There is no indication that hedge fund managers have any special
expertise in stock picking. According to an article in The Economist, the HFRX, which is a measure of hedge fund returns, is up only 3 percent as of Dec. 22, 2012. The S&P 500 returned 18 percent for the same period. The S&P 500 index has outperformed the hedge fund benchmark index for 10 straight years, with the exception of 2008, when both indexes sharply declined.
The evidence is overwhelming that no one has the ability to peer into a crystal ball and select outperforming stocks with any greater certainty than you would expect from luck alone. The forum CNBC gives Cramer serves to perpetuate a myth to the contrary, but it’s really more insidious. The daily grist of CNBC is a parade of self-styled market pundits regaling viewers with predictions about the direction of the markets, hot mutual funds, and undervalued stocks. Cramer’s show provides the underpinnings for their musings. The unstated premise is that, since Cramer has special insight, these people do as well.
CNBC lacks the courage to run a financial show that would counterbalance the errant nonsense of Cramer’s rantings. Consider how valuable it would be to investors if someone stood up to Cramer and discussed all the reasons why his recommendations made no sense. While CNBC’s fear of engaging in balanced financial reporting is understandable, because of its reliance on the securities industry for advertising revenues, its lack of ethics is indefensible.
Stock pickers need entertainer like Cramer to get investors excited about ‘beating’ the market. NO ONE can consistently predict the future, when these fund managers succeed it it a matter of luck and NOT skill.
Please comment or call to discuss how this affects you and your financial future.