It’s that time of the year again, and I don’t mean bowl games or New Years eve hangovers. What I do mean, is it is time to look at how well the high paid mavens of Wall Street did trying to prognosticate market movements and managing money in 2012.

As usual it wasn’t pretty.

For any of you who have read my occasional blogs on this website before, you know that I am a big proponent of the strategic (passive) approach to investing. Essentially, I strongly believe, that most of the time, most investors and investment managers do not beat the market. History has shown, that passively managed index funds that track market averages outperform the majority of actively managed funds.

I usually start off my day reading news stories on my I phone. First up comes my many apps on Pro Basketball, and in particular the Miami Heat. After all, First Things First. Then I move onto the Bloomberg app to see whats going on in Wall Street.

Bloomberg News on January  4th and on January 7th had a couple of interesting articles on how well the Wall Street hotshots did last year.

Here are some tidbits from an article titled “Almost All of Wall Street Got 2012 Market Calls Wrong” by Michael Patterson & Lu Wang that was on Bloomberg News  Jan 4, 2013.

1) More than 65% of  mutual funds benchmarked to the S&P 500 trailed the gauge in 2012, according to data compiled by Bloomberg.

2) The 50 stocks in the S&P 500 with the lowest analyst ratings at the end of 2011 posted an average return of 23 percent, outperforming the index by seven percent, the data showed.

3) The average forecast of 12 strategists tracked by Bloomberg called for the S&P 500 to increase about 7% last year to 1344. It reached 1426.19, surpassing the year-end prediction by the most since 2003, data compiled by Bloomberg showed.

4) Adam Parker, the U.S. Equity strategist at New York-based Morgan Stanley, predicted the S&P 500 would fall 7% to 1,167.

5) Goldman Sachs’s call on Chinese equities proved too optimistic. Helen Zhu, the New York based bank’s  China strategist, said in a Jan. 11 interview on Bloomberg Television that the CSI 300 Index (SHSZ300) would probably climb 36% to 3,200 by year end. Instead, the gauge of shares traded in Shanghai and Shenzen peaked at 2,717.82 and ended the year up  7.6% at 2,522.95.

6) John Paulson, the founder of New York-based Paulson & Co., told clients in April he was wagering against European sovereign bonds and buying credit-default swaps on the regions debt.

7) Citigroup Inc. economists led by William Butler in London said in February  the possibility Greece would leave the Euro within 18 months had increased to 50 percent from between 25 to 30 percent. They raised the risk to 75 percent in May and by July were citing a 90 % chance of departure, writing in a report that their “assumption” was an exit by Jan,1.  Greek bonds surged the most worldwide and the country stayed in the euro.

A Bloomberg News article dated January 7, 2013 pointed  out the futile performance of Hedge Funds last year. The Bloomberg Global Aggregate Hedge Fund Index (BBHFUNDS), which tracks average performance in the $2.19 trillion industry, increased 1.1 percent last year. An investor who bought the Vanguard 500 Index Fund tracking the S&P 500 would have matched the index’s 13 percent return while paying fees of 0.1 percent. Hedge funds usually charge 2 percent of assets and keep 20 percent of any appreciation.

I put my money where mouth is and have been taking a passive style approach to the market since the 80’s.  Currently my portfolio is in a keep it simple stupid mode with four low cost  index funds that match my objectives, desired asset allocation, and risk tolerance. My view is that for your long term investment goals you should forget trying to time markets, pick winning securities, and keep fully invested in a portfolio of diversified low cost index funds/ETF’s that matches your goals and risk tolerances. This portfolio should be rebalanced periodically to keep your intended asset allocation.

So turn off CNBC and stop listening to the talking heads and instead talk to Alhambra Investment Partners about putting together a strategic portfolio that makes sense for you.

 

Patrick J. Manning