ebook essays pieces of the puzzle
Wednesday, February 16th, 2011
purple ribbon

The only dog show that most people watch is over for another year.  The champion has been pronounced and has received the purple ribbon.

Likewise, we can take a look at the world equity markets over the last year and pronounce a winner (for those investing with U.S. dollars).  As in judging dogs, though, it’s all in the “how” as to determining the best.  Above, you can see that the purple ribbon in this particular contest goes to Sri Lanka, begging the question as to what rules were in place for the competition.

These are the winners by continent during that time, using an old geographic construct.  So Sri Lanka won the Asian group.  The blue winners were (in performance order):  Ukraine (Europe), Peru (South America), Namibia (Africa), Canada (North America), and Australia (well, Australia).  Antarctica didn’t field a competitor this year.

The categories might seem as oddly put together as some of the dog groups.  Plus, I only used the “major” indexes for each country, and I didn’t adjust for risk or investibility or anything else.  Other constructs would have resulted in other winners.

The categorization, filtering, and analysis that precedes the naming of a winner is all-important to the result.  But if form holds, there will be a significant increase in interest in Scottish deerhounds as a result of last night’s competition, by those who have no knowledge of how the process unfolded.

The same phenomenon occurs when people rush to the markets, sectors, stocks, managers, etc. that have “won.”  It’s always important to realize how subjective and fleeting those judgments can be.  (Chart:  Bloomberg terminal.)

best in show

OK, it’s not the first time I used the dog show as the framework for a posting.  Last year, I looked in more depth at how we determine best in show when selecting investment managers.