Hedge Funds Might Have the Last Laugh

If stock prices become irrational, hedge funds rather than individuals stand to benefit, writes John Rekenthaler.

John Rekenthaler, CFA 1 February, 2021 | 9:20AM
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The day that I interviewed for a position at Morningstar, on 6 February 1988, the Dow Jones Industrial Average closed at 1,910. Most Wall Street veterans were cautious. Stocks had righted themselves since October’s “Black Monday” crash, thereby averting disaster, but the Dow Jones had nevertheless gained 150% over the preceding six years. The market’s glory days appeared to be behind it.

Equities then began to rise. They grew by 15% for the rest of 1988, and double that amount in 1989. With only brief respites, stock prices increased for another decade. It became the greatest bull market in US history. Throughout that ascendancy, the old guard muttered that stocks had become foolishly overpriced. Eventually, I paid them no more heed.

Good call. Clucking disapprovingly at the folly of the next generation, while reciting cautionary tales from one’s youth, produces easy applause. Such comments once impressed me, as an aspiring investment analyst seeking to benefit from those with greater experience. However, as I learned, those gods are false. I vowed that when I became older, I would behave differently.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
GameStop Corp Class A184.05 USD-2.87
Tesla Inc778.90 USD-1.58Rating

About Author

John Rekenthaler, CFA  John Rekenthaler is Vice President of Research for Morningstar.

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