Tagged: peers

Peer Review

Autumn the past two weeks splashed brilliantly over the Colorado Front Range. It puts everything into perspective.

I recall as a kid my mother saying in retort to my reason for some dunderheaded act, “You did it because ‘everybody else was doing it?’”

Investor-relations professionals have long tracked what everybody else is doing, comparing the company’s trading with a set of peers. Clustering similar things is a time-tested statistical maxim. We practiced it on the ranch of my youth at the auction yard, sorting groups of our steers on display for potential buyers uniformly by color, weight, shape. One weak link could throw off the average per-pound price.

What makes a peer?  Similar characteristics. Yesterday I sent a screenshot to an IRO (investor relations officer, for you newbies) showing startling comportment between her shares and another stock. One is a home-furnishings retailer, the other a technology high-flyer in cloud architecture.

On the surface, no distinguishing features say these two are peers. But machines calculating probabilities see patterns, not sectors. In human physiology, beneath the skin we’re all the same. We’re peers though we may not look alike. In the stock market, physiology is comprised of rules, prices, supply and demand.

It calls into question comparing how you trade versus peers. Yesterday one of our household-name clients asked, “We’re trailing our peers, so how can the cause be macro?” The data were overwhelming: No movement in rational behavior, massive change for indexes/ETFs and hedging. Our client is the “category killer” in that group, the one every index, every ETF, will own – or sell. Macro selling won’t hit peers the same, and either way, pressure wasn’t fundamental.

That’s no absolute either. Another category-killer in a different industry outperformed its peers because safe-harbor money was buying only the biggest. Plus, algorithms executing the same instructions in an industry group can produce different effects on components. (more…)