It was a very busy week/weekend as I first attended NAAIM's (National Association of Active Investment Managers) annual conference. The conference was stellar, and it was great to hang out with so many like-minded investment professionals Sunday through Wednesday.
I picked up some trading psychology tips from Brett Steenbarger, PhD, who was at one time, a real-world Wendy Rhoades for Paul Tudor Jones' shop. One of Steenbarger's major points on the markets was that understanding the psychology of key market participants is critical these days. I found his insight and approach valuable and plan on following his musings on a regular basis at TraderFeed.
For example, Steenbgarger provided some interesting insight into what hedge fund managers are thinking right now. Supporting some of Marko Kolanovic's work that I have detailed recently, Steenbarger suggested that hedge fund managers have missed a fair amount of this year's joyride to the upside and are now busy playing catch up.
Hedgies Trying to Catch Up
Dr. Brett says the hedgies are playing the usual "mo-mo" game in order to attempt to close the performance gap. As you might suspect, this implies chasing the momentum names and "allocating more capital to the winners."
The problem, Steenberger opines, is that hedge fund managers were late to the game and as such, can't afford to take losses/give back gains. This suggests that the hedgies could become the "weak hands" in any meaningful decline. The idea is with hedge fund managers being quick to pull the trigger on the sell side, any downside action in the near-term could become exaggerated.
Another way to look at this situation (my opinion, not Steenbarger's) is "the chase" could keep on keepin' on until (a) the hedgie money gets put to work, (b) the ...