One of my favorite reads on markets is Andy Kessler. I chased him down in 2007 to be interviewed by Lindsay on Wallstrip. It was great. Keep reading….I embededded the short interview at the end of the post. Andy is always ahead of the curve, but that does not mean he will always be right. Curves are the hardest things to see around and the hardest pitches to hit in baseball. In our ‘long/short’ segment Andy was ‘short’ $LNKD.
Yesterday, I saw Andy had written the foreward to George Gilder’s new book. Here is a link to the book. I pulled it up and dove in. As usual, Andy had some jewels on the subjects of running money, alpha, beta, Vanguard and Silicon Valley.
My favorite part (other than the fact that Andy mentions Stocktwits) is:
Except for a few exceptional periods of a bubble market, if there is no noise, there is no return. If it’s so painfully obvious, like the “nifty fifty” of the ’70s, if retired couples are talking about buying more Apple shares in the quiet of an airport Admiral’s Club, run away until the noise returns.
As an investor, I need to feel the pulse every day, and wade through the drivel in order to pan the gold. The pulse has to reverberate in my veins, but only so I understand what the market is saying today. Then I have to resist the calming effect of that thub-dub of conventional thinking and venture out into the noise, out on the edge, to find new information, what’s next, which can lead to knowledge. It’s as elusive as humpback whales but it’s there.
Amid the clutter of trends running around the Street, though, it is hard to tell what is real and what is just Synsonic synthesized sound. Reg FD or Regulation Full Disclosure means companies only give “guidance” on how they see business tracking once a quarter, on an earnings release conference call with questions like “Congratulations on the great quarter, uh, what’s your tax rate going forward?” That is what Shannon might call zero-entropy communication. It removes information from the market, when I need more and more.
With a beta of 1.0, any sample of the market exactly recapitulates the market averages. It’s the insight extracted from the information, that alpha, which separates the winners from the snoozers on Wall Street. Indexing is a waste heap – all info so merged and muffled that it hides knowledge rather than reveals it. All beta, no alpha.
So what do the best modern money managers do? They live for the pulse, in the pulse, but then work out, often by an educated gut, what is different, what is going to change –where the surprises will come – where Shannon hid the entropy. That’s valuable knowledge. No more leisure suit Nifty Fifty, no more indexing, no more day traders, no momentum investing, no more fooling around.
I think everyone has Alpha available to them in their eyes and their feet. Most will never know it, trust it if they see it or stumble upon it, but it is there everyday. Maybe walking the streets of the big cities, or living in Silicon Valley will help but in 2013 those edges have shrunk away as the mobile and people web explode. Maybe the ‘alpha’ itself is now just in the edges like Coronado (I wish).
When in doubt I say, don’t read more, read less. Don’t trade more, trade less. Hop on a plane, take a walk, open your eyes. Find some ‘alpha’ with your eyes and your feet without even trying.