John Jannarone of WSJ: No Clue on Trend Following

Mike Shell turned me on to an article in the WSJ today from John Jannarone that said in part:

“The bigger question for ETF investors is the black-box nature of a trend-following strategy. Trading decisions are made according to undisclosed rules that aren’t based on fundamental analysis. ETFs are being used to democratize investing. But as they are used to pursue strategies further from their index-tracking roots, the warier individual investors need to be.”

The above was penned by a Wall Street Reporter in November 2009. How much lazier can a reporter be? I have questions for John-o-fundamentalo: What does black box exactly mean? Once we define it maybe you can tell us why it is bad? And why do investors need to be wary about moving away from index benchmarks? Bottom line, this reporter was saying to himself something to the effect of:

“I am a reporter who knows only about fundamental analysis. Today, I was put in charge of writing an article on trend following which I really don’t know sh** about, but since I work for a media outlet that sells fundamental analysis every day for a living, I had to ridicule trend following. Tomorrow I get to wake up and write what I know best about: daily fundamental predictions made up out of thin air that no one ever follows up on.”

Thanks John, you make my job more fun.