Monday, April 23, 2012

A Look at Conventional Wisdom

In this week's cover story, Barron's released the results of the Spring, 2012 "Big Money Poll," its semi-annual survey of U.S. money managers.  It reveals what the conventional wisdom thinks about the economy and various financial and commodity markets around the world.

Given the prominence that the magazine gives to this survey, one would think that it gives a fair representation of the views of professional investors in the U.S.  But the survey is based on the responses of only 125 money managers.  Since a number of the respondents are at small firms, the survey doesn't reflect what the real "big money" thinks about markets.

I still find it interesting from a contrarian perspective to see what at least part of the conventional wisdom sees.  The poll showed four times as many who are bullish than who are bearish over the next year.  A substantial majority (84%) expects to be a net buyer of equities over the next 6-12 months, and 73% expect equities to be the best-performing asset class.  This is despite a lack of optimism about corporate earnings, as 49% expect analysts to lower their estimates for 2012.  Both expectations are not likely to be right.  

A large majority (81%) is bearish about U.S. Treasuries (only 2% are bullish).  Only 14% are bearish about the U.S. Dollar, and 84% expect the dollar to rise against the Euro, even though 77% expect the European Union to survive.

These views are not surprising.  While going against the conventional wisdom is not a guarantee for investment success, it at least is important to think critically about the likelihood that widespread views are already well reflected in asset prices.  Given that,  unexpected outcomes could have a major adverse impact on those asset markets.

Steve Lehman

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