Conventional Wisdom

We've long held BlackRock's Chief Investment Officer Bob Doll in high regard. And in no way does the following observation change that; in fact, he may well be right. But if there's such a thing as conventional wisdom among equity managers these days, Doll seems to have distilled it into its purest form in a recent commentary. Here's the essence of that CW, courtesy MarketBeat:

"In general, we have been favoring large-cap over smaller-cap companies, multinational companies in favor of those with a predominantly U.S. focus, and growth companies over value."

We think we've seen and heard an inordinately large number of market participants express those preferences in recent weeks, which raises the timeless question: If everyone's saying it, does that mean the trade is already crowded and played out? Or is it still early enough in the trend to participate in its potential upside?

This dilemma reflects the dynamics of a "Keynesian beauty contest," in which market participants value assets not just on the basis of their own estimates, but their estimates of others' estimates, in a multi-stage process of convergence that ultimately produces market prices.