Safety chute just failed.

Well, that would bring us close to the 50% decline I've been predicting for a year. According to Case Shiller, prices are now back to 2004 levels in most of the country. I say we're headed to 2003 prices.

Prime Manhattan, $700 - $800 psf. No more $12.50 per square inch.

case shiller just said YOY dropped 18%

can you really believe a guy with shill in his name, you know he didn't inherit that name by chance. So this guy Shiller some time ago predicts "the market is gonna drop" and then proceeds to start his own "measuring index"...do you think the outcome might be favorable to his predictions..huh..do ya think?...my prediction with mountains and mountains of cash available that in 2009 manhattan median prices will be higher by 15%

"can you really believe a guy with shill in his name"

That's the second stupidest thing I've ever heard on this board.

"my prediction with mountains and mountains of cash available that in 2009 manhattan median prices will be higher by 15%" is the stupidest.

no response yet..all these bears are typing away furiously in their elevated emotional state. How dare he say manhattan will be 15% higher....it can't be!!!! I want my friends apts to crash in price and then I swoop in and buy, looking like the bigshot that I know I am!!!!

SteveF - with all the job losses in the NYC economy, tightenting of lending standards, increased supply due to the last leg of the construction boom/ pending foreclosures, how could you ever come to such an absurd conclusion?

steveF, I just don't see the fundamentals there for any increase in the coming year. Even with cash on hand, buyer confidence will take a while to return to its past levels (just as it took a while to come down). Will pricing eventually bounce back? Sure. But you don't want to come off like all those doom and gloomers who predicted a "crash" every quarter, only to revise their predictions every few months and say "no, but next quarter for sure!"

Why does anybody take steveF seriously?

Hey, steveF! New York one-year futures on the CBOT are selling at a big discount to current spot. This is your chance to put your money where your mouth is. A few of these contracts - with all their inherent leverage - and you'll be on EASYSTREET!

stevejhx... first, I thought i was on ignore...second, Mr. Eloquence himself can only come up with..stupidest? If the comment was so stupid than why even waste your time responding to it? AND IT'S TRUE, THE MORE YOU POST THE MORE YOU ANNOUNCE TO THE WORLD THE LOSER THAT YOU ARE. WHAT "REAL ESTATE EXPERT" WOULD SPEND 24/7 ON THESE BOARDS??......obviously you have no street smarts because you are always here.

stevejhx... first, I thought i was on ignore...second, Mr. Eloquence himself can only come up with..stupidest? If the comment was so stupid than why even waste your time responding to it? AND IT'S TRUE, THE MORE YOU POST THE MORE YOU ANNOUNCE TO THE WORLD THE LOSER THAT YOU ARE. WHAT "REAL ESTATE EXPERT" WOULD SPEND 24/7 ON THESE BOARDS??......obviously you have no street smarts because you are always here.

The shocking thing to me about the Case-Shiller release was the "relative" strength of the New York metro area. "Only" down 0.9% for the month. That was the best showing of all 20 metro areas. In addition, New York metro is down only 7.5% YOY - one of the best relative performances.

Strange.

"I thought i was on ignore"

You are, but you're so entertaining that sometimes I peek.

Topper's right - why don't you go double-long on real estate, tell us how it works out for you.

"New York metro is down only 7.5% YOY"

That's because it runs from New Haven to Bucks County, where there wasn't a lot of appreciation. Also, NY tends to lag the country during downturns.

"This guy shiller"

He's only the guy who called this housing bubble 2 years ago.

And

He's only the guy who called the top of the equities bubble in 2000.

Follow him and do well.

You guys quoted Case Schiller completely wrong.

Today’s Case-Shiller housing price figures indicate that New York City’s prices dropped 7.5 percent in the last year, while prices in Los Angeles declined 27.9 percent.

Nationwide prices dropped 18 percent.

New York is the only major metropolitan area with prices that are still 90 percent above prices in January 2000.

"That's because it runs from New Haven to Bucks County, where there wasn't a lot of appreciation. Also, NY tends to lag the country during downturns."

