- Joshua M Brown
- January 27th, 2013
Herding and running with the pack is what's kept most mammalian species alive over the millennia, this is why we're so apt to engage in it. We are literally hardwired to do what others around us are doing in most cases. There's nothing inherently wrong with herding - yes it's true that the zebra who wanders ahead of the pack may be the first to find water, but it is equally true that he will be the first to come across a predator lying in wait.
So herding is the rule and most times it's quite alright, even if it typically results in mediocrity.
Here's an excellent example that has nothing and everything to do with investing...
From Deadline Hollywood:
It is an unwritten rule of network development — if a new show from a genre not currently on TV becomes a hit in the fall, a lot of pilots in that milieu get ordered the following season as networks try to replicate the success. Case in point this year — NBC‘s Revolution. J.J. Abrams/Eric Kripke’s post-apocalyptic series emerged as the biggest hit of the fall, and now the networks are betting heavily on other dramas set in the future. Today alone, three futuristic hourlong pilots received a green light, including one from Abrams, an untitled project at Fox with Fringe showrunner J.H. Wyman set in the near future when all LAPD officers are partnered with highly evolved human-like androids. The other two were at the CW ...
And there are more future shows listed in the article than I need to list here.
One futuristic series was a hit, so now we'll see two dozen pilots greenlit of which a percentage will make it onto the air. Most, if not all, will fail to gain an audience because by then the public will have moved on to whatever the next hot thing is. And Hollywood's studios will be ready to cram more of that product into our pieholes as well. We've seen this with sexy vampires in recent years as well as single camera comedies a la The Office and Parks & Rec.
If this reminds you of the ETF / mutual fund complex, it should. Products (funds) are launched based on what will sell. And what will sell is determined by what is selling. That's why we now have 50 dividend ETFs. And then Global X said, hey, here's a SuperDividend ETF ($SDIV).
Studios and networks have a budget and their job is to allocate that budget wisely into entertainment products they can sell. It is much easier and more defensible to just do what everyone else is doing. So when everyone else is doing future-based shows, they do future-based shows.
Fund companies are like studio chiefs, they read the inflow data like Jeffrey Katzenberg reads the box office receipts and Nielsen ratings.
"The people want that, let's do more of that!"
This year will bring over a hundred actively-managed ETFs, specifically clones of existing mutual funds as T. Rowe and Fidelity attempt to replicate what PIMCO has done with Total Return and its hot new mini-me, $BOND.
We'll also see an explosion in different slices and dices of the emerging market debt universe as well as the high-yield corporate bond market, as fund families follow the wall of cash waving a me-too prospectus in the air.
It costs a lot of effort and money to promote a fund and not every product in registration actually gets a launch. The ones that do are typically a variation on whatever has already been working elsewhere.
It's comforting that human behavior is so consistent across all disciplines and industries.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.