Day 95: 3 Steps to Contrarian Investing?
The Mother's Little Helper portfolio was down today (-0.31%) for a loss of -$2,112.44. Overall gain to date: +$91,665.27 (+15.70%). 36 stocks are now in the black, 9 are still in the red, 1 was sold out in a merger. According to CNN Money the S&P 500 is up +5.53% Year To Date. We close out the month and the quarter with a nice 15.70% gain, crushing the S&P 500 by more than 10 points.
On Tuesday, BlackRock, the worlds largest money manager decided to cut loose more than 40 of its fund managers and replace them with stock picking computerized algorithms. BlockRock isn't alone. It's estimated that by 2025 about 230,000 financial industry personnel will be replaced by computers that can pick and stick with stock selections with a higher degree of accuracy and with less human emotion. Overall, the computers will have a minority $30 billion of BlackRocks $5.1 Trillion under management; but it's a start.
BlackRock concluded that a number of their large-cap funds being managed by humans were not likely to outperform their benchmark indexes over the long term. Hmm, this sounds familiar. Oh yeah, it's the fundamental foundation argument of this blog and the portfolio project behind it. Portfolio managers who actively trade cost the portfolio a ton of money and reduce returns to investors. I like to think I'm an optimist, but when it comes to investing I know I harbor a dark skeptic that looks carefully around every corner before advancing down Wall Street. BlackRock and all the other big financial firms are quickly adopting quantitative analysts and algorithmic trading. The public story is that this will better serve investors by reducing costs and by making better investment choices. But the business of these financial firms is to generate fees for the firm. So if the algorithms can analyze thousands of data sets to figure out how to make better investments at lower cost; isn't it also possible for the programmer to code an algorithm that can isolate the best fee structure that retains the highest number of clients who pay those fees? No where in the algorithmic strategy did BlackRock or anyone else claim that they were going to do less trading, they simply found a way to do the same or more trading at lower cost.
It appears that a Buy-and-Hold stock picker like me is the new contrarian investor. So here's my three step strategy to continue to outperform the market in this new technological age of investing.
Buy great companies at low prices
Hold those great companies for at least 1 year
Collect your profits and do it all over again
Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.