Yesterday I was doing a media interview where I repeated the self-evident truth that in order to be a valuable risk manager one needs to have measurement tools, execution discipline and allocation flexibility that allows us to constantly measure price risk and adjust capital exposure towards the the highest probability rewards for the least risk over a full market cycle.
The journalist pointed out that other money managers assure her that it is not possible to time markets and that constant passive allocations to commodities and equities is the only reasonable course. I pointed out that doing this over the past 15 years (as during every other secular bear period in the past 200 years) has brought negative returns with above-average capital risk and volatility. (Not to mention real life angst and suffering to the majority of investors (and pensions) who now find themselves under-capitalized and financially insufficient to meet their goals.) I further explained that the vast majority of managers and investors are not equipped to grow capital through a secular bear climate and that since most have harmed their followers now for more than 15 years, they are philosophically unable to admit their defects since that would admit that they have been unworthy of trust and compensation throughout. It would also require them to go back to the drawing board and come up with a different management discipline going forward. And yes it is not easy to do. Nothing valuable usually is. Rather than rising to the challenge, apparently most financial types prefer to regurgitate text book theories than confront the reality of one’s own facts.
So when this quote appeared in my inbox this morning, I thought it resonated perfectly about the asset management business.
“When someone tells you that you can’t do something, perhaps you should consider that they are only telling you what they can’t do.” –Sheldon Cahoon, Author
That really says it all.