Investing

Bron

Investing January 9, 2018

‘Bron, ‘Bama, and the January Effect

  The NBA may as well cancel the rest of the season.  Why?  Alabama won the college football championship, of course!  This means LeBron James is sure to win a title of his own: This reminds me of the January effect in the markets.  The thinking is that if January is positive, the year as a whole will be positive and if January is a down month, it means negative returns for the year as a whole.  That’s totally ridiculous, of course.  The January effect ‘feels’ right because most months are positive and most years are positive.  Since January is the first month of the year, humans tend to add emphasis to it whether it is deserved or not.  Similarly, Alabama has had a great football program for the last decade and LeBron has been the best player in the NBA for about the same time (don’t @ me).  It…

Congrats

Investing, Opinion October 23, 2017

Tone Deaf on ETFs

A couple of major announcements in the Exchange Traded Fund (ETF) world last week: State Street announced that they slashed the expense ratios on a ton of their ETFs and TD Ameritrade added a ton of ETFs to their ‘no-commission’ platform.  At first glance, this is great news.  Cheaper beta is available to more investors.  However, this is actually tone-deaf and a transparent money grab.  Hopefully, investors will show that they know better. Huh? State Street’s fee reductions are late in arriving.  Vanguard and iShares have been eating State Street’s lunch for years, in large part due to lower expenses.  Will investors flock to State Street now that it is the low-cost provider?  Perhaps the dumb ones will.  Investors who have money with Vanguard or iShares likely have huge gains.  Selling these positions to save a couple of basis points would be penny wise and pound foolish. While it is…

take the l

Due Diligence, Investing August 25, 2017

Wrongness and a Strange Animal

Investing is such a strange animal.  You can be wrong and still make money.  You can be right and still lose money. I have been wrong on high yield bonds for the last couple of years.  I didn’t like the energy component of the space.  Oil prices were falling due to the shale revolution and it looked like companies that had sold bonds to make ends meet were overextended.  I feared that just a couple of bankruptcies could spread to the entire high yield space, dragging everything down. That didn’t happen.  Despite some private equity funds over-reaching, the space mostly adapted to low oil prices by cutting costs and developing technology to get oil out of the ground more efficiently.  Investors continued to buy up high yield bonds in a chase for yield. I was wrong, but I’m happy to take the L on my record for this one.  Piling…

No is the Secret Sauce

Due Diligence, Investing August 15, 2017

No, the Secret Sauce

“I thought you guys had some sort of insider’s edge and that’s how you get returns for your clients’ investments…?” My friend was grilling up burgers and dogs for his kid’s birthday party while picking my brain about investing.  He was surprised to find out how vanilla our investment philosophy is.  No secret sauce.  No insider tips.  I don’t know a guy who knows a guy.  Just control what you can control.  A sensible asset allocation and a financial plan puts you ahead of most people. He was right, though.  We do have a special investment technique. We say no. We say no to high-cost, low value-add money managers.  No to the absurd, overly-complicated, sketchy, and irrelevant.  It’s not always an easy no, though.  In some cases, we have to work to get to no. In 2012, we were pitched an energy LP.  It was a helluva pitch.  Polished presentation….

No Picture

Investing, Opinion August 4, 2017

Chasing Risk

  I read the Howard Marks memo last weekend and you should, too, if you haven’t already.  The memo got me to revisit some of my investing viewpoints.  It’s easy to listen to the same investment philosophy on repeat.  My fear is that one day I’ll look up and find that everyone’s streaming their investment philosophy on their phones while I’m listening to a walkman.  So I read everything I can.  Howard Marks is one of the very best.  He’s usually a bit cerebral for me, but the latest memo is perfect.  I ran out of highlighter halfway through my first read. Right off the bat he lays out four conditions that he sees in the market: unusual uncertainties, low prospective returns, high asset prices, and rampant pro-risk behavior.  I don’t agree with him on the first two points, but asset prices do seem high.  I have a man-crush on…

As Seen On TV Asset Allocation

Investing July 14, 2017

As Seen on TV Asset Allocation

I want to saw a boat in half, then tape it back together and take it out on the water.  I didn’t know I wanted to do this until I saw a commercial that runs during Cleveland Indians games.  The spokesperson could be the dad on any sitcom, straight out of central casting.  This enthusiastic Everyman uses a miracle tape to fix everything from underwater leaks to boats that have been sawed in half.  I have absolutely zero need for this stuff, but I feel compelled to buy some.  Why?  For the same reason we have to talk certain clients out of an As Seen On TV Asset Allocation. Universal Theory of Infomercials My wife has a universal theory of infomercials.  She says the key to a good infomercial is to take something simple and make it look like rocket science.  Sure, your current knife can cut a tomato, but…

Markopolos

Due Diligence, Investing June 13, 2017

Outsourcing to an Absentee Investment Committee

They say there’s no such thing as a stupid question.  They are wrong.  Ask stupid questions, get stupid answers.  The Let Me Google That For You website is the perfect passive-aggressive answer to many stupid questions.  Rather than simply answering the question, LMGTFY provides a link that walks through the steps to google the answer.  For example, “How much does a polar bear weigh?”  Why do I bring this up?  As I have mentioned in other posts, sometimes all the due diligence you need can be found with a quick Google search.  Harry Markopolos says he’s uncovered some huge due diligence mistakes by the Boston Transit Authority (MBTA) and at least some of them would have been avoided with a quick internet search. Harry Markopolos If you’re unfamiliar with Harry Markopolos, he’s a modern day Cassandra.  Markopolos warned about the Bernie Madoff Ponzi scheme for years before it collapsed.  The authorities…

Product or client first

Investing, Opinion June 12, 2017

This Weekend’s Fiduciary Test

The first phase of the Department of Labor’s fiduciary rule went into effect on Friday.  This is the rule that mandates that your financial advisor must act in your best interest.  The whole thing doesn’t go live until 2018, but it will be interesting to see who makes what kinds of changes in the meantime.  Some have rushed to comply.  Others are banking on the Trump administration to overturn it. The Test I was particularly interested to hear whether the local AM station’s annuity salesman would change up his schtick this weekend.  He has an hour on Sundays to make his pitch in his non-threatening monotone.  The focus is on potential returns of the annuity (really the change in income the annuity would pay – very different from change in total value).  There’s always some sort of bonus and guarantee that you can’t lose money.  What’s not in focus is…

Two Numbers

Investing May 30, 2017

Two Numbers You Need to Know

How much is your electric bill?  What about media (cable, Netflix, etc)?  Or your phone bill?  You probably have at least a general idea, and if you had to know the exact number, you could find it relatively easily.  The two numbers you need to know in investing are how much are you paying and how did you do.  This sounds so easy, but for too many people, it’s difficult to track down.  The crazy thing is that investment companies are often reluctant to disclose this information.  Can you imagine calling the electric company to ask how much you paid last month and they wouldn’t give you a straight answer?  Or if you asked how much electricity you used and they would only tell you how much your individual appliances used?  That is what happened to Wall Street Journal reporter Andrea Fuller when she called her investment company and asked about fees….

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…