April 2017

Browns Draft

Due Diligence, Investing April 28, 2017

Don’t Turn Your Portfolio into the NFL Draft

The NFL draft reminds me of picking investments.  Lots of hype followed by second-guessing every pick.  It’s nice to acquire new talent, but the key to investing is to avoid a bust. Don’t Overthink It Leading up to the NFL draft, the experts on ESPN make and revise their mock drafts on a weekly, if not daily basis.  This is somewhat insane considering that player data isn’t changing that rapidly.  There is no daily combine.  There are no more games.  Similarly, your financial situation doesn’t change enough day-to-day for you to need to remake your entire portfolio.  While NFL scouts obsess over hand-size, vertical leap, and benchpress reps, you will be tempted by newly available financial data.  Sharpe ratios, Greek letters, and max drawdowns are only the beginning of the statistics you can dig up.  Just like the NFL, the minutiae can blind you to overall greatness. Have a process…

News as drama

Investing, News April 27, 2017

Three Trades Based on This Week’s Headlines

The two big news items this week are the French election and US tax reform.  There was also a big shakeup in the House of Mouse as Disney’s ESPN laid off a significant amount of on-air talent.  What’s the best way to trade this news?  If you read this blog with any regularity, you already know where this is going. French Election France’s establishment parties got the boot as nationalist Marine Le Pen and centrist Emmanuel Macron advanced through the first round of voting.  This continues a global trend of shaking up the political status quo.  As in other recent elections, volatility picked up before the election only to drop once the results were reported.  While Le Pen is seen as a populist wild card, Macron is expected to win handily in the next round.  Many expect Macron to add a stable presence to contrast President Trump’s boat-rocking. The trade: No…

No Picture

News April 15, 2017

A Note on Structured Notes

What happens to all the investments we say no to?  We are acutely aware of how our invested money performs, but it can be difficult to keep track of the investments that just didn’t make the cut.  Did we dodge a bullet?  Or did we miss out on a shooting star? Structured Notes I recently came across an email from a year ago where I researched a structured note for one of our advisors.  In the SEC’s investor bulletin regarding structured notes, these are “securities issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies.”  I suggest you read the entire thing as well as FINRA’s investor alert on structured notes. The Pitch This particular note was pitched to one of our clients by his banker and the client wanted us to…

Why settle for average

Due Diligence, Fairway, Investing April 13, 2017

Settling for Average

Settling for Average Capital Group is pushing back hard against the passive investing crowd.  They make the case that some basic screens (low expenses, manager investing in their own fund, etc) can reveal good managers.  I agree with that.  The screens I use at Fairway are kind of hilariously basic relative to the universe of modern portfolio theory statistics and Greek symbols I could choose from.  You really don’t need to layer on too many filters before you get a list of a dozen or so good managers in any particular asset class.  What I do take exception to is the ‘Why settle for average?‘ argument they put forward.  The Capital Group folks are some of the brightest folks around and yet this is the tagline?  I tackled this last year here and here.  I also posted a direct response to the Capital Group marketing here. The latest Capital Group marketing…

A warning sign to the rest of society.

Due Diligence, News, Opinion April 11, 2017

Walk of Shame

Motivation Most people seem to be operating on the same social frequency.  I can see this, but I am unable to take part without tremendous effort that feels insincere.  Awkward conversation is my forte.  Hoping to improve, I observe and try to understand how people interact with one another.  One thing that has helped me in deciphering social interaction has been to recognize motivation.  Once you find out what drives someone, their behavior becomes easier to understand.  What is the most common motivator that I have seen? People like to feel important.  Everyone is the star of their own movie.  So when an airline looks for volunteers to give up their seats, they’re actually telling their passengers this: “There are four people more important than you who are getting on this flight.  How much do we have to pay you to admit that?” Before boarding, this is a glorified marshmallow test.  Delay…

Cleveland Bridge

News, Opinion April 7, 2017

Eventful 24 Hours

The last 24 hours have been eventful.  If you need yet another perspective on world events, keep reading.  If not, just skip to Other Stuff where it’s less serious. We launched missiles into Syria. This feels like the typical setup where the world calls on the US to act as the world’s police, our military is deployed, and the world decries our meddling in world affairs.  A dictator is butchering his own people, but no one is willing to do anything about it except us (sternly worded letters don’t count as action).  If we don’t do anything, we’re abandoning the region to nefarious powers.  If we go in guns blazing, we’re warmongers.  Ad hoc missile strikes seem to have minimal political backlash while still accomplishing a mission. If this doesn’t lay to rest the conspiracy theory that Vladimir Putin controls our executive branch, it certainly erodes its credibility. In one…