Thomas, who is always very responsive (and very smart), responded to my column with the following:
Douglas,I responded to Thomas with the following:
The S&P 500 has risen 11%-15% from mid-September to year-end in 2009, 2010 and 2011, and a big piece of this is a combination of hedge funds adding to longs and mutual funds shifting from defensive positions to higher-beta stocks.
The underperformance of funds is worse this year than any other year since 1995, and mutual fund beta is the lowest in four years.So the beta chase should be more pronounced this year as a result.
My response to you, Thomas, is that in the years 2009, 2010 and 2011, the markets were relatively weak leading up to September -- unlike 2012!!! Here is the three-year chart.In summary, I dismiss the whole argument of a performance chase that has so permeated the investment discussion over the past month and that has been an important reason (to many) for being heavily committed to stocks into year-end. Instead of relying on this concept of chasing performance, consider that the role of earnings will weigh on the U.S. stock market far more as we move into year-end.