Feeling depressed? join the crowd..

According to a survey cited by The Economist

Fully 71% of the businesspeople polled expected America’s competitiveness to decline over the next three years.

The poll was conducted amongst nearly 10,000 Harvard Business School graduates over the US and 121 other countries and had some surprising outcomes

Intriguingly, the Harvard alumni were gloomy about where America is headed, rather than how it is now.

So it is less about now and more about the future.

Fund managers have been copping a shellacking of late and according to Alice Schroeder, author of the Buffett biography Snowball, the days of easy money for fund managers is over

after a couple of decades in which asset managers floated along in ease and splendor, economics is now grinding down the business. The easy money is going away. Investment management is in the early stages of a historic transformation. Like most tectonic shifts, it probably will take years to fully develop.

That transformation

came on the heels of three shocks: the 2008 financial crisis, the 2009 market panic and the 2010 “flash crash.”..It also followed an entire lost decade for the equity market.

which has resulted in lower returns

Consider what it means for money managers to live in a deleveraging world. It may not be universally accepted yet, but in this new era, 4 percent is a good return. This will not justify paying 2 percent of assets as a management fee (to say nothing of 20 percent of returns as performance fees). A similar problem exists for mutual fund companies, most of which have high overhead, including managers who get seven-figure bonuses. 

and fewer funds

funds are flowing furiously toward the largest managers because people want the tried-and-true, lest they wind up trusting another Bernard Madoff...Of the total assets added by hedge funds in the first six months of 2011, more than 11 percent went to just one manager, Bridgewater Associates LP.

Some managers, like Howard Marks from Oaktree Capital, have adopted an openly defensive position

What Cant We Do?

The main thing we can't do is see the future, and particularly the macro future.  That simple statement has serious ramifications. It means that a lot that we'd love to know is beyond us:

- we can't know what the economies of the world will do,
- we can't know whether markets will go up or down, and by how much and when,
- we can't know which market or sub market will do best, and
- we can't know which securities in a given market will be top performers.

And what does the fact that we don't know these things mean for our portfolio management? Simple: it means that we musn't act as if we can.

Then Marks adroitly dangles the carrot;

in 1999, sky high valuations and investor ardour positioned stocks for a 'lost decade." Today, low valuations and investor indifference just might mean they're poised to surprise on the upside.

Sounds reasonable enough...

at the risk of oversimplifying, I see a long list of macro risks on one side of the scale, and low valuations and joyless investors on the other. prices are neither so high that we must be hyper-cautious nor so low as to call for aggressiveness. Thus I think that its time to balance the defense with offense, and to move forward, albeit with caution.