This doesn't make much sense. If the NYC MSA includes several counties where there wasn't a lot of appreciation, how can it lag during the downturn? Unless you think prices in those areas will drop below what they are worth even without much appreciation?

I was skeptical, but you are correct, stevejhx.

For inception (12/31/87) through "September," 2008, the CS Composite had an annualized "price" return of 4.38% while the NY index had an annualized "price" return of 3.81%.

That said, I think we all agree than Manhattan condo/coops have had a massively higher "annualized" price return for the same period. I've taken the MS Manhattan condo/coop PSF data from 1Q89 to 3Q08 and come up with an annualized "price" figure of 6.73%. (If you compound annualize figures like that for the indicated 20.5 year period you end up with massive cumulative outperformance for Manhattan condo/coops.)

1Q89 was close to a top in Manhattan, of course. Bottom line: it would seem to underscore the notion that Manhattan downside risk could be quite substantial. Yes, there are pros and cons - but I think the cons have it by a mile!

(Periods are roughly similar but not identical. I understand that some do not like PSF methodology - I acknowledge its shortcomings - but don't know of a better methodology.)

Another prime example how some people continue to mainpulate data to meet their indivudal agenda.

stevejhx is a die hard renter for his own reasons and has the need to justify this in any way he can through whatever manipulated data he interprets. It is questionnable how someone feels the need to justify their financial decisions so much.

Oldbuyers,
If you think steve is manipulating data to suit his needs, then tell me what the data says to you.

My understanding is that we are lagging the rest of the country because of the high concentration of finance workers (like myself) who didn't stop spending until the shit hit the fan in October. Q4 numbers won't tell the real story, since stuff was already in contract. Q2 09 should be the most telling.

I've also rebased the CS Composite and NY indexes to the MS start point. NY exceeds the Composite in this case (although the Composite did peak at a higher level than NY).

1Q,89 to 3Q,08

CS Composite: 3.97% compound annualized price return
CS NY Index: 4.43% compound annualized price return
MS Manhattan Condo/Coop PSF Index: 6.73% compound annualized price return

Consumer Price Index: 2.98%

So, with a $1.00 invested in each of the following real estate investments grew to:

CS Composite: $2.22
CS NY Index: $2.37
MS Manhattan Condo/Coop PSF Index: $3.80

Consumer Price Index: $1.74

In order to just come in line with the "New York" composite, it would appear than Manhattan condo/coop prices would have to drop about 38% from 3Q,08 levels. That said, the New York index also have moderate downside risk.

Nationally, we probably have an additional 15% to decline before we hit reasonably "fair value." That said, the pendulum does often swing too far.

Fasten your seatbelts. It's going to be a bumpy ride!

positivecarry...He's only the guy who called the top of the equities bubble in 2000.

Follow him and do well.

Please....many people called the stock bubble, it's just that CNBC wasn't putting them on because ratings were so good.

"Today’s Case-Shiller housing price figures indicate that New York City’s prices dropped 7.5 percent in the last year"

It doesn't say anything of the sort.

"stevejhx is a die hard renter"

I still own a place, as well.

"This doesn't make much sense."

It makes absolute sense. They're taking into account a huge metropolitan area. That area can still lag behind in economic cycles. They don't have to be correlated.

To use the CS index for Manhattan, check out prices here:

http://350bleecker.com/policy/sales.html

Prices went up 600% in the 9 years from the trough in 1998 to the peak in 2007. If that's not a bubble, I don't know what is.

Steve,

I'm sure you'll agree that a sample of one is a bit on the small size.

The indicated numbers for 350 Bleecker would also seem to indicate far larger increases than one sees with the much broader data base from Miller Samuel.

Can you coroborate the 350 Bleecker data with other sources?

"I'm sure you'll agree that a sample of one is a bit on the small size."

Not really. The entire market moved in a similar way.

Miller Samuel does not correct for changes in inventory mix.

"It makes absolute sense. They're taking into account a huge metropolitan area. That area can still lag behind in economic cycles. They don't have to be correlated."

Not sure I follow - that area includes counties where you say there wasn't much appreciation, right? So what is it lagging then, if there isn't much appreciation to cut into?

