As we round the corner and set our sites on another year, portfolio managers are beginning to focus more and more on job security. In a world where performance is worn as a badge of honor and you're only as good as your last trade, these people will go to great lengths to preserve their livelihood. It's surely been a difficult few years, to say the least, and Wall Street has an air of desperation to it. If absolute returns aren't possible, you can be certain that relative performance is on the forefront of everyone's mind.
I bring up this point to highlight the importance of the psychological metric in the current environment. This latest bullish phase was triggered by technical conditions and (potentially) buoyed by isolated fundamental data points-but don't underestimate the importance of "performance anxiety." Think of your own angst associated with missing a rally, add a bunch of zeros on the end and factor in having to explain yourself to anxious investors. It's easier to see how stocks appear to be more attractive 15% higher than they were three weeks ago.
Of course, absent a material shift in the underlying metrics, stocks aren't more attractive at higher levels and identifying the next psychological sea change will help us capture that disconnect. We'll have plenty of events this week to help us clarify if this latest lift was indeed justified. There are two storage conferences (Storage Networking World and Lehman Brother's) beginning today and Prudential's much anticipated technology fete kicksing off tomorrow. In addition, there's a software conference, a handful of company sponsored meetings and seminal economic date due out later in the week. Juxtapose all of this information and the pending price action with the fact that Oct 31 is year end for some mutual funds, and you have all the makings of a wild ride.
We walk into a few positive data points this morning (including a Lehman upgrade of Citigroup), so it seems Hoofy & Co. are trying to press their bets. It remains an emotional market but our ability to remove emotion (poker face) will only increase our odds of success. With a scant nine weeks remaining in the year, the clock is ticking and the stakes are high. Trade to win, but don't toss your chips into the game unless you're fully prepared to play your hand. Take a deep breath and wait for your card. It's surely in the deck.
Good luck today.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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