Few new interesting ideas lately on how the post crash market will reconstruct itself. Now everyone knows how various sectors of the economy have suffered, and finding new arguments for investing is tough. The contrarian view or “climbing a wall of worry” has become the primary explanation for the equities rally since March. Investing experts have also reverted to the “lots of cash on the sidelines” reasoning which identifies the astonishing insight managers use every day in plowing under billions of dollars. More clever analysis might find other reasons for the reluctance to invest, but scared shitless does work.
The risk models, which caused so much grief for hedge funds, had a poor understanding of illiquidity in declining markets. But they have no problem with anything in rising markets. Just in case, some have now been replaced by models which employ sophisticated guessing techniques as to which way the markets will turn next. This is done by rapidly analyzing all the potential current information, positive and negative, and then throwing out the negative. So far it is working.
But the most reliable historical reasoning tool for investing in stocks must be the ” where else can one go model”. This reduces all analytics into a choice as the where best to apply carefully honed skills in betting. Pick a sector of the economy that is working. Of course that would exclude most banking, retail, autos, and construction. Then pick the best performing company stock in that sector and hope all the cash on the sidelines chases your position. This worked for years but can end badly.
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