Jay Leno took a 50 percent pay cut. Brad Pitt says actors can no longer expect multi-million dollar paydays. Fund managers lead by Bill Gross have been lowering investor expectations for years (but not their own fees).
And now, there may be no more “alpha”:
“When hedge funds were at $200 billion, there were probably a lot of inefficiencies in the markets that the smart guys could identify,” says Denis Bastin, a consultant to asset managers. Now that the industry is more than 10 times that size, however, before using leverage, the market inefficiencies must be far larger for it to generate alpha, even as the number of smart investors hunting them has mushroomed.
The effect can be seen in the narrowing dispersion of hedge fund returns – the difference between the best and worst performers. In 2011, while the average hedge fund lost money, according to HFR, a data provider, the top 10 percent of funds made a respectable 19.5 percent on average.
Yet that respectable return was the worst performance by the hedge fund elite since 2000. The top 10th of the industry had made at least twice as much in each year of the previous decade. These relatively muted returns continued into 2012.
Of course, a world of very low interest rates may simply have shone more light on returns for active management that have always been below par. Past studies have found that mutual funds, in aggregate, fare worse than passive index following.
Sure, the world has it’s problems, but making money in the market is not one I’ve ever had. Just look at our numbers.
It comes down to a single observation, that for some unknown reason, sticks works better than carrots. Punishment is more effective than reward. In short, people tend to act stupid.
The Village Idiot Syndrome
The Village Idiot Syndrome is responsible for many tragedies. I was filled with dismay to learn that U.S. Ambassador Chris Stevens and three others were killed after violence was incited in Libya and Egypt.
Fast forward to the 5-minute mark of the video above and listen to Richard Engel recount the sequence of events leading up to the attacks. This type of behaviour might be hard-wired into certain populations and related to recent finds that point to the obvious fact that not all “modern” humans share the same brain structure and thought processes (or lack thereof).
The Big Crazy
It gets worse. I am confident that history will record that while tragic, Alzheimer’s Disease will be dwarfed by an epic wave of vascular dementia among obese people 50 years and older, that political parties, survival industries and media empires fanned their fears for power and profit.
Thoughts harden with the arteries, and if you think it can’t happen to your loved ones, watch the video above. Be prepared.
In conclusion, a significant percentage of the world’s population does not have the mental capacity to make money, automatically eliminating themselves from long-term financial gains. They will always do the wrong thing (as opposed to making a wrong, but thought-out decision) because they cannot perceive the world as it is.
Do whatever it takes to stay sane and prosper. As I tell members, we will make money for the rest of our careers by following a simple and effective strategy , but it will be difficult to watch others sink to the bottom.