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Beware of Money Managers ‘Talking Their Book’

Posted by Larry Doyle on October 5, 2009 9:02 AM |

“Oh, come on, Larry, you are just ‘talking your book.'”

I can hear those sentiments ringing in my ears from many Wall Street salespeople with whom I dealt over the years. What trader doesn’t talk his book? For those unfamiliar with this phrase, it is used when a trader or money manager offers a heavily biased view of the market and economy. While it would be naive to think that individuals aren’t biased by their business in developing their opinions, the challenge for investors is to weigh the opinion in light of the bias. To do otherwise would be the equivalent of flying blind.

I see evidence of ‘talking one’s book’ in commentary provided by Bloomberg, Stock Seers Say Gross 5% May Only Be Normal In Debt,

Wall Street projections for the fastest U.S. profit growth in two decades are putting some of the biggest equity investors at odds with Bill Gross.

Money managers are betting that more than two years of declining earnings, the longest stretch since the Great Depression, will end in 2010 when net income rises 26 percent before expanding 22 percent in 2011, according to data compiled by Bloomberg. Gross, who oversees the world’s biggest bond fund at Pacific Investment Management Co., says the economy won’t grow fast enough to sustain the steepest rally since the 1930s and equity returns will be limited to 5 percent a year.

Both Gross and the equity managers are in a perpetual battle for investor assets, the lifeblood of any money management operation.

One would be ill advised not to study the opinions of those involved in managing the largest equity and bond funds in the markets. These funds can move markets given their very size. That said, we need to weigh the manager’s opinions in the context of a wide array of other vastly more important variables. What are these variables and how do they impact my thought process in making investment decisions?

I initially develop an opinion about the economy. From there, I think about respective weightings I would like to allocate to different segments of the market (equities, bonds, cash, real estate, alternative assets). At that point, I review money managers to select those whom I deem to be the best. Only at that juncture would I seriously consider the thoughts and opinions of the money manager so I can most effectively make investment decisions.

I will often immediately dismiss money managers who have never offered opinions which run counter to their business.

Talking one’s book is not necessarily a bad thing. In fact, I would seriously discount a money manager who is not able to make a compelling case for his business. That said, as investors we need to be able to minimize the static and eliminate the noise that comes from managers ‘talking their book.’

LD

  • Tony Ryals

    Larry,
    If you wanted to could you as an amatueur stock market historian track down where the phrase ‘Talking Their Book’for arose from ? Was it used or conceived before, during or after the 1929 and 1930’s depression era for instance ? Who coined the term ?
    You see this is the precise question I am asking and have been asking re ‘naked short selling’ that I have only heard crooks(and when I hear Senators Bob Bennett,Carl Levin and Arlen ‘Magic Bullet’ Specter use I suspect they like ex SEC Chair Chris ‘Naked Shorts’ Cox are crooks too!)) use even though they appear to be SEC protected crooks.
    I am an amateur historian myself in my very limited area of interest.If you reviewed my essay on ‘the pope’s misconceptions about conception and science history’,for instance you would porobably have to conclude I was the first and only person to place or combine in an article the historic fact that the catholic church taught Aristotle’s four elements,’earth,air,water and fire'(and that it never officially acknowledged the collapse of that world view and accepted that we now know te pope and everyone on the planet consumes and excretes from their bodies about a pound and a half of phosphates per year or earth orbit.And this phosphate comes from Aristotle’s former ‘earth element’ or the soil and must now be replaced by mining phosphate in Florida and elsewhere to replace in the soil
    or former ‘earth element(not counting direct soil erosion),
    and that’s a lot of phosphate mined from Florida,etc.!

    My point in all this is is that no one has written or told me the history of the origen of the term ‘naked short selling’.I had heard of ‘short selling’ before 2002 when James Dale Davidson,et.al. began bandying about the term ‘naked short selling’ to explain the share price collapse of their penny stock pumps and dumps,particularly
    Genemax and Endovasc but I had NEVER heard the term ‘naked short selling’ until they created NAANSS or National Association AgainstNaked Short Selling’.(ha)
    Also I reviewed at least one depression era book some years ago – (was the title, ‘Confessions of A Short Seller’?,I can’t remember but the author NEVER used the term ‘naked short selling’) so I presume the term was never used until AFTER the depression ! Am I correct or not ? Also I posed the question when Carl Levin began spewing it all over the internet a few months ago – how does he say ‘naked short selling’ in Hebrew just as I posed the same question
    about how is it said in Arabic in 2006 in an article I wrote when a Max Keiser made a video in English for the Emir of Qatar’s Al Jazeera ? Do you know how they say it in Hebrew or does ‘naked shorting’ not exist on the Israeli Tase market and thus we should send some of our SEC and FINRA experts there to study why it never occurs there while according to the SEC and David Kotz and Cox it even occurs with our dividend paying stocks such as Fannie Mae and Freddie Mac !?
    And is ‘naked shorting’ done by a ‘Sith Lord’ as Patrick Byrne and the Utah Moron Senator Bob Bennett seem to believe or by market makers ? Or are they perhaps confusing ‘naked short selling’ with illegal pumps and dumps that the SEC never never seems to catch or perhaps some of those ‘dark’ trading pools that Mary Schapiro has hinted occur on Bernie Maddoff’s old and now the Sheikh Mohamed Al Rashid’s Dubai new NASDAQ ?






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