Something that unites almost every asset manager that believes it uses a disciplined, repeatable investment process is our annoyance with performance chasing. The root of this frustration is how performance becomes a shiny object that can distract some investors, and even some financial advisors. It can be particularly difficult to look away from the shine during prolonged bull markets, when human nature makes investors feel more invincible.
Here’s an ironic twist: The other day I realized that Blueprint Investment Partners, as a trend follower, actually has plenty in common with performance chasers. Except for one (gigantic) difference.
We’re All Reacting to Price
Trend followers use an asset’s price as the primary input for making decisions about whether to buy, sell, or hold. Performance chasers also react to price. If the price is rising, they’re rushing to buy. If it’s falling, they can’t sell quick enough. In recent memory, is there a better example of this style of investing than GameStop? It was well under $5 through most of 2020 but exploded to peak at nearly $500 in 2021, fueled by and fueling additional frenzied buying. A slightly calmer mania marked the ride back down.
The story played out similarly for other meme stocks, which experienced buying and selling that seemed primarily based on behavior of the herd, r/WallStreetBets chatter, and constant attention from mainstream media.
Trend followers see that activity, then plug their ears and cover their eyes to it. Because there’s a major, major difference in HOW trend followers and performance chasers react to price. In a word: Process.
You can read the full article here: https://blueprintip.com/blog/trends-with-benefits/
Guest post by Mike Carlone of BluePrint Investment Partners
Comentários