Let me start by first looking at the five reasons for the current equity market underperformance:
1) The investment horizon has shortened considerably
2) The current trend does not allow gains to be optimized
3) Losses are magnified through the excess use of leverage
4) Investors are not proactive, they are reactive
5) Fundamentals are no longer inherent
Investors not being right in the short-term leads to margin calls, which magnifies the losses. This is going against fundamental analysts’ work because the short-term is considerably more of a random-walk process than the medium/long term; there is no real competitive advantage for the analyst who tries to find companies with good fundamentals and value, given that more often such value manifests in prices over a longer period. In other words, the current situation erodes the competitive advantage of the fundamental analyst.
With that said, I don’t think these 5 reasons are adequately sufficient to prolong a market downturn. The long and short of it is that this trend is one of looking in the rear view mirror, not forward looking. But unlike six months ago when I pointed out the upcoming global economic slowdown, the economic future, medium/long term, now looks good to me and once investors start to actually witness the improving fundamentals, the markets will rebound….just my humble opinion…