What is investing these days when markets move on nothing more than inane articles about potential changes in Fed policy? Last Thursday we got a market blast off on a Jon Hilsenrath article that provided exactly zero information but moved the market anyway because everyone believes that he's got a hotline to the Fed on his desk. Today we got a sharp correction in the afternoon based on a Robin Harding article in the FT that, if possible, contained even less information than the Hilsenrath article. Oh no! Will the Fed taper? What does it mean???? 

When I got in this business back in the early 90s, I got into it because I loved analyzing companies. I combined a love for technology, a bit of engineering knowledge and the techniques of value investing to put together portfolios for clients. It was interesting and rewarding when I was right, frustrating and educational when I was wrong. I found enough winners over the years to attract a client base, most of whom are still clients today. I loved my job and worked insane hours because I wanted to, not because I had to.

In the middle of last decade though things started to change. Analyzing companies and picking stocks started to move to the background as macro considerations started to play a larger role in portfolio construction. The advent of the ETF had something to do with this, making it simple to allocate assets to both the broad market and increasingly specialized sectors. The bursting of the dot com bubble also played a role when many individual investors discovered that analyzing a company required more skill than counting hits on a website. It was both easier and safer to place your bets across multiple companies, countries and sectors using the new and better index funds. After the bursting of the housing bubble and the crisis of 2008, the emphasis on individual companies faded even further into the background as markets and individual stocks became increasingly correlated. Today it's all about the macro and the Fed. What's the latest economic release going to say? What will the next Fed Governor say about the future of monetary policy? Will the Fed buy more bonds or mortgages? What about the budget deficit? Is hyperinflation around the corner or the dreaded deflation?

This will probably just sound like some old fogie bitching about new fangled things and pining for the good old days, but I think we've lost something along the way. Investing today has turned into a quasi-scientfic exercise of asset allocation and modern portfolio theory. In short, the indexers have won the game and good old fashioned security analysis is considered useless. We are bombarded with statistics that say that no one can outperform the market anyway so why try? You can't beat a good passive asset allocation model by trying to judge values because your emotions are working against you and the Fed has distorted everything anyway. Just buy the model, rebalance the thing every year and forget about it. For someone who loves investing, it is a sad time.

I think we've taken this too far. Investing should be about owning part of a business (or lending to a business in the case of a bond) not allocating part of one's assets to the generic category called large cap stocks or small cap stocks or Japanese stocks. Warren Buffet is a star today not because he put some of Berkshire Hathaway's capital into "the market" but because he found good companies with solid balance sheets and a plan for future growth. And he held them for years as long as the companies continued to perform rather than throwing them out of the portfolio because the stock price broke a moving average. And yet we are told constantly by the press and the finance experts that we can't do that anymore, that Buffet is part of a dying breed. 

I disagree. Today is the perfect time to start emulating real investors like Buffet. With everyone so focused on indexing and no one spending any time on security analysis, there are bound to be mispriced assets. There are only 500 companies in the S&P 500 and thousands trading publicly. Anything not in a broad index is being completely ignored by most investors. Even companies within the indexes are regularly mispriced due to high frequency and quantitative trading models that are all operating on the same basic program. Minor earnings misses punish stocks of good companies as all the computers pounce on the "news". We can either capitulate to the HFT traders and the indexers or we can take advantage of the pricing anomalies they produce. It's time to forget the macro as much as you can. Buy stocks that, as Graham and Dodd urged, have a margin of safety and hold them for the long term. Yes, I'm advocating buy and hold. It isn't dead; it's just passe in a world of instant gratification.

The world today is full of market and economic information, available in real time but there is a dearth of knowledge. Markets move in nano-seconds based on economic reports that will be revised and ignored in a few weeks or months. This information deluge has dulled our senses and distracted us from what investing is really all about. Turn off the financial news. Spend minutes rather than hours on Twitter and see it for what it is - entertainment. Get away from the trading screen and read a quarterly report, preferably in paper form if you can find one. It isn't all about the macro and what the Fed will do next. It never was. It's just that we've allowed ourselves to be suckered into a game we can't win. So stop playing and start investing again. It's hard and the macro game everyone is playing makes it more volatile than it should be, but it is also rewarding for those willing to invest the time to do it right. And as a bonus you never have to watch Cramer again.