| Whitebox Advisors’ Andy Redleaf at the 2007 AR Awards |
If you’d taken a random walk this Tuesday afternoon to a dark, wood lined boardroom at New York’s Palace Hotel, you would have seen Whitebox Advisors’ Andy Redleaf getting very worked up.
“I had a really ‘oh my god’ reaction,” he recalled of his initial response to new research showing that—contrary to common belief—stocks are actually more volatile over the long term than the short term. The paper “serves as a bold bright neon sign proclaiming ‘investors beware!’” he added while looming above fistfuls of heirloom tomatoes with fresh mozzarella and watercress served at a luncheon to celebrate the revelation.
The research from Professors Lubos Pastor of the University of Chicago and Robert Stambaugh of the University of Pennsylvania picked up the first annual Whitebox Prize, a $25,000 reward for what the Minneapolis firm determined to be the best financial research paper of 2011. Whitebox established the award last year to reward researchers “making outstanding contributions to the art and science of investment.”
In Pastor and Stambaugh’s paper, the duo analyzed 206 years of data to determine that it actually becomes harder to predict stock market changes over the long-term, as opposed to year-to-year. Short-term investors, including hedge funds and other speculators who have been criticized amid the equity market gyrations of recent years, may actually be making steadier bets than retail investors plowing consistent money into 401Ks, the professors found.
“To many, stocks should look a little riskier in the long term,” Stambaugh said Tuesday. “Investors should be a bit more circumspect and cautious.”
As he polished off a grilled salmon over lentils followed by a chocolate mousse cake dessert, Redleaf admitted the winners’ findings came at an awkward moment for Whitebox, which manages $2.3 billion in hedge fund assets.
“For the first time in my life, I think equities are a great investment. The public has just dumped and dumped and dumped,” he said.
Whitebox is normally 80% focused on fixed income, he noted.