Bloomberg has an article today about the predictions of a number of managers that haven’t panned out. I don’t think it is useful to pan the managers for not being right all the time-after all, these managers all have good long-term track records. To me, it simply points out that even very smart people can be completely wrong when they try to guess about the future. As an example, here is one excerpt from the article:
Jeremy Grantham, Bill Miller and Donald Yacktman told mutual-fund investors that 2010 was the year to buy the biggest stocks. They’re sticking with the prediction even after getting drubbed by most of their peers.
Small and mid-size stocks almost doubled the return in 2010 of the Standard & Poor’s 500 Index, the benchmark for U.S. large-capitalization equities. Still, Yacktman and the others are making the same case for the new year as they did for the last: big companies are undervalued compared with smaller stocks, and their earnings will benefit more from faster economic growth outside the U.S.
I just don’t see the point. Whether their predictions will be right this year or not is immaterial. They have a belief that large stocks are “undervalued” relative to small companies and they choose to stick with it, whether that belief is useful or not.
Here’s the thing about beliefs: maybe you should stop thinking in terms of right or wrong, and think instead about whether the belief is useful or not. Maybe they are right that large stocks are undervalued, but that belief may or may not help them make any money. Last year it cost them money-and it cost their shareholders money. We believe simply in adapting to whatever the market gives us. That is a useful belief.
