Because of some questions from newer readers, I am re-posting my first blog post from January 14, 2007. This post explains what a "beefer" is and why understanding them is crucial to one's investing health.
***BEGIN RE-POST***
To understand stock and commodity markets, you need to know who are the important participants. Today the principal ones are index funds, hedge funds, Street proprietary trading funds, mutual funds, the active public, and the inactive public.
For fun and because the classification works in explaining market activity, I group hedge funds, active trading mutual funds and the Street proprietary trading operations together as the Big Evil Funds. Long Term Capital Management was one, as was Amaranth until they blew up; Janus of the 1990s was one, too. I'll going into the "evil" appellation later.
For now, imagine a large group of wild elephants at a water hole. They drink & drink & drain it, then they stop around in the mud for awhile to decide what direction to go to find another water hole. At some point they decide which way to go, and they are off in a stampede to another water hole. If they get there and it's small or dry, they stomp around more & then go off in another direction. You can see the metaphor at work.
The action in the stock & commodity markets since the first of the year is a fine example of the big evil funds at work. I call them "beefers" - derived from "Big Evil Funds" shortened to BEFunds, hence "beefer" - since "beefer" has humorous secondary meanings. Besides being a country term for cattle - hence the herd stampeding, etc. - see the Urban Dictionary for more.
Early in the year they rolled into tech stocks & out of energy. then after a few days - as they realize tech water hole was too small - they all barge out of tech & mill around. Some barge into retail, some back to energy. Always they are searching for more water. The press daily comes up with nonsense about the "market" thinking one thing and then another. Trying to put reasons on this action is silly - it's just beefers searching for a trend, milling around, stomping in the dust. Don't get confused by trying to rationalize this kind of action.
[By the way I started this post on Jan. 14 and finished today, Jan. 22 - I'm learning how the blogger dates posts and wanted to clarify the timing of this post.]
***END RE-POST***
A questioning reader's comment reminded me I omitted an important thought. Here it is as a "PS" [It's in the comments, too. Thank you Bud.]
PS: A "normal" investor can imagine himself/herself as a "cute" little chipmunk trying to get some food. Some beefers can be like hawks [ hehe, hyena sounds better ;-) ] - evil predators trying to eat you. Or are like big elephants stomping around. From the point of view of a normal investor trying to make some money, beefers mindlessly or intentionally running his stops & crushing his breakout buys are "evil" and "dangerous". And the pundit explanations of all market moves as "the market is thinking xyz" are just nonsense. Most market moves are just a few "mindless" or "evil" beefers swinging a few milion shares/contracts "thinking" they are smart or trying to run stops. And then another beefer takes the other side after that beefers' selling/buying ends. So the "valueless cycle" continues. I'm warning the small mammals (i.e. we "real" investors) to avoid the thirsty elephants stomping around: Don't get stomped as they mill around. And don't get eaten by that nearby lurking beefer hyena ;-)
Here's the key point: WAIT FOR A TREND. Then climb on that "wonderful" elephant's back [safe from the hyenas] and RIDE to the next waterhole. :-))
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5 comments:
A few words from me as well on this blog entry. This post from the B'man is a bit witty and humorous. But it definitely does not explain how market participants make decisions. Are traders elephants? No. Elephants have no brains. Traders use all data and info available to them to make buy and sell decisions. Lmaoo 'evil'. Thirsty elephants lookin for water is evil? Tryin to make a buck in the markets is wrathful or immoral or corrupt? Huh?
Hmmm. Big mindless funds. BM Funds. Hmmm. that BM does has an interesting double meaning ;-)
Nah, I'll stick with beefer.
From the point of view of a "cute" little chipmunk trying to get some food, a hawk is "evil". So from the point of view of a normal investor trying to make some money, beefers mindlessly or intentionally running his stops & crushing his breakout buys is "evil". And the pundit explanations of all market moves as "the market is thinking xyz" are just nonsense. Most market moves are just a few "mindless" beefers swinging a few milion shares/contracts "thinking" they are smart. And then another beefer takes the other side after that beefers' selling ends. So the "valueless cycle" continues.
I'm warning the small mammals (i.e. we "real" investors) to avoid the thirsty elephants stomping around - Don't get stomped. Wait for a trend. Then climb on that "wonderful" elephant's back and ride to the next waterhole. :-))
Only large traders have the capability to be evil. Small ones are no problem - they're just trying to make a buck.
Hmmm. Re-reading my old post, I see the "climb on that elephant's back" metaphor was left off.
I think I'll add it as a "PS".
It used to be that the purpose of a hedge fund was to make outsized gains, or at least attempt to do so...that hardly seems to be the case now....they seem to be asset gatherers now, not investors/traders....concerned with trying to make 10% a year....sure, that is a fibe return, but there are easier ways to achieve it...there are so many funds it seems just a matter of time before investors question their usefulness....of course there are some wonderful funds out there, but on the whole the market seems quite saturated with mediocre ones....
I agree, mfl. This crap about "absolute" return is so stupid. One can get an decent absolute retrun in bonds at little risk. Why anyone takes a huge risk to get a few percent more seems insane.
I think they're become a cocktail party banter, about who's got a piece the biggest return.
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