You Are Only As Good As Your Last Trade

Not long ago on Twitter/StockTwits there was some back and forth regarding the old Wall Street saying "You are only as good as your last trade”. Some believe that is nonsense, that it’s all about your process, so you are only as good as your process they say.

I’m of the opinion that if you are trading for yourself then you are only as good as your process. Similar to a good jump shooter who knows that the outcome of the shot is irrelevant if he is taking what he considers to be a good shot (not forced). However if you manage money for other people I would venture to say that 99% of them don’t give it 2 ducks what your process is if you are under performing in an up market, not convinced?

He generously quotes me as making a more-modest observation: that managers, no matter the length or strength of their track records, are quickly dismissed (or ignored) if they lag their peers for more than a quarter. Our reaction tends to be clear: the manager has taken stupid pills and we’re leaving. Jeff Vinik at Magellan: Manager of the Year in 1993, Stupid Pill swallower in ’95, gone in ’96. (Started a hedge fund, making a mint.) Bill Nygren at Oakmark Select: intravenous stupid drip around 2007. (Top 1% since then on both his funds.) Bruce Berkowitz at Fairholme: Manager of the Decade, slipped off to Walgreen’s in 2011 for stupid pills, got trashed and saw withdrawals of a quarter billion dollars a week. (Top 1% in 2012, closed his funds to new investments, launching a hedge fund now). SOURCE: Mutual Fund Observer

Or how about Robert Rodriguez that up to 2009 his fund beat all rival managers for 25 years but yet saw massive withdrawals in 2009 due to under performance. “People told me, ‘You are not paid to manage cash,” that is what some investors told him, there goes your process.

How about Julian Robertson who founded Tiger Management who turned $8 million in start up cash in 1980 into over $22 billion in the late 90′s that came crashing down when the SP500 was up 19% in 1999 and Tiger funds declined 19 percent. In 2000 Robertson closed his funds. Robertson was not a fan of the internet craze and his 28 year track record when down the drain due to his last trade. What about Ken Heebner A.K.A the best mutual fund manager around as of 2008, from 1998 until 2008 he had the best 10 year track record with an annualized return of 24% compared to only 4% for the SP500 after a down 2009 his fund had net withdrawals of $1.8 billion in the first 6 months of 2010.

Don’t take “you are only as good as your last trade” so literal….Last trade might mean exactly that for certain stockbrokers but it normally means the last quarter, the last 2 quarters or the last year for hedge fund managers, mutual fund managers or independent advisors who manage money like a fund and not one stock at a time like a some stockbrokers.