I'm not the one who made the connection that you're making. I said that the area is a wide one, and the New York region tends to lag the rest of the economy. You are seeking a cause and effect between those two variables. I say they are potential causes of a different effect.

"The entire market moved in a similar way."

Steve,

Can you demonstrate this? Or is this just a "trust me" assertion?

Even within the same building, the relative value of studio and two-bedroom coop shares changes over time. And the mix within your example also changes.

Seems a little like saying, GM increased 8X over the past 10 years so U.S. stocks must have increased similarly as they move in a similar way to GM.

Stevef,

Shiller didn't just call the bubble, he wrote a book about it, and he's been spot on with housing. You saying that everyone called the top in 2000 is like what you'll be saying years from now to all of your friends: "of course I saw the real estate bubble coming".

i remember everyone saying that san francisco was such a resilient market. unique city, great weather and the best of west coast living (which i wouldn't disagree with). further, it is not as directly impacted by the wall street collapse. prices would never go down there, maybe just flat or with inflation for a few years. and yet, look at where we are today. according to case schiller, prices have fallen 30% in the past year and are back to june 2002 levels.

that city is a blueprint for what we will go through over the next couple of years. i'd say we are about a year behind...

"Seems a little like saying, GM increased 8X over the past 10 years so U.S. stocks must have increased similarly"

No, but stocks do have beta ratios.

Does it mean that every apartment in every building moved the exact same amount? No. But markets do move in sync.

If you can find better data for such a long time frame, let me know.

stevejhx
about 12 hours ago
ignore this person
report abuse "I thought i was on ignore"

You are, but you're so entertaining that sometimes I peek.

teeheehee, you are such a little girl

SteveF you are a fucking idiot.

Its not just that Shiller called the bubble, he did the long-term analysis that no one else had done to that degree, and basically created the new vocabulary of tracking RE. The indexes, the tie to incomes, etc.

Its not just that he called it right, the analysis itself was groundbreaking.

To be devil's advocate, timing is everything...and the academic analysis fails there. I saw an article that affordability in the Uk is back to 2003 levels. I wonder where that would put Manhattan... I'd imagine 2003 levels, given that 2009 incomes will be there or lower.

> To be devil's advocate, timing is everything...and the academic analysis fails there.

Its just different academic analysis.

Thing of why they call it a bubble... you don't know how big its going to get, but you know it will pop.

In the case of market bubbles, it is usually related to psychology, and or some sort of trigger.
So try the psychology or history departments.

But, for where it likely ends up, back to economics.

For timing, its technical analysis, but you won't find that at university. In order to know where this ends up, we'd need to know future interest rates.... But as far as a plan of action, back to technicals; buy when it stops falling. I think we agree it has only just started falling.

> For timing, its technical analysis, but you won't find that at university.

Probably because Malkiel of Princeton debunked technical analysis...

I think I'll side with Paul Tutor Jones and Stevie Cohen on this matter. Its pretty hard to deny that momemntum and human nature play a role in securities pricing. Further, there is very little incentive to write papers on what works in terms of trading and investing. Academia is a ghetto.

Then you might be disagreeing with yourself....

SAC is focused on long-short above all else. Also includes some longer term stakes and private equity.
That is not technical trading, that is fundamental analysis.

Tudor is knows as a global macro guy. Which is definitely not technical analysis either.

What do you do for a living?

> Further, there is very little incentive to write papers on what works in terms of trading and
> investing.

Sure, but its pretty easy to do analysis on which strategies have made money and which haven't.

Its pretty easy to tell you that Stevie Cohen and Paul Tutor Jones believe technical analysis has merit. So your claim that its been debunked by some academic tells me you don't trade or invest for a living. I do, so its tough for me to debate the matter with you. Further, I know people who were taught technicals by Stevie Cohen. Fundamental long/short is actually SACs recent bent, but not its roots...and not what Cohen himself does.

YOU learn something new every day:

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear! [Paul Tutor Jones, to Alpha magazine]

"Its pretty easy to tell you that Stevie Cohen and Paul Tutor Jones believe technical analysis has merit. "

errr...not the best examples this year. Cohen is down big and Tudor has locked up his investors money.

