I don’t put much stock in those on the Street who are permanently bullish or bearish, but a dose of reality and absolute-return thinking would go a long way toward earning back trust (it isn’t called the “sell side” for nothing).

All we have to do is compare both the “bottom-up estimate” of the S&P 500 to the actual reported top-down number, and we see a chasm as big as the Grand Canyon.

How can analysts -- with all of their training, and with so much privileged contact with top management -- be wrong so many years in a row? Why would anyone listen to this bogus, “buy the dip,” “hold for the long term,” “dollar cost average” philosophy? Better yet, why would anyone pay attention to the earnings estimates in the first place?

So let’s see: What would you rather own - a large group of stocks where you have no idea what they’ll earn, or safe, highly liquid Agency securities? For now, but not for ever, I vote for the latter. Something has to give here: Either the Fed model is flawed, the earnings estimates from Wall Street are wrong, or I’m wrong.

Since I wake up every day expecting to be wrong, (as all risk managers should), should I assume that what has saved me and many others from losses over the years is wrong? Or should I assume that Wall Street is hopelessly optimistic, or that the model itself is flawed?

My vote, for what it’s worth, is that a bit of all 3 is going on. I’m wrong approximately one-third of the time. The Street has been wrong, as best I can tell, all of the time. The Fed Model is nothing more than a tool to get folks to invest on a premise that is flawed at best; at worst, it’s a mirage.

Allow me to put it this way: If you had bought into the “buy-and-hold” philosophy, the “dollar-cost-average-down” philosophy, “the stocks go up over the long-term” philosophy, you wouldn’t have made a nickel since 1997. You may have burned through what I like to call “emotional capital,” but 11 years is a long time to go without making any money in one of your highest expected-return assets, without any consideration to opportunity cost.

The point I’m trying to get across is that those who try to understand the “big picture” -- those willing to go out on a limb every so often, to think outside the “MBA box” -- may be rewarded. Efficient-market theory and the “efficient frontier” sound great, but they aren’t market timing. It’s a way to enhance returns while reducing volatility.

To be sure, it’s a different kind of risk, a kind of risk that most aren’t willing to assume, and it’s why I believe most investment managers’ and investors’ returns revert to the mean.