Monthly Archives: May 2016

Pessimism and The Seeds of Optimism

Here’s a link to an article that discusses our proclivity to deem pessimism as more credible than optimism:

LINK: Why does pessimism sound so smart?

It is easier to frighten than inspire. The Median knows this, and plays off of it. Business is business.

But as long-term, active investors, pessimism is actually a good thing, because it provides a margin of safety to our decision making. It’s when everyone is excited that you really need to start worrying:

LINK: Conditions you want

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Peter Thiel, Hamlet and Investing for the Long Term

Not too long ago, Peter Thiel gave a commencement speech at Hamilton University. Commencement speeches are given at university graduation ceremonies to impart a last bit of wisdom to students as they head off from academia into the wider world.

LINK: Thiel commencement speech

In his speech, Thiel entreats his listeners to continue to make things new and to keep advancing all technologies. He finishes by addressing two common pieces of advice that they should ignore: 1) “to thine own self be true,” and 2) “live each day as if it were your last.”

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Low Volatility Stocks Are Getting Expensive

Low volatility ETFs are all the rage these days.

However, as this Bloomberg article points out, low volatility ETFs have actually been more volatile than the S&P 500 recently:

LINK: Low Vol ETFs

Here’s the chart:


How could this possibly be?

The article mentions the fact that inflows have made the component stocks more expensive. However, it is also worth mentioning that low volatility ETFs tend to have far fewer holdings (100 holdings for the Powershares Low Volatility ETF) that tend to be concentrated in certain sectors.

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The Most Important Investors of All Time

Here’s a link to an interesting graphic from Michael Batnick’s blog “The Irrelevant Investor” that charts the careers of legendary investors versus the S&P 500:

LINK: Most important investors of all time

He summarizes his survey by pointing out the lack of new “star” managers.

I believe that this phenomenon has much to do with the way that the investment industry has become systematized.

Meeting with fund managers, you don’t get the feeling that anyone makes ‘bets’ any more. There is too much at stake to risk being wrong. So you systematize the process to ensure everyone has plausible deniability, and no one gets too big for their britches. I recently attended an investment presentation where the portfolio manager was asked what his biggest ‘miss’ was. He responded that he didn’t buy back into a stock that he had sold that proceeded to rise 30%. In the present circumstance, 30% is a lot. But missing a pass for 30%? Come on.

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Finding Yield

Last week in Montreux I sat through an impressive presentation from a renowned fund company telling me how they planned to make me 2% a year with minimal volatility.


Here’s a nice summary of how we got here:

LINK: BlackRock

Supermodel Linda Evangelista once said that she never gets “out of bed for less than $10,000 a day”. I wonder where she draws the line at bond fund yields…


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Latvia, the OECD and Rocky Balboa

Latvia was one of the counties that was hardest hit by the global economic crisis that began in 2008.

Last week, after years of economic and policy reforms, Latvia was invited to join the Organization for Economic Co-operation and Development (OECD).


The debate continues as to whether Latvia made the best of a host of very hard decisions, but regardless of your economic philosophy, you have to chalk this up as a win.

Rocky Balboa sums it up nicely:

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Some Observations from the Citywire Montreux Conference

I’m back in the office today after spending the majority of last week in Switzerland.

Most of my week was spent in Montreux attending the Citywire Montreux 2016 conference, where I met with a large number of fund companies pitching funds that manage money across all types of investment strategies and mandates.

Here are some recurring themes:
– Smart Beta (seeing considerable asset inflows…)
– Low volatility (everyone is obsessed with limiting volatility)
– Risk budgets (focusing of risk allocations across asset and security classes)
– Open-plan offices (yes, some firms were proud of encouraging their employees to talk to each other…)
– Looking for opportunities in the energy sector (this means that they missed the rally…)

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