Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

Thematic Investing Train Leaves The Station

Stock-Markets / Investing 2015 Mar 09, 2015 - 01:21 PM GMT

By: Anthony_Alfidi

Stock-Markets

The finance sector is always ready to entertain some new theory. The latest is thematic investing, which can mean just about anything. A handful of asset managers and consultancies have think pieces telling institutional clients how to make this work. Do a Web search to read them yourselves. I poked around a number of reputable sources tracking thematic investing to see what's missing from the discussion.


Academic validation is the main missing link. The academic research on focus investing validates a very selective approach to investing in a small portfolio of actively selected stocks, provided those stocks have strong fundamentals and are held for the long term. Books covering Warren Buffett's methodology support this conclusion but it's worth mentioning that Buffett himself is genetically unique. No other human investor or human-created selection screen has been able to duplicate his performance. Ten years is the minimum for a long-term holding but active investors pursuing thematic investing usually don't have that kind of patience.

Whether an average investor can outperform a broad market simply by starting with a pure macro idea is questionable. Investors awaiting hard evidence need only look at the poor track records of most hedge funds and sector-specific mutual funds to see the problems facing theme investing. The longer think pieces I've read on thematic investing emphasize wishy-washy concepts like hunches, feelings, and inclinations. Those are poor reasons to pick stocks. Thematic investing appeals to some of the lamest institutional investors, specifically sovereign wealth funds and pension plans, who fell for the Swensen-Yale investing model when it was hot.

Plenty of macro ideas are just plain bad. "Globalization" is a very broad theme implying multinational corporations are best suited to handle it. The trouble is that multinationals are often tied to the regulatory environment of their home countries. Here's one I won't try: the "food-water-energy security nexus." It matters to geopolitical strategists who try to predict conflict flashpoints. It matters less to corporations that play it primarily by mitigating its risk.

Thematic investing is not for everyone. Investors are welcome to pick their favorite sectors provided they know a sector inside and out. Sector market leaders have pricing power and the sectors themselves have barriers to entry (like switching costs) that deter competitors. Those are components of a Buffet-style durable competitive advantage. The dearth of competent investment managers means the mediocre majority will fall back on weak top-down selection strategies. Thematic investing is gaining speed with people who don't know where they're going.

Anthony Alfidi is CEO of Alfidi Capital (http://www.alfidicapital.com).  

http://www.alfidicapital.com
http://www.facebook.com/alfidicapital
http://twitter.com/tonyalfidi

Copyright © 2015 Alfidi Capital - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules