November 26th, 2008
06:23 PM ET

The Market Does Not Have a Brain

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Wayne P. Weddington III
Author and hedge fund manager
Forget about fundamentals. This market reminds me of the joke about two guys running from a bear. One asks the other, "Which way are you gonna run?" "Why, are you going to run with me?" the other guy asks. "No," says the first guy, "I don't want to run right over you!"

It is every man for himself right now. And people are running every which way.

Yes, we keep hearing that the current market situation is unprecedented, that it is historic. Well it is. Just look at all of the banks which were household names just a few months ago that either do not exist any longer or look really different (call that smaller), or are part owned by you and me, the taxpayers. These failures are huge.

And hedge funds - though intended to protect the investor from unwelcome swings and losses in bad times - have been decimated. Their failures do not make the news because they are not public companies. But the blood is running a river from Connecticut to New York.

As I walk down the streets of New York, no doubt grumbling aloud to myself, I have become the Scrooge of yore, nearly yelling at people in the streets who are smiling inexplicably. They are gleefully unaware of the impending doom. I feel I need to bring them down a notch.

I have not been spared the rout but my fortune is a tale of two cities. My long/short equity strategy, steeped in fundamental analysis, has suffered a fate similar to the market. It has outperformed the market, mind you, but that is scant consolation when the return has a negative sign in front of it. The sole shiny spot has been my global macro strategy. It has performed exceptionally with a YTD return above 200%. But the swings can drive a man to drink. And I comply.

Investors today break down into three categories. The long-termers will still cry upon account review but they will have comfort in one assumption: that the U.S. will not come to an end. We will survive. In 1973-4 the market suffered significant declines similar in scope to today's. It was a tough decade with subsequent hyperinflation and dismal equity performances, but we made it through to the eighties.

Yes, we can!

There are the scaredy cats. They have picked up and run for the hills. They tend to be seasoned but unwitting adherents to the philosophy of buy high, sell low.

Then there are the adventurers. They are those who are trading this mess. They alone are positioned to benefit from all of this volatility. But it is a rough road. Keep your Prilosec handy.

Editor's note: Wayne Weddington is Managing Partner of Pennoyer Funds and Author, Do-It-Yourself Hedge Funds: Everything You Need to Make Millions Right Now

Filed under: Economy • Wayne P. Weddington III
soundoff (6 Responses)
  1. Brian Weddington

    Supply and demand are about as fundamental as it gets. In that context, it all makes sense.

    does this mean no presents this year?

    December 1, 2008 at 10:28 am |
  2. The View from LA

    Where I live, the only honest answer is "So I can tell the bear."

    November 27, 2008 at 2:01 pm |
  3. Kenneth Wapner

    Wayne, glad to hear you're way up on global macro. Well done, and I look forward to seeing the book. Yours, Ken

    November 27, 2008 at 9:56 am |
  4. Reginald Royster

    Mr. Weddington you seem to have captured the essence of our times.
    Hopfully, Brains/Cooler heads, will return to our markets soon.

    November 27, 2008 at 8:55 am |
  5. Gene Penszynski from Vermont

    You know Wayne .... 'The Market' does NOT have a brain. 'The Market' is just like the typical Republican 'Base Sarah Palin supporter !!!!!!!

    I f those financial 'analysts' started looking at people instead of 'The BRAINLESS market' we mostdefinitely would NOT be in the fianacial mess we are in today !!!!!!!!!!

    November 26, 2008 at 8:13 pm |
  6. earle,florida

    I'd like to hedge a bet with you Mr. Weddington, that 1/125 consumers plan on filing bankruptcy after the Holiday's!

    November 26, 2008 at 5:37 pm |

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