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How does fear impact the performance of asset managers and fiduciaries?
Shark: A perfectly evolved killing machine, immortalized in Spielbergs 1975 film, Jaws.
Sometimes by Selfie
Source: Ritholtz.com
But Kim, What Will Kanye Say?
Source: Ritholtz.com
Sometimes by Cone Snail
Average Annual American
Animal Deaths
Deer: 120
Bees: 58
Dog: 28
Cow: 20
Horse: 20 Deadliest?
Spider: 7
Bear: 1
Alligator: 1
Cone Snail: 1
Lion: 1
Shark: 1
The Deadliest Animal in the World
2010: U.S.
noncombatant
fatalities from
terrorism
worldwide = 25
2011: Terror
deaths = 8
Annual deaths
due to struck
by lightning =
29 .
You are
35,079 times more likely to die of heart disease
33,842 times more likely to die of cancer
than a terror attack.
Source: CDC
Careful Rolling Over . . .
Fear, Emo*onal
decision-making
=
Bad judgment
Bad outcomes
Market Crashes
HyperInflation
Collapse of the
Dollar
Looking foolish
S&P500 Declines of 20% (or more)
Catastrophizing Markets
Faber on Hyperinflation: Not A Matter Of If But When Business Insider, 9/23/2010
Faber: The Dollar's Value In The Future Will Be Zero Business Insider, 4/18/ 2011
Marc Faber: We Could Experience A 1987-Style Crash This Year Business Insider,
5/10/2012
Marc Faber: Look out! A 1987-style crash is coming. CNBC, August 8, 2013
2014 crash will be worse than 1987's Marc Faber CNBC, April 10, 2014
Dr. Doom calls bubble, adding to gloomy calls CNBC, Nov 2, 2015
Economist, Feb 20th 2016 Fed Running Low on Ammo (WSJ August 26, 2010)
Source: Ritholtz.com
2003: Politics and Asset Management Dont Mix
Source: DALBAR
Investor Performance (20 Years)
Sentiment Cycle
Source: Ritholtz.com
Part III: Managing our fears through data
Defining Investment Risk
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
Jan-26
Feb-28
Mar-30
Apr-32
May-34
Jun-36
Jul-38
Aug-40
Sep-42
Oct-44
Nov-46
Dec-48
Jan-51
Feb-53
Mar-55
Apr-57
May-59
Jun-61
Jul-63
Aug-65
Sep-67
Oct-69
Nov-71
Dec-73
Jan-76
Feb-78
Mar-80
Apr-82
Without Risk . . .
May-84
One-Month US Treasury Bills
Jun-86
Jul-88
Aug-90
Sep-92
Oct-94
Nov-96
Dec-98
Jan-01
Feb-03
S&P 500 Index
Mar-05
Apr-07
May-09
Jun-11
Jul-13
Aug-15
$1,000,000
$1,000
$100
$10,000
$100,000
Jan-26
Mar-28
May-30
Jul-32
Sep-34
Nov-36
Jan-39
Mar-41
May-43
Jul-45
Sep-47
Nov-49
S&P 500 Index
Jan-52
Mar-54
May-56
Jul-58
Sep-60
Nov-62
Jan-65
One-Month US Treasury Bills
Mar-67
May-69
Jul-71
Sep-73
Nov-75
Jan-78
Growth of $100
Mar-80
May-82
Jul-84
Sep-86
. . . there is no Reward !
Nov-88
Jan-91
Mar-93
May-95
Jul-97
Sep-99
Nov-01
Jan-04
Mar-06
May-08
Jul-10
Sep-12
Nov-14
Markets Have Rewarded Discipline
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no
guarantee of future results. MSCI data MSCI 2014, all rights reserved.
44
You Dont Have to Pick Just One
200% "The Lost Decade" Total Returns January 2000 - December 2009
176%
154%
150%
121%
110%
100% 92%
82% 85%
50% 41%
28%
12%
0%
-9%
-50%
45
The Diversified Portfolio
46
Why Do Investors Underperform?
* Organizational Alpha
Organizational Alpha
Understand Risk:
Barry L. Ritholtz