A good assessment of the current pickle that all active fund managers find themselves in
@acwmrI have no answers and no more certainty about future outcomes than those who continually downramp or attack the MFG model.
At the heart of my investment thesis is that in the end markets end up valuing businesses based on likely outcomes not pipedreams or hope. In a broad sense, most current valuations re still based on now redundant costs of capital, excess profits (vis a vis labour) liquidity and potential. A tough year or 2 of rising costs, falling margins and decreased demand can serve to re-rate many of the heavyweights that now dominate market indices.
Although retail is still conditioned to "buy the dip" and wait for the cavalry to arrive, I don't believe regulators remain on that page. They are fighting their self induced inflation nightmare and market pain is simply collateral damage. Hence my general discomfort with most things "index linked".
The 2nd plank of my MFG investment thesis is that good professional investors/analysts rarely lose their brains, though they can often make wrong short term calls. They use market data, tend data, industry and financial tools to arrive at a conclusion to buy sell or hold at a particular stock price. They operate like weighing machines, assessing upside v downside based on empirical data and (imperfect) human judgment. They are generally better stock pickers than those punters though are constrained by peer performance and FUM movements.
Index funds have no point of difference, no analysis no sense of market valuation and must buy stocks irrespective of their price. They operate like a voting machine simply following the flow of money and fluid index composition with companies regularly included and deleted from any given index based on market cap or some other subjective benchmark. I do understand this form of investing has become very popular and will undeniably continue to grow. That said, popularity is often not based on outcome.
MFG (like PTM and others) is a high conviction manager with a history of outperforming benchmarks. Presently, the exuberant index prices largely built post GFC loose monetary policy and Covid induced inflated high tech company valuations have beaten most managers over the last 5 to 7 years. Of course they have, protecting money demands managers do not chase stocks or inflated values, leaving them looking like fools. Just listen to Stan Druckenmiller one of the world's most successful investors for decades.
MFG made an error in their China call and timing. They are human. However, they still retain their analyst talent of many decades who are trying to navigate very unpredictable economic and government twists and turns. I am happy to back in their brains over index rules, just as I do my own.
If I am right I will make money. If I am wrong I will lose it. Strangely, this is the binary outcome of every investment I have ever made in my life.
GLTASH
(20min delay)