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发帖数: 1511 | 1 http://www.stock-article.com/window-dressing.php
As investors, and we all are investors these days, it is important that we
understand the idiosyncrasies of the Stock Market pricing data we use to
help us in our decision making efforts. On Wall Street, investing can be a
minefield for those who don't take the time to appreciate why securities
prices are at the levels that appear on quarterly account statements. At
least four times per year, security prices are more a function of
institutional marketing practices than they are a reflection of the economic
forces that we would like to think are their primary determining factors.
Not even close... Around the end of every calendar quarter, we hear the
financial media matter-of-factly report that Institutional Window Dressing
Activities" are in full swing. But that is as far, and as deep, as it ever
goes. What are they talking about, and just what does it mean to you as an
investor?
There are at least three forms of Window Dressing, none of which should make
you particularly happy and all of which should make you question the
integrity of organizations that either authorize, implement, or condone
their use. The better-known variety involves the culling from portfolios of
stocks with significant losses and replacing them with shares of companies
whose shares have been the most popular during recent months. Not only does
this practice make the managers look smarter on reports sent to major
clients, it also makes Mutual Fund performance numbers appear significantly
more attractive to prospective "fund switchers". On the sell side of the
ledger, prices of the weakest performing stocks are pushed down even further
. Obviously, all fund managements will take part in the ritual if they
choose to survive. This form of window dressing is, by most definitions,
neither investing nor speculating. But no one seems to care about the ethics
, the legality, or the fact that this "Buy High, Sell Low" picture is being
painted with your Mutual Fund palette.
A more subtle form of Window Dressing takes place throughout the calendar
quarter, but is "unwound" before the portfolio's Quarterly Reports reach the
glossies. In this less prevalent (but even more fraudulent) variety, the
managers invest in securities that are clearly out of sync with the fund's
published investment policy during a period when their particular specialty
has fallen from grace with the gurus. For example, adding commodity ETFs, or
popular emerging country issues to a Large Cap Value Fund, etc. Profits are
taken before the Quarter Ends so that the fund's holdings report remains
uncompromised, but with enhanced quarterly results. A third form of Window
Dressing is referred to as "survivorship", but it impacts Mutual Fund
investors alone while the others undermine the information used by (and the
market performance of) individual security investors. You may want to
research it.
I cannot understand why the media reports so superficially on these "
business as usual" practices. Perhaps ninety percent of the price movement
in the equity markets is the result of institutional trading, and
institutional money managers seem to be more concerned with politics and
marketing than they are with investing. They are trying to impress their
major clients with their brilliance by reporting ownership of all the hot
tickets and none of the major losers. At the same time, they are
manipulating the performance statistics contained in their promotional
materials. They have made "Buy High, Sell Low" the accepted investment
strategy of the Mutual Fund industry. Meanwhile, individual security
investors receive inaccurate signals and incur collateral losses by moving
in the wrong direction.
From an analytical point of view, this quarterly market value reality (
artificially created demand for some stocks and unwarranted weakness in
others) throws almost any individual security or market sector statistic
totally out of wack with the underlying company fundamentals. But it gets
even more fuzzy, and not in the lovable sense. Just for the fun of it, think
about the "demand pull" impact of an ever-growing list of ETFs. I don't
think that I'm alone in thinking that the real meaning of security prices
has less and less to do with corporate economics than it does with the
morning betting line on ETF ponies... the dot-coms of the new millennium. [
Do you remember the "Circle of Gold" from the seventies? Isn't GLD, or IAU,
about the same thing?]
As if all of these institutional forces weren't enough, you need also
consider the impact of tax code motivated transactions during the always-
entertaining final quarter of the year. One would never suspect (after
watching millions of CPA directed taxpayers gleefully lose billions of
dollars) that the purpose of investing is to make money! The net impact of
these (euphemistically labeled) "year end tax saving strategies" is pretty
much the same as that of the Type One Window Dressing described above. But
here's an off-quarter buying opportunity that you really . shouldn't pass up
. Simply put, get out there and buy the November 52-week lows, wait for the
periodic and mysterious "January Effect" to be reported by the media with
eyes wide shut amazement, and pocket some easy profits.
There just may not be a method to actually decipher the true value of a
share of common stock. Is market price a function of 3 company fundamentals,
artificial demand for "derivative" securities, or various forms of
Institutional Window Dressing? But this is a condition that can be used to
great financial advantage. With security prices less closely related to
those old fashioned fundamental issues such as dividends, projected profits,
and unfunded pension liabilities and perhaps more closely related to
artificial demand factors, the only operational alternative appears to be
trading! Buy the downtrodden (but still fundamentally investment grade)
issues and take your profits on those that have risen to inappropriately
high levels based on basic measures of quality... and try to get it done
before the big players do. To over simplify, a recipe for success would
involve shopping for investment grade stocks at bargain prices, allowing
them to simmer until a reasonable, pre-defined, profit target is reached,
and seasoning the portfolio brew with the discipline to actually implement
the profit taking plan.
Yeah, I miss the days when there were just stocks and bonds, but maybe I'm
just a bit too old fashioned. Interesting place Wall Street... |
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