Hi Steve, Re: Article.....
I agree with essentially everything in the article. It wasn't clear as to how the herd mentality would improve one's stock selection, however.
I took it to somewhat suggest that the very high correlation in the markets' components has become its own "market barometer." As AIMers we should hope, then, to be selling when the highly correlated markets are rising and to be buying when larger corrections take place. No use standing in front of a moving Freight Train, we're not going to deflect it!
I would love to have the time and asset base to build a really large, dynamically managed (AIM), well diversified mutual fund out of individual stocks. I think it could easily out perform the majority of mutual funds and probably out-perform the indexes, too.
Since that dream isn't currently a reality, I've been concentrating on various sector funds and their own filter mechanisms. Then it is still important to manage those sectors. My goals are to capture as much of the markets' "upside" while limiting the capture of the "downside." Good components are part of the equation, good management is there, too. Good cash management is also a big part of the overall success. All of this requires a long term perspective, too. Adding "capture ratio" columns to own's own history helps to gain perspective of AIM's capabilities.
Probably managing a mutual fund would prove far more frustrating than my "dream" of it! Can you imagine having a highly correlated market turn ugly and having your universe of investors then wanting to cash out of your fund? The redemptions would be ruinous to your long term plan. It also would be exactly the opposite of what I believe is the proper function of investors - seeking real value in a "corrected" market.
Still, it's interesting to contemplate. Managing our own wealth gives us far more flexibility and chance to out-perform the marekts. So, I'm careful about which I wish!!!
Best regards, Tom
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