Has this become a thread where I educate the masses on hedge funds? Both are fairing better than most. Errrr.

Neither Jones, 54, nor Cohen, 52, have lost as much as other hedge funds, which fell an average of 9.4 percent in the first nine months of the year, according to Chicago-based Hedge Fund Research Inc. Tudor's BVI Global Fund dropped 3.7 percent through September, while Cohen's flagship fund declined about 5 percent.
-Bloomberg

Not so sure first 9 months is the measure to be using.... October is when the shit hit the fan.

Note that you just confirmed that both SAC moved away from from technical trading and Tudor has noted its fall. Malkiel didn't say it *never* worked, he simply showed it doesn't work enough anymore to be profitable in the long term.

BTW, educator...

Paul TuDor Jones is the hedge fund guy. I know, because a friend's business card is sitting right here.

Paul Tutor Jones, not sure who that is.

;-)

Tutor noted that newbies ignore technicals to their detriment. You miss his point. Google it and read the whole article if you like. You're point was that Malkiel debunked technicals. My point as a professional investor is that it has merit in the toolkit, and I site several master trader/investors who agree. You can try modifying your point after the fact in order to seem correct, but you're simply not. I am well aware when the shit in the fan, my point was that they held up well thru Sept, and while I don't have the data, I imagine that even still they fared pretty well relative for the year. Why don't you tell me what you do? This way, I too can pretend to debate you on your expertise with equal merit.

As BM asked, "But where are the customers' yachts?"

Maybe if you have friends in high places they can educate you better than I can. You win on the spelling. The article is on titans of the hedge fund business; the quote is from the right Paul. Clearly you and the Prof should enjoy a nice cup of tea. Meanwhile, titans of the business (and I, among his lowliest initiates) know technicals have merit.

As you may know, Burton Malkiel is certainly not "just" and academic. He has served on the boards of numerous investment organizations including The Vanguard Group.

Yes, he is a strong proponent of indexing - but that is just an IQ sort of thing.

As Peter Lynch has been quoted, "Most investors would be better off with an index fund."

Winners are few and far between - often related to simple luck. Remember Bill Miller? The list of former great 10-year track records is a lengthy one!

He keeps saying Tutor...thanks for the education.

I like when people like Rhino come on and claim to be experts but can't even spell a 5 letter name right.

So a guy on a board of a company that sells bullshit is credible. "Most investors".... What does that mean? How did we get from technicals to indexing? Yes, YOU should index. Does that mean Steven Cohen should? Does that mean technicals have no merit? Again with the spelling. Thanks for your contribution. How does Cohen's performance compare to Vanguard's in 2008? Run along and buy and hold...its worked very well over the last 10 years. I believe everything investment corporations tell me.

Signing out shitheads.

p.s. Cohen is not a technicals guy. He's game is getting information first. Greases the analyst wheels with loads of commissions to the brokerage houses.

p.s.s. Oh, and his flagship fund was down 13% in mid-December. You using September numbers is laughable.

http://dealbreaker.com/2008/12/this-can-all-be-turned-around.php

Happy New Year

Its laughable that you think -13% this year is a bad performance. Its probably top 5-10%.

"How does Cohen's performance compare to Vanguard's in 2008? "

Yea. Good comparison there. A guy who makes 2 and 50% of profits (highest in the industry) vs. an index fund.

I didn't say he wasn't overpaid... I am saying his opinion is worth more than a Princeton prof who sits on a board of a mutual fund.

It's not even close to the top 5-10%. Are you that stupid that you think only 10% of hedge funds did better than -13%.

http://www.nytimes.com/2008/11/10/business/economy/10hedge.html

Here's an article from the NYTimes on November 10th showing 30% of the funds with POSITIVE returns (check the graphic). Why don't you go talk to your friend "Tutor" about how to do better statistics.

You're in over your head. You should follow your own advice and sign out.

