Art by Crystal Smith
What we don’t need is blind love for outrageously over-valued assets. And yet, that’s what we get from the vast majority of so-called investment experts.
Give yourself some love today and take the time to read the 7 lucid pages penned by GMO’s James Montier in The Advent of a Cynical Bubble.
To those few who are devoted to not losing their minds and their savings in the madness of crowds, Montier’s piece is like a therapist saying “It’s ok, it’s not your fault, your family are crack addicts, you’re not crazy.”
Or as Montier puts it:
“…valuation deniers remain. They are dedicated to finding new and inventive ways to make equities look reasonable, and they have never yet met a bull market that they didn’t love.
A recent Bank of America ML survey [of institutional investors] showed the highest “excessive valuation” ever (see Exhibit 2).
Yet despite this, the same survey showed fund managers to still be overweight in equities (Exhibit 3).
This gives rise to the existence of that strangest of creatures: the fully-invested bear. The most common rationale for such a cognitively dissonant stance is “the fear of missing out on the upside”(aka FOMO – fear of missing out). As I think Seth Klarman pointed out long ago, this isn’t really fear at all, but rather greed.
I routinely have correspondence from financial advisers/asset
manglers managers who follow our blog, hear my interviews and say they agree asset prices are unattractive and ripe for losses, but “what are we supposed to do, sell and then have clients fire us for missing out on some of the up cycle?”
The answer: Yes, that’s the job.
If advisor/managers aren’t prepared to risk their own short-term income losses for managing downside risk to their client’s capital, then they are worthless– collecting fees and adding no value. No one needs a professional to help them play slot machines or indiscriminately spend cash.
And yes, clients often play a leading role in their own financial demise through lack of self-discipline, wilful blindness and greed.
But note to advisors: these same clients will fire you once the bear market losses hit anyway. We pick our poison.
What non-financial experts need are disciplined, honest, risk-conscious managers devoted to putting the best interests of their clients ahead of their own short term enrichment. There is strength in that, and you can have it.