Even a Nobel Prize winner doesn’t get stocks
Having a hard time understanding why US stocks keep marching higher amid the threat of nuclear war with North Korea, turmoil in Washington, an economic recovery that is both long in the tooth and feeble, and a Federal Reserve that seems intent on raising interest rates until equities respond in the negative? If so, you’re in good company. No less an authority than Richard H. Thaler, who was awarded the Nobel Prize in economics this week for his work on the irrational behaviour of humans, can’t get his head around it either.
“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler told Bloomberg TV on Tuesday as the S&P 500 Index marched higher.
“I admit to not understanding it.” To be sure, this is an unconventional bull market, and Thaler probably realizes more than he’s letting on that one needs to view the market through an unconventional lens.
Leuthold Weeden Capital Management chief investment strategist Jim Paulsen notes that even though stocks have reached new highs, a persistent and abnormally strong wall of worry has kept irrational exuberance in check, and there’s been a regular rotation in market leadership and the slowest economic recovery in post-war history hasn’t sparked faster inflation.
And just because Thaler says he may not understand the rally in stocks doesn’t mean his firm Fuller & Thaler Asset Management, where he is a principal, and its investors aren’t finding a way to profit. Fuller & Thaler sub-advises the $6 billion Undiscovered Managers Behavioral Value Fund, which focuses on small-cap companies with significant buying by insiders or share buybacks. The fund has gained an annual average of 16% the past five years, beating 97% of its rivals, and is up 8.1% this year through 9 October. Bloomberg View
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