stock bull markets. Should do better in bear markets. I have shares in Everest Brown Babcock (EBB.AX) which is a fund of funds + a stake in the fund manager. My Mom has units in a Permal Fund of Funds kind of thing. Both performed very well over the last year. You could do better though in the MSCI World Equity Index (but not in US stock indices). So there are good hedge funds and lots of bad ones.
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