To be more accurate: “That very night in Max’s room a forest grew….” -Where the Wild Things Are. 

I’ve been waiting a while to use this title and after the markets’ run during this quarter it seems appropriate. Over the last seven months the S&P 500 stock index has gained over 45%.

For the quarter the S&P 500 has gained 15.5% and Small Company and International stocks have each gained 19%.

Although this is great relief for many investors, like Max’s forest, these trees will not grow to the clouds.

The volatility experienced in 2008 has continued through 2009. With such across the board uncertainty in all market sectors, it seemed like active managers might fall upon their day in the sun. Volatility decays slowly and with high volatility comes the opportunity for high positive returns. With that in mind, active managers should have had stellar performance before, and certainly during the market rally.

In an article on Bloomberg.com, the authors found that investors that put $10,000 in the market using only Wall Street analyst forecasts “to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9 lost everything and would owe as much as $6,000 to cover bearish trades…”

The companies with the worst earnings led the S&P 500 to 46% gains from March 9 through mid-August. On average, analysts led investors to drug and energy producers which trailed the MSCI World Index by -24%, for the same time period.

One person’s trash is another person’s treasure…

For the full article, please click here.