Diary of a Hedgehog: Biggs' Final Words on the Markets

The Best and the Brightest Are Still Licking Their Wounds

After a financial panic, it’s perfectly normal for the participants who are still alive to be shell-shocked. It’s also usual that the public and investors in general do not sell and redeem at the bottom of the decline in prices. Then, however, as the equity market stalls, they begin to sell, and sell with considerable intensity. A year later and sometimes many years later, professional investors both young and old, unseasoned and experienced, are stunned by the impact and violence of the collision. Here I recount the state of my world in the fall of 2010.

September 10, 2010

Here we are three quarters of the way through the year and almost no one has made any money. The investment environment is still extremely tender. The grievous wounds of the savage bear market are still open and raw, and a lot of blood has been spilled and confidence lost. The public is redeeming traditional, long-only equity funds and feverishly buying bond funds. Pension and sovereign wealth funds are disillusioned with stocks and private equity. They grudgingly and painfully are conceding that their long-term return assumptions were too high, and that they can’t meet their actuarial requirements. Fixed income (everything from high yield to Treasuries) is in vogue, and the giant pension and sovereign wealth funds are reducing their already low allocations ...