Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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9/1/04:
Survival of the Fittest or the Sexiest? by Phil McDonnell

Charles Darwin's original ideas on evolution boiled down to survival of the fittest as the selection factor which allowed a species to survive. Modern thinking has added survival of the sexiest as an alternative to survival of the fittest. Survival of the sexiest can come in two forms. In one form, one gender is selected on sometimes a single trait which is considered sexy by the other gender. Peacocks are a wonderful example. Those splendid tails would be ridiculous as an adaptation to facilitate escape or find food. Nevertheless they persevere because their mates found (and find) them sexy. Sometimes survival of the sexiest simply means that he who has the most offspring will be more likely to survive into the next generation.

Markets too, have a kind of survival of the fittest and survival of the sexiest. The fittest are those who can really make money in the markets. They understand the game and know how to play it. They know how to find and maintain an edge and how to manage their capital to avoid ruin in a market debacle.

The other quite distinct class of market participant is the sexy kind. These are the ones who are masters at keeping their name in the public eye. They know how to look good, to look sexy to attract the money. Their real genius is in marketing and not money management. Consider the massive ------ ----industry. Collectively 70 to 80% of the funds under perform the Standard & Poor's average every year. Yet powered by their 12b-1 fees extracted from shareholders to help pay for the firm's marketing efforts. The modern day marketing geniuses are the sexy survivors in the market.

The epitome of modern sexy marketing is the (animal) marketing machine. I use the term "machine" very pointedly. It isn't just the ------- disciples who obviously all know each other. It's the extended book writing covert marketing team which gets the job done. It's a sexy combination of admiring author(s) and a self reaffirming group all selling a simple but sexy meme. That meme is, of course, ----- following. It's simple to understand, and therefore very sexy to the layman. Sexy marketing works big time.

All of this begs the fundamental question. In the investment world, who gets bigger - the fittest performers or the sexiest marketers. In my opinion the marketers are the ones who most enrich themselves. Unfortunately that says little for their clients.