Windows Dressing On Steroids

How Much Is That "Dog" In The Window

It’s the end of the quarter; time to “dress up portfolios” to make them appear like all money managers are related to Warren Buffett. Naturally, when quarterly position reports go out to shareholders, they want to see those momentum stocks that were being bought up on the list. So days like today, where the breadth continued to get narrower, reflected higher indices levels as those were the stocks being bought. I’d personally like to thank them; I added more short Russell 2000 contracts at the close.

In trading, "window dressing" refers to a strategy employed by fund managers at the end of a reporting period, typically a quarter or year, to improve the appearance of their portfolio's performance. The goal of window dressing is to make the portfolio's holdings or performance look more favorable to investors or clients. There ought to be a law but there isn’t one. It would be tough to police if there was.

Window dressing involves making specific adjustments to the portfolio's composition shortly before the reporting period ends. The adjustments are cosmetic and create a misleading or enhanced impression of the portfolio. While not strictly illegal, window dressing is an unethical practice, distorting the true picture of the fund's investments.

Here are a few common techniques used in window dressing:

1. Selling Losers & Buying Winners: Fund managers sell underperforming stocks and replace them with high-performing stocks just before the reporting period ends. This makes it appear as if the fund held successful investments throughout the period.

2. Window Trades: Fund managers engage in trades specifically designed to inflate the value of certain holdings. These trades are executed at the end of the given reporting period and are reversed shortly after. I can hardly wait until Friday.

3. Portfolio Rebalancing: Fund managers adjust the portfolio allocation to conform more closely to a benchmark index or to include popular stocks that performed well. This gives the appearance of aligning with market trends, even if those stocks were not held for most of the reporting period.

The purpose of window dressing is to attract new investors, retain existing clients, or prevent redemptions by making the portfolio appear more successful or aligned with market trends. However, it is important for investors to be aware of this practice and consider the true underlying performance and composition of a fund before making investment decisions.

It happens, get used to it. In fact take advantage of it. It’s one of the historical events you can count on happening four times a year.

Back to work. I’m happy to report that the first six “working” drafts of the more than twenty expected courses are done. It’s time for new “big screen” iMac; just need to decide on the color.

I’m just a “young” 68 years old looking to help you become the best damn investor or trader you can possibly be. Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at david@thetickeredu.com so we can further help. Again, let me know what you want to learn, I’m all ears.

Window dressing needs mannequins and the first song that comes to mind is from Jefferson Starship, “Nothing’s Gonna Stop Us Now”. I wonder which candidate will adopt that one? Catch up this weekend unless I go blind in the interim. I’m already hard of hearing but that’s a blessing given we’re taking care of the dogs while the “kids” are in Puerto Rico. Best always.