The service we provide is valuable and worth every penny people pay.
Just wait till the next downturn. That is where we outperform.
I am a highly trained financial professional and deserve the money I am paid.
I control my outcomes.
We are investment focused (not sales/marketing focused).
Investments is what we are all about.
We can beat the market.
Costs don't matter when you beat the market.
This is an exclusive investment.
We have a differentiated product, process, people, approach.
We are active (not closet indexers).
We consistently produce alpha.
The quality and amount of our experts, technology, resources matters.
There is implied skill in our outcomes.
It is all about investing (not gathering funds).
Our costs and fees are fair. You get what you pay for.
Tricks of the trade: change the base year; change the benchmark; gross of fees; advertise only the winners; spin the departure of a manager; change the risk measure that works best; look at our fund rating (even though it has no predictive value); focus on a three year record; selectively choose which funds, criteria, which period to advertise.
Friday, June 26, 2015
Wednesday, June 24, 2015
Transformation and Change aka Jumping the Shark
It is amazing how quickly change can flow through an industry.
It was not more than a couple of years ago that active management and fundamental-based research was the core of the industry. Now, less than 6 years after the financial crisis, active management is in full retreat and human-based fundamental analysis is increasingly marginalized. If I had to put a date on when active management jumped the shark, I would tentatively place it at 2014. Of course, active management still dominates the industry and that is not going to change for quite some time. But the secular trends are clearly in place and the level of knowledge and understanding among the masses is growing.
Information and computers have transformed the industry and the research function, and will no doubt transform the advisor function in the next 5 years or so.
It was not more than a couple of years ago that active management and fundamental-based research was the core of the industry. Now, less than 6 years after the financial crisis, active management is in full retreat and human-based fundamental analysis is increasingly marginalized. If I had to put a date on when active management jumped the shark, I would tentatively place it at 2014. Of course, active management still dominates the industry and that is not going to change for quite some time. But the secular trends are clearly in place and the level of knowledge and understanding among the masses is growing.
Information and computers have transformed the industry and the research function, and will no doubt transform the advisor function in the next 5 years or so.
Friday, June 19, 2015
Philosophical Predilections
Was thinking. They teach you to be an analyst in college. Or at least they provide you with the tools to be an analyst. Everyone comes out with the same tools. But you take on an investment perspective/philosophy when you join a firm. Investment management is unique in that there are literally many ways to skin the cat - many paths to market beating nirvana (sadly none of them guarantee success). Some basic principles are essential, but after that you can seek to beat the market in any number of different ways. One reason for this is because there is no unified theory of investing. There is no one empirically correct way to beat the market.
And so, how important is the philosophical predilection of a shop? and, What effect (or bias) does that predilection have on the analyst's analysis?
Does a value oriented analyst in a value shop overly discount everything? Does a growth oriented analyst in a growth shop overestimate everything? [do they even do any analysis!!! my little joke]
Does it make any difference if you have a value-oriented analyst in a growth shop or a growth-oriented analyst in a value shop?
I would say Yes to everything.
And so, how important is the philosophical predilection of a shop? and, What effect (or bias) does that predilection have on the analyst's analysis?
Does a value oriented analyst in a value shop overly discount everything? Does a growth oriented analyst in a growth shop overestimate everything? [do they even do any analysis!!! my little joke]
Does it make any difference if you have a value-oriented analyst in a growth shop or a growth-oriented analyst in a value shop?
I would say Yes to everything.
Wednesday, June 17, 2015
Dealing With Hardship
Hardship befalls most people in their life at some point. Some deal with it on a much greater scale, others for a much greater time, but hardship is just a stones throw away. Life and success and happiness are fragile. And just like health, you don't appreciate what you had until you lose it.
And everyone deals with it differently. Some go into their shell, others roll up their sleeves. Some are embarrassed, some are prideful, some don't want anyone to know (even as everyone knows). Time keeps on slipping away making it harder and harder to change get out of one's quiet desperation.
And everyone deals with it differently. Some go into their shell, others roll up their sleeves. Some are embarrassed, some are prideful, some don't want anyone to know (even as everyone knows). Time keeps on slipping away making it harder and harder to change get out of one's quiet desperation.
Monday, June 15, 2015
Vanguard's Advantage Wasn't It Mutual Structure But It's Investment Philosophy
Vanguard's unique corporate structure is not why Vanguard is different and beating people. There is plenty of money to be made in Vanguard's corporate structure. Vanguard is successful because it's investment approach/philosophy conforms to financial theory (ie. it creates broad-based asset class products) and seeks to be the lowest cost producer. I guess not having to respond to profit pressures from shareholders is valuable, but a for profit company could have adopted the same strategy and been equally successful. In fact, Dimensional is an example of that as were Wells Fargo Nikko and Barclays Index which have since been subsumed. Mutual funds are in theory structured the same way as Vanguard, but when controlled by for profit entities are obviously not interested in doing everything in the client's/shareholder's best interests.
Serial Correlation Affecting Quality Large Caps In A Panic
Rusty was big on this and I think he was right (although I don't like the conspiracy allusions that are usually drawn with it), and it is not something that you see too much written or talked about.
