Transcripts

"Commentary"-The Future Holds The Fortunes

SUSIE GHARIB: Tonight's commentator suggests investors may profit more from looking forward than looking backward. Here's Allan Sloan, Wall Street editor of "Newsweek."

ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: One of the journalistic rules I live by is that when everyone loves something, it's so over. Take hedge funds and private equity. Barely a day goes by without hearing of hedge funds driving the stock market or about a huge deal being done by private equity firms -- formerly known as leveraged buyout firms. Hedge funds and private equities seem destined to own the world.

But that's just not going to happen any more than tech mutual funds - remember them -- doubling every year or trees growing to the sky. Hedge funds and private equity are popular now because they did lots better than the stock market for the five years after the bubble burst in 2000. So some enormous investors, especially public pension funds, have decided they'll do better with hedge funds and private equity than with boring old U.S. stocks. We have a name for this. It's called investing by looking through the rearview mirror.

Hedge funds and private equity did well for investors when they were relatively small. Now, hundreds of billions of dollars a year are pouring into them. There's no way to put this all to work so that investors make out well, though the managers will do just fine, given the huge fees they charge. Some investors will do OK. But in a few years I suspect most of them will wish they'd stuck to boring old stocks, no matter what they see in their rear view mirrors today. I'm Allan Sloan.