Tag: Investor

Japan’s Plea To Millennials: Please Buy Stocks

Ever since the Federal Reserve first got into the business of blowing massive equity bubbles back in the 1980’s, Americans have shown a willingness to happily, if ignorantly, embrace each successive iteration to the rigged market.  Of course, as E-Trade recently confirmed via the following ad, making money in equities is a very simple two-step process: (1) get invested, (2) buy a yacht made of Cuban mahogany and party with models…why would anyone in their right mind pass that up?

Unfortunately, at least for the central planners at the Bank of Japan who would love to be as efficient at creating asset bubbles as their U.S. counterparts, Japanese investors have a slightly longer memory than U.S. investors and have shunned stocks ever since an entire generation of wealth was wiped out in the 90’s.  After 20 years of stocks pretty much only trading in one direction, one can understand their concern.

Moreover, given the chart above, perhaps it’s not surprising that millennials in Japan use the words “Risky”, “Gambling”, “Scary” and “Loss” most frequently to describe the idea of “investing” (chart per the Wall Street Journal).


All that said, as the Wall Street Journal points out today, with an aging population and trillions of dollars worth of pension promises about to come due, Japan’s central planners have no option to double down on efforts to convince millennial investors to once again throw all of their money into the Nikkei slot machine.

If anything can persuade Japanese to invest, it may be fear rather than greed. The government’s debt, more than twice the nation’s annual output, has fanned doubts about whether promised pensions will be forthcoming decades from now.


More than half of Japan’s household wealth sits in bank deposits or cash under the mattress, according to the Bank of Japan, compared with 14% in the U.S.


“We have to increase our assets. Otherwise we cannot survive in a super-aged society,” said Satoshi Nojiri, director of the Fidelity Retirement Institute in Japan.

Luckily, there is even a new Robot, Theo, who will take your monthly deposit and gamble invest it for you.  Theo was created by a company called Money Design whose ‘business strategy’ is centered around targeting “smartphone users accustomed to playing games on their phones”…you know, because if you can play Angry Birds on your iPhone then you can definitely be a rock star investor.

Money Design has a smartphone app, Theo, that aims to appeal to a cautious generation of investors accustomed to deflation. If it can unlock Japanese savers’ appetite for stocks with a click or a swipe, it would succeed at what many in Tokyo have found a nearly impossible task.


Nao Kitazawa, a former Morgan Stanley investment banker who helps run the startup, called Money Design, does his best to distance himself from the past, with his New Balance sneakers and black T-shirt. His target is smartphone users accustomed to playing games on their phones.


“We’ve tried to make our service cool, sharp, new,” said the 42-year-old entrepreneur. “We’re getting rid of some of the stiff formality of meeting with brokers for an hour during lunch time.”


The Theo app pitches a small starting investment of around $100 a month, with a robo adviser selecting model portfolios based on the investor’s inflation expectations and risk appetite. Fees come to 1% of assets annually.


“We want to provide an alternative to a bank deposit,” said Money Design’s Mr. Kitazawa.


The business is still small: Since starting in February last year, Theo has drawn in 18,386 accounts and $106 million in assets under management as of the end of September 2017, with about half of clients in their 20s or 30s.


Of course, efforts to get millennials in Japan to invest are nothing new and the latest such efforts even include tax exempt brokerage accounts for people willing to gamble just $3,500 per year…

Efforts to attract new blood have fallen short before. The government a few years back created a tax exemption for small brokerage accounts in hopes of getting people to dip their toes in the market. Not many did, and government figures show half the accounts are inactive.


This month, the government started taking applications for a new program that will start next year and be available at major brokerages. Officials said they have streamlined the process and lowered the minimum investment a year to ¥400,000 (about $3,500) from ¥1.2 million, while allowing tax benefits to last longer.


To Japanese policy makers, stock investing isn’t just a personal choice. Bringing a new crop of risk-taking investors into the market, they say, could in turn encourage more risk-taking entrepreneurs to create the kind of companies that are driving the U.S. economy.


Getting money to flow into stocks could “contribute to economic growth eventually,” a Financial Services Agency spokesman said. “Then we hope that through long-term, regular diversified investments, people can share the success of the securities market.”

…The desparation almost feels like a comp from a casino way off the strip in Vegas…”free” meat loaf dinner for anyone willing to gamble away their mortgage payment this month!

Of course, up until this morning it looked as if Japanese investors were once again getting excited about investing…and then this happened:

So what say you?  Is this just a temporary blip or is a fragile Japanese investor base once again preparing to “sell the rip.”


“There Are Too Many Warning Signs”: Why One Trader Thinks Stocks Are Set To Slide In The Coming Days

From the latest Macro View edition by Bloomberg macro commentator and former Lehman trader, Mark Cudmore

Stock markets look set to continue to slide in the days ahead.

There are too many small warning signs building up at a vulnerable time for markets. Just because a 3% correction hasn’t happened for a long time doesn’t mean that one isn’t possible. Quite to the contrary, it suggests there are a lot of complacent longs that may over-react to a pullback.

It’s also important to emphasize the proviso that the three pillars of the secular bull market remain solid: growth, earnings and liquidity. There’s no obvious reason to turn structurally bearish, but that’s not the same as thinking that every dip needs to be bought instantly.

After a tremendous year of gains, the S&P 500 is particularly vulnerable to profit-taking as Thanksgiving Day and the looming debt-ceiling issue provide further complications to the implementation of a potential tax reform package.

China has been the engine of global growth, but Monday’s disappointing credit data will make investors nervous that the much greater policy focus will now be on deleveraging – and that will weigh on Asia broadly.

Japan has been a bellwether for the most recent equity gains, but last week’s volatile hiccup and subsequent price action look very bearish technically. After a parabolic gain the past two months, a pullback here would only be a healthy consolidation in the grand scheme of things.