You are over MY head? One in 50 is 2% genius. What does that tell us about the top 10% cutoff. Correct, nothing. By the way, trend following is a technical discipline. "Winners include trend-followers like Mr. Drury." Again with the spelling. What grade are you in? Do you think this makes your point? "macro funds, which dart in and out of an array of markets" How do you think they dart in and out? Fundementals? Fucking doubtful. Yes, technicals. I call bullshit on the Times information that one in three hedge funds is up. Listen whether SAC at -13% is good, bad or otherwise, he is a technical trader.

The average stock fund, by comparison, is down 22 percent, according to estimates from Hedge Fund Research.

So I guess SAC is better than average in 2008...and stellar over its history. I guess I stand, CORRECTED? And I guess active management of stock portfolios is a waste of time, but timing the real estate market is possible? Clearly both are possible. Why that is blowing all your minds is a bit baffling.

You are corrected on your spelling because it's a 5 letter last name of one of the most well known people in the industry while you try and act like the expert.

And there you go again, like a little child caught on his bullshit, "The newspaper is lying" . Yet nothing back from you but arm flailing and insults. Just sign off, you've already embarrassed yourself enough today.

Ok genius. You've got me dead to rights. I am embarrassed for suggesting Steven Cohen is a great trader who lends credence to the merit of technical analysis. I am embarrassed for not having 2008 performance data committed to memory. Kudos to you for pointing out a prof who has never traded takes money from a corporation that has made its name by promoting indexing. Yes, he is in fact correct. Yes, I am embarrassed about spelling. Oh the shame! Clearly you know more about my business than I do.

Does anyone in the peanut gallery invest for a living? [insert silence here]

Its fun to play pretend right JGR? Play pretend you are an investor with a valid opinion.

Funny because I seem to know a fuckalot more about the industry than you do. Sad...

1) You misspelled one of the most well known people in the industry

2) First, you use numbers from September (is that your most recent data?) to claim that Cohen isn't down that much.

3) Then, when presented facts you claim that being down 13% was in the top 5-10%. Which isn't even remotely true. In fact, 30% were in the money as of that article which was after the worst had happened in September.

4) You compared a hedge fund to a mutual fund performance as if that's a valid comparison. Like the gimps on this board that compare a AAA bond to owning a house.

Its fund to play pretend right Rhino86? Play pretend you are investor with a valid opinion.

PS: Hedge fund returns are quoted net of fees = returns to investors = apples to apples with an index fund.

Rhino86 you are just like the RE denialists on this board. When presented with your own incompetence you resort to insults. I feel sorry for the pretend fund you work for.

Misspelling = who cares?

September data = who cares? It's undeniable he is one of the industry greats. And where this started is that he follows technicals.

Again, who cares about the performance data.

Why aren't hedge returns net of fees comparable?

I'm in the business. You're not or you would have said so. So that's not pretend.

"PS: Hedge fund returns are quoted net of fees = returns to investors = apples to apples with an index fund."

P.S. You are an idiot. An index fund has a completely different risk profile than a hedge fund strategy. The aren't comparable.

Actually the average long/short hedge fund has a lower beta than the market. Now who is the idiot? Do you think the vol of SACs flagship fund is higher than the market? Clearly not.

Rhino, have a great New Years Eve masturbating alone in your apartment. Your "edumucation" has been very entertaining.

You think a hedge fund has a higher risk profile than an index fund? What kind of thought is that? That's what long/short is....it's hedging out some or all of your market risk.

This is fun. You are digging a hole. You clearly have the depth of knowledge of a lawyer who reads Barron's every other Sunday, but nice catch on my spelling.

as a casual observer taking a break from singing with my mariachi band... I gotta hand this to jgr. Rhino86 time to bow out gracefully and get a new handle.

Even in cyber-space there is a line in the sand.... you my sharp-horned faced person just jumped over it with "fuck... wife." Hope this thread didn't ruin your New Year's celebration and you could get it up for your unsatisfied wife :)

b/f you get yourself worked up and start looking for me on other threads... I'll be changing my handle to "w67thmrmom".....me and the mrs... like the drunken champagne debauchery :) and I'ze got a splitting headache.. and a weird back ache... now I've got a few more postings to get back to.... where is the oldbuyer and AgentRachel?

