It's apparent that the first 4 months of the year have been anything but normal ... Challenging to say the least.
The increased volatility and noise tested active managers' mettle intensely and often. While even a blind squirrel finds a nut in a forest (for example, during a bull market ...) this type of environment provides an increased opportunity for both under and outperformance as luck and skill collide.
History will show that the majority of funds struggled in the first quarter of 2020 - driven by the volatility and uncertainty in the midst of a global pandemic.
Investors pulled out ~$33 billion when asset values initially plunged. Yet, the rush to cash was only the beginning, in the first quarter, asset value plunged $366 billion. Redemptions hit large hedge funds the hardest. Meanwhile, funds with less than $1 billion under management only lost $1.6 billion to net redemptions.
That being said, as is often the case in both volatile and bear markets - people are checking out the state-of-the-art active management strategies. Interest in hedge funds is at a three-year high, as many people fear that what used to work simply isn't good enough anymore.
I suspect that technology-enhanced strategies will gain ground during the next few years as A.I. and exponential technologies get better and gain traction in asset management, risk control, and data management. Algorithms will improve, hardware will get faster, digital signal processing will become more accurate, and it will be easier to identify and produce data sources that increase the efficiency, effectiveness, or certainty of outcomes. The likely result will be a reduction in the cost to produce a unit of alpha, which bodes well for forward-looking investors.
As we slowly move toward normalcy, what can we expect to see?
Institutional Investors are optimistic as well. Here are selected responses from a survey of 125 institutions.
94% of respondents said that their institutions had done a good job managing response to COVID-19, with 44% believing they'd done very well. This contrasts with their belief on how the government handled the crisis, but shows an opportunity for a strong rebound for businesses.
In past weeks, I've focused on this crisis as an opportunity for reflection and growth. Personally, I continue to brainstorm ways to combine the old way and the new way to create something better. Institutional Investors express similar sentiment here.
As of 4/21/2020, 66% of respondents believe the focus should be on the health of the public, that will likely soon shift to stabilizing the economy, and subsequently shift to growing the economy.
I believe we'll see similar responses from active managers and from entrepreneurs. This is an opportunity to improve operations, adopt better practices, and set higher standards.
It doesn't make sense to shoot for going back to where we were. This much pain and effort likely creates the fertile ground for something better.
Onwards!
Selective Attention: What Are You Missing?
Sticking with the philosophy theme, I encourage you to watch this video below on selective attention.
Daniel Simons' experiments on visual awareness have become famous. The primary conclusion drawn from his research is that we can miss incredibly obvious things, right in front of us, if our attention is focused elsewhere.
While watching the video, count how many passes the team in white makes.
This is worth doing so you experience it yourself.
OK, click the video to do it now.
via Daniel Simons and Christopher Chabris (Click Here To Read The Full Paper)
First, did you get the number of passes correct? Second, did you see the gorilla?
If you have already seen this video or heard of the study, it's much easier, but most people absolutely miss the Gorilla, despite it not being hidden.
Think about how often your focus blinds you to the obvious.
This next video demonstrates "change blindness". In an experiment, 75% of the participants didn't notice that the experimenter was replaced by a different person.
via Derren Brown
Warning: Objects In Your Attention Span Are Fewer Than You Perceive.
It's well known that we often miss objects in our field of view due to limited attention and change blindness, but, it's true with more than just sight. Moment by moment, the brain selectively processes information it deems most relevant. Experiments, like these, show the limits of our capacity to encode, retain, and compare visual information from one glance to the next.
More importantly, this suggests that our awareness of our visual surroundings is far more sparse than most people intuitively believe. Consequently, our intuition can deceive us far more often than we perceive.
As an entrepreneur, when I focus fully on something, it's as if everything else goes away. That level of focus can be a gift - but it can also be a curse. In Genius Network, we have a form we fill out at the beginning of each meeting. In it is a diagram where you rate your score on 8 factors: physical environment, career, money, health, friends & family, significant other, personal & intellectual growth, and fun & recreation
It's rare that I'm fully succeeding in all 8 ... we only have so much focus and bandwidth, it's inevitable I'll miss things. Clearly, in an information-rich environment, attention is a scarce and essential resource. So, pay attention (or automate the things you know need to be done right, every time).
What are you currently prioritizing, and what's falling to the side due to that focus? What are you missing?
Hope this was a helpful reminder. Let me know what you think about posts like this. Thanks.
Posted at 07:15 PM in Business, Current Affairs, Film, Healthy Lifestyle, Ideas, Just for Fun, Market Commentary, Personal Development, Science, Trading | Permalink | Comments (0)
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