During the crisis when everyone hit the exits at the same time, quality company large cap stocks got hit just as much, if not more, compared to low quality stocks. The reason being that they were liquid and provided an avenue to exit when other avenues were not as attractive.
In theory this should create an inefficient situation where information based investors (ie. value investors) step in to take advantage of the temporary oversupply in the market. Unfortunately, much of the oversupply was probably being created by value investors as much as any other type of investor and that is why the window of opportunity was so great and the time period for taking advantage greater than normal.
Timing is everything. Contrarians likely bought too soon. Value managers were so abused that they were stuck on the sidelines too long. Growth and momentum guys were just dazed and confused.
But the reality was in a panic, high quality large caps are hit just as much as any other segment precisely because they are a store of value and a ready source of funds.
During the crisis when everyone hit the exits at the same time, quality company large cap stocks got hit just as much, if not more, compared to low quality stocks. The reason being that they were liquid and provided an avenue to exit when other avenues were not as attractive.
In theory this should create an inefficient situation where information based investors (ie. value investors) step in to take advantage of the temporary oversupply in the market. Unfortunately, much of the oversupply was probably being created by value investors as much as any other type of investor and that is why the window of opportunity was so great and the time period for taking advantage greater than normal.
Timing is everything. Contrarians likely bought too soon. Value managers were so abused that they were stuck on the sidelines too long. Growth and momentum guys were just dazed and confused.
But the reality was in a panic, high quality large caps are hit just as much as any other segment precisely because they are a store of value and a ready source of funds.
Pet Peeve
I really hate (hate is proverbial and hyperbole...dislike is the more appropriate word) all the crap research that comes out matching S&P 500 performance or industry/sector performance or company specific performance with things like presidential election years, interest rate changes, currency changes, geopolitical crisis or any other market factor. I think it is junk science and junk information. It tickles the fancy, but is ultimately not worth much.
Taking Another Shot At Market Efficiency
The market is inefficient.
What I mean by this is that the market is always in a state of controlled chaos. Some may consider this equilibria, but it is equilibria in a very limited sense of the word. Equilibria is not the same as intrinsic or fundamental value (which is also in the eye of the beholder).
Because market prices are a function of consensus feelings, emotions, expectations and sentiment regarding earnings, interest rates, risk and the future (in other words they reflect the current zeitgeist of the day and embed some feelings for the future), they are necessarily wrong all the time. No one knows what the future holds. Of course as markets correct and swing from overvalued to undervalued and vice versa, they must by definition pass through some median or fair value point. The problem is they rarely trade at the fair value point for any steady state period of time.
Getting cyclical trend and momentum right are consequently the most important ingredients to long term active investing, while have a mean reversion contrarian disposition can help cut off the excesses of the tails. The problem is we never really know beforehand the timing, time or magnitude of any new cycle.
Therein lies the problem.
What I mean by this is that the market is always in a state of controlled chaos. Some may consider this equilibria, but it is equilibria in a very limited sense of the word. Equilibria is not the same as intrinsic or fundamental value (which is also in the eye of the beholder).
Because market prices are a function of consensus feelings, emotions, expectations and sentiment regarding earnings, interest rates, risk and the future (in other words they reflect the current zeitgeist of the day and embed some feelings for the future), they are necessarily wrong all the time. No one knows what the future holds. Of course as markets correct and swing from overvalued to undervalued and vice versa, they must by definition pass through some median or fair value point. The problem is they rarely trade at the fair value point for any steady state period of time.
Getting cyclical trend and momentum right are consequently the most important ingredients to long term active investing, while have a mean reversion contrarian disposition can help cut off the excesses of the tails. The problem is we never really know beforehand the timing, time or magnitude of any new cycle.
Therein lies the problem.
Thursday, June 11, 2015
Fed Rate Hike
Will they or won't they...hike in July, September...some time this year.
I don't think so. There is no reason to hike. Inflation is low. Growth is subdued. Other countries are cutting their interest rates. Why should the Fed raise rates. The only reason would be if the markets really take off.
I don't think so. There is no reason to hike. Inflation is low. Growth is subdued. Other countries are cutting their interest rates. Why should the Fed raise rates. The only reason would be if the markets really take off.
Friday, June 5, 2015
You Only Get One Chance...Can't Go Back To The Well
My experience has been that you only get one chance with people when you ask for their help. There is a short window after the initial meeting where they are willing to help, but you can't keep going back to them asking for help. They turn off.
Tuesday, June 2, 2015
ETFs Made Factor Investing
Factor investing has been around a long time, but it was not until the advent of ETFs and the regulatory requirements for approval that factor investing came to the fore.
Why Good News Is Bad News
Bad news has been good news for the markets for a long time now. The basic premise has been bad news spells more liquidity as the authorities fight any and all negative notions.
We may be entering a new stretch where the market (and the CBs) are finally able to feel better about life. When good news starts spelling bad news for the markets, this will be the sign that the market is calming down and beginning to clear, ie. equalize valuations.
We may be entering a new stretch where the market (and the CBs) are finally able to feel better about life. When good news starts spelling bad news for the markets, this will be the sign that the market is calming down and beginning to clear, ie. equalize valuations.
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