September 2016

Weekend Reading

Some articles for your down time this weekend.  Don’t forget the Northeast Ohio PKD walk is this weekend! Man clocked doing 88mph in DeLorean Liz Ann Sonders – “The media, more than most, persistently look for a narrative to explain every daily move in the market. It’s rarely that simple.” Why flush your money down your toilet when you can flush your money down the neighbors’ toilet? Update on the Buffet-Hedge fund bet.  Crazy thing is that the collateral outperformed both parties. A good takedown on end-of-the-world ads that run on AM radio by Larry Swedroe. Morgan Housel with some perspective – “Being born in America in 1900 gave you a 79% chance of living for five years. Today, the five-year survival rate for non-Hodgkin’s lymphoma is 82%. So just being a kid 1900 was riskier than having lymphoma is today.”   Photo by Lummi Photography

The Angels’ Share

As a whisky (whiskey here in the States) matures, it loses about 2% of its volume to evaporation each year.  Distilleries call this The Angels’ Share.  They fill oak casks with a precious liquid knowing that each year part of their hard work will simply disappear.  I can’t help but think of the angels’ share when I look at expense ratios.  An investor sets aside a certain amount of money, let’s say $100,000.  They pay a money manager to invest that money – I’ll use the S&P 500 as an example.  When the investor looks at their statement, they should see that their investment returned the same amount as the index, less whatever the expense was, right?  Looking at the annualized returns, yes, that’s approximately right.  Looking at actual dollars, we see something different.  A portion of the returns evaporates, escaping the pockets of both investor and money manager. This chart…

The Bull and the Swan

Preparing for the swan, it’s possible to miss out on the bull.  In my monthly commentary for Fairway, I asked “What does a 20% gain feel like?”  Spoiler alert: it feels like right now.  The S&P 500 is up about 20% since the bottom in February.  However, no sales people were calling my office 6 months ago to pitch me on how to make the most of the next 20%+ market move to the upside.  Pitches were framed entirely around disaster scenarios or worse… a sideways market (heaven forbid investing turn boring).  The financial product industry has spent the last 7 years pitching products to survive the next Black Swan event (or more accurately, to beat the previous Black Swan), but what happens when the next Black Swan turns out to be a Bull? What is a Black Swan, anyway?  It’s an unexpected event as outlined in Nicholas Taleb’s book…