"Here's an article from the NYTimes on November 10th showing 30% of the funds with POSITIVE returns (check the graphic)."

As you pointed out jgr, the article is November but the data is sept 30. Many, many funds got crushed since then so I would imagine the % of firms still positive to be far less now. My guess with no data is no more than 10-15% are still positive on the year.

"You are over MY head? One in 50 is 2% genius. What does that tell us about the top 10% cutoff."

The only 1 in 50 stat I saw on that article is over 30% up. Not sure what relevance that has to a top 10% cutoff since the article clearly points out what the data is as of Sept.

Alas, history is history.

One of the great analyses in Malkiel's classic "A Random Walk Down Wall Street" is related to how predictive past five and 10-year track records are for future performance.

Bottom line: not at all predictive. In fact, if anything, there is a negative relationship.

Hmmm... where is it that someone won the argument here that either Steve Cohen or Tudor are poor investors/traders (regardless of their 2008s since they were clearly above average), or that they do not use charts? Then JGR sites an article from Sept that 1 in 3 hedge funds is up, and compares it to SACs -13% thru December and insists, "errr" that they are bad example.

Still wondering how any of you who have never invested professionally, or a Princeton professor, have the definitive opinion on technicals when put up against two (of many) hedge fund great who believe they have value.

I've spent the past 18 years as strategist for a Fortune 10 pension fund. I've got an MBA and CFA (Charter Financial Analyst). Not the sharpest knife in the drawer but not the dullest either - I'm still working after all!

I actually did take a course in technical analysis taught by what many would consider the Dean of Technical Analysis, Ralph Acampora, and got an A. (That said, I qualified all my answers with the words, "according to technical anlysis theory..." I remain a skeptic. But I am open and do a fair amount of work with Ned Davis Research. As you may know, Ned is a big proponent of momentum investing- a form of technical analysis.

Messrs. Cohen and Tudor may, indeed, be outstanding investors. There appear to be a very limited number of truly gifted investors. Many luminaries have simply been lucky. (Recall that with 1000 orangutans flipping coins a certain number will flip heads 10 consecutive times just by chance! Another good book out there is "Fooled by Randomness.") After a lot of study I've generally concluded that indexing is the way to go "for the most part." To each his own. I really have no particular need to win an argument one way or the other.

I concentrate most of my attention on "strategic" asset allocation. But I will make "tactical" asset allocation bets at what I consider to be market extremes.

I'd encourage you to get a copy of Malkiel's book - it's an easy, entertaining, and fascinating read. BTW, you may be surprised to note that even Malkiel has done an active strategy which may be appropriate today. At the very least you'll come away with a solid understanding of why some very thoughtful people choose very low-cost indexing with a focus upon "strategic" asset allocation.

Wish you much success in the new year.

Topper... way too ivy tower in my book... throw in some profanity and three legged dog statements and tell Rhino to go pick stocks with his horn.

Never been a fan of technical analysis and Random Walk is a must read for 1st year MBAs if not finance undergrad course... always thought a bottoms up analysis with a keen macro-economics / cyclical understanding can't be beat. Like this NYC RE bubble.... tiny bubbles... tiny bubbles :)

Happy NY :)

Happy New York, w67thstreet, as well.

;-)

Hard not to be a fan of folks like Shiller as well whose two editions coincided with both the Internet and residential real estate bubbles.

All in all, on a micro level probably a fair amount more opportunities in residential real estate to pick inefficient opportunities. Publicly-traded securities tend to be more efficiently priced.

Looks like we're in for a long slide. Then, happy huntin'.

Also looking forward to a return to civility in the new year!

Topper kudos to you. I am not saying technicals are everything. I am saying they are something. I too have an MBA (Wharton 2001) and a CFA. I've also been in the equity markets for 7 years. I would not actually debate that asset allocation may be the biggest contributor to returns. I think understanding human nature to any small degree negates a denial of the strong role momentum plays in any investment class (real estate, stocks, commodities, anything). And as you rightly point out, momentum is a form of technical analysis. I would argue that stocks are no more efficient than real estate... I guess unless you find an unadvertised listing. The indexing argument, who knows. The average trial lawyer record is 50%, but that doesn't mean there aren't talented lawyers. Institutional investors are basically the market.

