Legg Mason Exec Says Daytraders & Most Money Managers Playing Fool's Game

Discussion in 'Wall St. News' started by ByLoSellHi, Feb 1, 2007.

  1. Legg Mason exec slams stock market's rapid turnover
    Thu Feb 1, 2007 2:45pm ET161
    By Herbert Lash


    NEW YORK, Feb 1 (Reuters) - Rapid-fire trading and indexing have taken over the asset management industry to the detriment of performance, Brian Posner, chief executive of Legg Mason Inc.'s (LM.N: Quote, Profile , Research) ClearBridge Advisors, said on Thursday.

    The turnover of stocks in the typical money manager's portfolio was just shy of 120 percent last year, an "incredible phenomenon," Posner said. Between 1960 and 1980, turnover was 20 percent and it rose to 57 percent by the year 2000, he said.

    An example of how investors are reacting to events, resulting in rapid trading to the detriment of performance, can be seen when a company releases earnings after markets are closed and trades are executed before a company's conference call, he said.
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    "The value of reacting to earnings surprises no longer exists. New empirical data suggests that it's a loser's game," he told a New York Society of Securities Analysts conference.

    Posner cited a study by Michael Goldstein of Empirical Research Partners that shows trading on "positive" earnings surprises has waned.

    In the past, measured from 1984 to 1989, and from 1990 to 1999, there were relative returns of more than 1 percent on earnings surprises in the first quarter, and 1 percent in the next nine months.

    But from 2000 to 2006, he said, citing the research, there have been negative returns of 0.4 percent in the first quarter after a surprise and a decline of 1.28 percent in the following nine months.

    "If you try to outsmart the markets over a short period of time, you better be very, very good," Posner said.

    The way to make real profits in money management is to become owners and not renters of stocks, he said.

    "What is happening now is the tail-wagging-the-dog phenomenon," he said. "Any good PM (portfolio manager) is an anomaly."

    The popularity of exchange traded funds among institutions suggests many money managers can't pick a stock, he said.

    For example, 50 percent of trading in shares of American International Group Inc. (AIG.N: Quote, Profile , Research) in 2006 was driven by ETFs, Posner said, citing research from Banc of America Securities LLC.

    The result is money managers are risk adverse, and hug their benchmarks. He said money management had become a defensive business, one in which the message is "do not mess up."

    © Reuters 2007. All Rights Reserved.
  2. SteveD


    I do not see any reference to "day traders" in this article....but nice try.....false impression to suit a particular point, I suppose

    Good luck

  3. Steve, you're technically correct.

    But it's implicitly there, isn't it?
  4. SteveD


    I would take it more that he is lamenting the loss of the good old days of "buy and hold".

    Now a company increases profit and stock price moves instantly to reflect that new number ......mostly B/D trading desks and hedge fund traders.....

    I don't think there is that much "dumb money" in the market....most, but not all, active traders are fairly well read and sophisticated......

    Just look at lack of IPO "pop" on any stock other than a true thoroughbred....not much "gap and run" unless real fundamental news.....

    But, I understand your point....

  5. Brian left CSAM and started a hedge fund that folded...i wonder why?

    his comments are comedic...he used to have a great PR/Corp communications person when he worked at Fidelity.

    i guess we can look forward to more of his BS.