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Paul B. Farrell: Dot-com to fiscal-cliff mania, we’re just in deeper. Now bond mania. Political mania. Fiscal-cliff mania. Fear-another-recession mania … Wall Street, Main Street, all addicted to hot new manias … More is never enough. We’re our own worst enemies. In denial. Lost. And killing America.


By Paul B. Farrell, MarketWatch

Remember December 1999? Wild dot-com mania. Just 13 years ago. I wrote about the year’s top 19 funds. Insane annual returns: 179% to 323%. Wall Street was hot … Stocks roared … Investors expected 100% plus returns and laughed at 30% index-fund returns. Early retirement was all the buzz at barbershops and neighborhood barbecues.

Then the tech crash. Two wars. Thirty-month recession. By 2005, global real estate was a hot new mania. Till the 2008 bank-credit meltdown. Another recession, trillions more new war debt. New Normal. Stocks not so hot.

Now bond mania. Political mania. Fiscal-cliff mania. Fear-another-recession mania … Wall Street, Main Street, all addicted to hot new manias … More is never enough. We’re our own worst enemies. In denial. Lost. And killing America.

Here’s a time capsule, my Dec. 30, 1999, column. See why nothing’s changed in 13 years, why we’re just in deeper.

The dart-throwing chimpanzee won. And big. He didn’t just beat all Internet and technology funds. He beat all 10,000 mutual funds. Raven the chimp is now Raven the Champ! In the 1999 race for top performance honors, the chimp made a monkey out of every darn (so-called) “professional” money manager on Wall Street and everywhere in America. His Monkeydex Index beat the best-of-the-best of all mutual funds run by America’s top managers.

Skeptics among you still think this is a joke. Far from it. There’s a huge lesson for all investors in this victory. Here we are with the markets about to close out 1999 and he’s ahead by a mile in the home stretch. At this point it is virtually impossible for any American mutual fund manager to pull a rabbit out of their magic hat and perform a miracle that will beat Raven the chimp as the most successful money manager of 1999.

Here are the results, with less than two trading days left in the year:

Top U.S. funds 1999 Net assets 3-year return Year-to-date return
Monkeydex n/a n/a 365.4
Warburg Pincus Japan Small Company $1.09 billion 52.9 323.2
MAS Small Cap Growth 196 million n/a 303.5
Van Wagoner Emerging Growth 1.34 billion 49.1 286
The Nevis Fund 78 million n/a 277.1
Monument Internet Fund 89 million n/a 273.8
Warburg Pincus Japan Growth 689 million n/a 262.4
Amerindo Technology 407 million 75.4 256.4
PBHG Technology & Communications 1.18 billion 64.3 238.2
Van Wagoner Post-Venture 299 million n/a 234.3
Fidelty Japan Small Companies 2.19 billion 44.8 233.7
ProFunds Ultra OTC 708 million n/a 230.5
Van Wagoner Technology Fund 286 million n/a 221.1
The Internet Fund 786 million 117.3 212.6
Firsthand Technology Innovators 420 million n/a 209.9
Van Wagoner Micro-Cap 292 million 41 203.2
First American Technology 289 million 60.3 188.9
Firsthand Technology Value 885 million 54.9 186.5
Strong Enterprise 389 million n/a 186.4
RS Emerging Growth 2.56 billion 63 179.2

Of course it’s no surprise that the best funds of 1999 were in the technology sectors. However, Japan’s small-company funds also made a fabulous showing, thanks to the surprisingly strong economic recovery in Asia. In fact, it seems almost certain that the Warburg Pincus Japan Small Company Fund will take the top spot (excluding Raven’s performance, of course) away from Van Wagoner.

Why monkey randomly throwing darts beats Wall Street pros

But the real spotlight’s on Raven and his incredible system of picking stocks using a clever random dart-throwing technique. So let’s get serious and understand how and why this chimpanzee’s system can work for anyone. If you understand this simple system you’ll be able to refine your own portfolio strategy. Please review these four key facts:

Fact No 1: Asset allocation vs. stock-picking

In a celebrated 1991 study, Ibbotson Associates proved that over 90% of a portfolio’s returns were a function of your asset allocations and less than 10% was dependent on the specific funds you pick. The conclusion is often called into question, but the fact is that while picking the right funds is crucial, so are your asset allocations .

Fact No. 2: Active management vs. indexing

Research studies generally indicate that actively managed portfolios fail to outperform computerized index portfolios over the long run. In other words, active stock-picking and trading may not add value to a portfolio, which may explain why over 75% of all funds fail to beat their indexes. Index funds also have several advantages over actively managed portfolios: Lower expense ratios, lower turnover resulting in lower capital gains taxes and they are typically no-loads.

Fact No. 3: ‘Random selection’ is not always random

Random selection of securities can be a valid selection process. The probabilities of “randomly” creating a high-performing portfolio are obviously increased if your selections are first narrowed down to a select group of securities that are already high-performers rather than just throwing darts at a huge target of 10,000 stocks.

Fact No. 4: Focus on the target, not the dart-thrower

So, in a random selection like the Monkeydex index, it is irrelevant whether the dart-thrower is a monkey, a six-year-old child or a Wall Street broker. And to the ongoing embarrassment of Wall Street brokers, anyone can become an outstanding performer using this incredible system. That is, anyone can select a small set of 10 winners if they are throwing darts at a target loaded with 100 or more preselected winners. And so can you.

Chimp’s Wall Street-beating strategy can work for you

This is no joking matter, folks. I am very serious. Some Wall Street money managers look like they are geniuses with triple-digit returns. But are they? Not really. Certainly not in comparison to Raven’s performance. If a chimpanzee throwing darts can generate a year-to-date return of 365%, can you possibly justify paying the managers of any fund more than a bunch of bananas?

And what does it say about the whole business of picking stocks and building a successful portfolio? Just this: Trust yourself. If a chimp can beat the best of the fund managers, so can you. You don’t need anyone to help you, certainly not a professional money manager.

You may not want to use a random dart-throwing method as a strategy for portfolio building. Yes, it does fly in the face of rational thinking. However, I encourage you to keep an open mind and explore it. After all, Raven’s 365% returns using this same irrational method are a strong selling point.

Here’s a late-breaking rumor for you. Like the other Internet stock and fund managers, Raven is getting so rich, he may have slipped quietly back into the jungle. After all, with a track record like his, he can easily buy an island and retire in glory to his own banana plantation.

We also have it on good authority that he will not be going public with his own mutual fund in 2000. This monkey just doesn’t have an ego big enough to become an American mutual fund manager.

Postscript: Only nine of 1999’s winners survive: SEC investigations, securities fraud, mergers and disappointing returns were factors. Survivor’s assets and returns dropped substantially. Their 100%-plus returns are memories of America’s irrational exuberance.

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