You must be pretty smart then!

Yes, "institutional investors are basically the market." If the average management fee is 100 bp and then you add on another 50 bp for trading costs (not just commissions but also bid-offer spreads and market impact of trades), then the total institutional market returns the market less (at least) 150 bp. (As you may know, institutional managers often contend that they as a group CAN outperform - it's at the expense of the dumb retail accounts. But I don't really buy that argument.)

(We can argue these cost numbers - and hedge funds at 2% management fees and 20% of the profits are in a world unto themselves!)

Yes, some will outperform and some will underperform. But I think we'll all agree there's a lot of headwind with which to contend.

At my day job, we've had a lot of bright people picking U.S. equity, non-U.S. equity, fixed income, currency managers over the years. All I can say is that when you net out fees and net out winners and losers, you're doing well if you outperform traditional benchmarks by 25 bp over a 10 year period. BTW, there is a lot of smoke and mirrors out there. There is also survivorship bias in most of the stats. (Those who go belly-up drop out of the data bases so you only see the 10 and 20-year survivors.)

That said, there is always that hope out there.

BTW, active managers are much more interesting to talk with over dinner than passive managers! And their conferences and dinners are much better as well! Your fees at work.

I've often found the high-powered folk at Goldman who are selling you all that high profit margin product actually use Vanguard index funds for their own personal accounts. (You've got to get to know them REAL well before they will let on to this fact.)

But, hey, active management is fun and exciting. And yes, there are a FEW consistent winners. Even my dog can pick a manager with a great 10-year track record - that's easy. The trick is picking a manager who can outperform over the NEXT 10-year - or even three-year period. And that is actually real tough.

It also makes for much more lucrative careers than passive management. And if you begin to have doubts about active management - that can be a real personal challenge as well when you're in the business. Yes, there may be pockets of inefficiencies you can exploit - it's just very, very difficult.

You're probably tired of all my blah, blah...so...

Happy New Year!

people like people managing their money actively. it may be impossible to prove its wortwhile. i am convinced albeit on imperfect info that stevie and tutor have talent. i am convinced technicals have not been debunked by a princeton prof... in the end before this got nasty this was basically all i said. i like hussman if you want to check his funds out.

goldman folk cant trade their pa actively... holding periods and such...

the thing about efficient markets is someone is scalping to push the price to where it ought to be. who cares about proof if you can do ok and get paid. i have seen inefficiencies. they are not common. i believe seeing the tide turn is possible, enough to move the needle.

as a footnote, there are lots of interesting studies you can find on the brown and tweedy website that systematic value investing actually works over time. simply price to book stuff... low price to book on average suggests below 'normal' earnings and skewed market reaction to bad (muted) and good (outsized) news.

Great posts, Topper...

> I've also been in the equity markets for 7 years.

I think that is probably the discrepancy.

Lots of things "work" in between major crashes.... its the strategies that hold consistently that matter. Malkiel did a very good job of starting the field that actually took that in to account.

Great posts, Topper...

> I've also been in the equity markets for 7 years.

I think that is probably the discrepancy.

Lots of things "work" in between major crashes.... its the strategies that hold consistently that matter. Malkiel did a very good job of starting the field that actually took that in to account.

Nyc, is it really worth debating whether active management is a worthy field? The fact is that it is a field. The fact is many people brighter than you have dedicated their life to the field. You side with the indexers, that is fine. I have some experience in the field, you do not. it may be possible I have some perspective on the matter. If you side with the academic on Vanguard's payroll that is totally cool. I side with the rich guys. Active managers short too chief, so saying inefficiencies exist only in up markets doesn't really make sense to me. If you choose to think everyone who succeeds in active management is just a lucky subset of a larger universe that is totally fine. I have seen, read, heard enough to disagree.

> Nyc, is it really worth debating whether active management is a worthy field?

I wasn't debating active management... read the thread more carefully.

> The fact is many people brighter than you have dedicated their life to the field.

And, as we see, some less so.

;-)

> I side with the rich guys.

You don't have to be a good investor at all to make ridiculous sums off investors... perhaps thats another mistake of yours.

BTW, you should actually try reading the analysis you are trying to contradict. It sounds like you don't have much of an understanding of what is being said there...

Thanks for the posts, rhino.

Although Goldman folks have issues "trading" their personal accounts, they are free to pick actively managed mutual funds. For some crazy reason my experience suggests they are "personally" fond of index funds. You figure.

Yes, there is, indeed, a wide range of "anonmalies" have had worked - and may continue to work. However, these can also come and go - as witness the Dogs of the Dow strategy. Not so hot last year. I'm reasonably skeptical that many of these will work "going forward" - particularly as they become widely know and people pile on. But I have at times "tilted" toward some of these strategies - albeit with trepidation. I'm currently "tilting" (modest bet) toward a good January Effect this year and hence small caps. There are many, many proponents of value strategies - and I'm sympathetic to them as well. But with a measure of caution. What is not widely known is the value was a risky, awful strategy during thirties in which one value company after another went bankrupt. (I was a history undergrad.)

Alas, one thing I have definitely learned over the years is humility. Which is good as it can also save you a lot of money!

Thanks for the B&T web site reference.

So...back to real estate...

"Alas, one thing I have definitely learned over the years is humility. Which is good as it can also save you a lot of money!"

Well said, Topper... and some great posts overall.

Happy New Year, btw...

Not sure why your GS friends go for index funds... I know that I go for them because I can trade them without restriction and with low commissions... Whether or not there are strategies that work for all time is almost an aside relative to whether or not active management is worthwhile...either by security selection or asset allocation. It seems you beleive in the latter... It would seem to me if you thought that asset classes were inefficient on a relative basis, then it would be logical to extend that to securities as well, no? I have seen the data, and I would agree that asset allocation is more important... This year, it was basically booting your stock and going to cash for the most simply allocator! Also it might have been selling an apartment on the simple basis that a tripling in 10 yrs is likely to mean revert.

Mostly, I do focus upon my strategic long term asset allocation.

That I do make some tactical shifts is, indeed, a bit incongruous with my general preference for indexing and view that markets are pretty efficient. That said, there are times when the madness of crowds is just too much for me and I choose to tilt my strategic asset allocation. (I would never get out of stocks, though, completely - just a tilt.) And I will not buy Manhattan real estate at current extreme valuation levels - but do own in CT where the price/rent ratio is sane. I also do a great deal of fundamental statistical analysis (in conjunction with Ned Davis Research) in my work related to what constitutes true over and undervaluation extremes of different asset classes.

But yes, I do to some extent speak out of both sides of my mouth. I can only defend myself here with the wit and wisdom of Oscar Wilde:

"Consistency is the last refuge of little minds."

And Ralph Waldo Emerson:

"A foolish consistency is the hobgoblin of little minds."

Peace & Joy

No judgements here. I would just say there have been times in my work where I have become similarly convinced that a particular stock has been over or undervalued relative to an index or another stock, or in absolute terms... I am sure we are both somewhat jaded by what we do having value. Have you read Ed Easterling, 'Understanding Stock Market Cycles'? Also, I'd be interested in seeing some of that work you have done if possible.

Thank you, nyc10022.

How strange to be exchanging new year's greetings with computer names we will probably never meet in the flesh...

But I have enjoyed and learned from a good number of your posts since I joined streeteasy several months ago.

Brave new world!

Wishing us all Manhattan wannabe owners steadily lower prices throughout the new year!

Topper

Ditto.... I definitely enjoyed this thread in particular, and I know its not the first. You and I definitely have very similar investment approaches.

OK, back to Rocky now...

If you guys are value investors, check out www.valueforum.com. I co-founded it and it is a community of serious value investors, with great long term results (though 2008 sucked for most!). It costs money, mostly to keep the riff-raff out.

I've outperformed the indices every year for the last 15 or so, by over 10% per year on average, and post many of my ideas over there. And get a lot of ideas from others there too.

Burton Malkiel got it wrong, there are all kinds of inefficiencies in the market.