European equities are leading the correction already, while U.K. stocks will remain under pressure from domestic politics and Brexit talks.

At this time of year, there are plenty of traders who’ll only need a nudge to take 2017’s profit and move to the sidelines. In contrast, there’s a dearth of reasons for fresh bulls to join in now.

Sometimes in markets you don’t need one headline catalyst to shift sentiment. Equity markets fall just because there are more marginal sellers than buyers.


Eric Peters: “We Are Investing As If 1987 Will Happen Tomorrow, Because It Will”

Excerpted from the latest weekend notes from One River Asset Management, courtesy of CIO, Eric Peters


People are no longer investing, they’re speculating,” said the CIO. “Is that wrong?” he asked, not waiting for an answer. “Depends on what you’re speculating in.”

Investors are implicitly worried about further price gains, they’re not really forecasting future fundamentals. “Investing is about estimating an asset’s fair value based on fundamentals, then forecasting what others will be willing to pay for those fundamentals.” But you can assign almost any value to the latter, and this means that for periods of time, fundamentals need not matter.

“There are a number of things that you’re absolutely meant to speculate in,” continued the same CIO. “It’s just that the universe of these opportunities is rather narrow relative to what people think it is.”

Paying a lot for everything is quite obviously foolish, but that’s where we are today. The only truly cheap asset class left is implied volatility. “People should be speculating in venture capital. Which is not to say that you can ignore price and value, but at least with venture capital you have a chance to make a lot of money.”

“Unfortunately, few people have access to venture opportunities,” explained the CIO. “Unlike decades past, new companies need very little capital to execute their business plans.” Years of regulation have discouraged smaller firms from going public. So the big platform companies gobble them up in private transactions.

“By owning Google and Facebook investors get access to innovation through acquisitions. Buying these big platforms is like buying closed-end venture capital funds. It’s one of the few ways to own a piece of the future.”


“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.

“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”

Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.

“When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.

“LTCM traded things they didn’t understand. They sold volatility swaps, which they thought were tethered to reality, subject to gravity. In theory, they are. But like many such things, they’re simply numbers on a screen.”


Gartman: “We’ll Not Hesitate Even For A Moment To Return To The Short Side”

Gartman does it again.

Yesterday we reproted that with futures spiking, and the S&P set to open just shy of 2,600, Gartman panicked, and closed out his shorts, instead predicting a “violent, parabolic” move higher.:

We have been wrong… badly… in taking even a modestly bearish view of the global equity market and effecting that bearish view via a position in out-of-the-money puts on the US equity market bought a week and one half ago. Fortunately we effected that bearish view with puts rather than with direct short positions in equites and/or via short position in the futures themselves, so the damage wrought has been minor. But the real damage is that we are not long of equities as obviously we should have been. Our position has to be covered and covered it shall be, for we fear that we are about to enter that violent… and ending… rush to the upside that has ended so many great bull markets of the past. At this point, the buying becomes manic and prices head skyward. Speculation is the order of the day, not investment and when such periods have erupted in the past prices have gone parabolic until such time as the last bears have been brought to heel and the public has thrown investment caution to the wind. We’re there now; this may become wild.

Whether Gartman’s bullish reversal was the catalyst for yesterday’s market weakness is debatable, however, one day later, with the modest selling persisting, here is Gartman again, and one day after Gartman closed his equity short, in anticipation of a “violent, manic” surge higher in the market, here he is again, explaining that he’ll “not hesitate even for a moment but to return to the short side of the equity market in US terms and perhaps even
broadly in global terms if the reversals in the DAX hold through Friday’s close.” To wit:

Having covered our small short position in the US market we had had via a position in slightly-out-of-the-money puts, we’ll not hesitate even for a moment but to return to the short side of the equity market in US terms and perhaps even broadly in global terms if the reversals in the DAX hold through Friday’s close. This is the hardest thing any investor/trader/analyst must be able to do: to acknowledge having been wrong for a short while only to see the market vindicate the initial position and thus to be forced to return to the original trade at a less advantageous price. We face that possibility even as we write.

And so, with condolences to the bears, it appears that yesterday downward pair trade set up, is now over.


How A Quant Hedge Fund Surpassed Renaissance And DE Shaw To Become A $50 Billion Behemoth

In a time when traditional long/short, macro and other fundamental-analysis based hedge funds are losing the war to ETFs and passive investing…

… one group of funds is thriving, and none more so than quant powerhouse Two Sigma which according to the FT, has quietly grown assets under management mark over $50 billion “putting it on a par with Renaissance Technologies as the biggest global quantitative hedge fund, as investors continue to pile into computer-powered investment strategies.”

Putting Two Sigma’s staggering growth rate in context, the New York-based hedge fund, which was launched in 2001 by computer scientist David Siegel and mathematician John Overdeck, had $6bn in 2011 but soared past the $50bn mark earlier this month, according to FT sources:

“That puts it roughly level with Renaissance Technologies, which manages just over $50bn, and more than DE Shaw’s $45bn. Both are older than Two Sigma.”

The reason for the unprecedented growth rate is that while the rest of the hedge fund industry has struggled with poor performance and outflows, investor demand for lower-cost, quant and algorithmic investing has exploded in recent years.  Morgan Stanley recently estimated that various quant strategies, ranging from cheap next-generation exchange traded funds to pricey sophisticated hedge fund vehicles, have grown at 15 per cent annually over the past six years, and now control about $1.5tn.

As MS reported in early October:

“$1.5 trillion of AuM currently managed under quantitative guidelines could continue its double-digit growth over the next five years. Part of this growth is a  ‘pull’ from investors broadening their search for risk premium and uncorrelated returns at lower fees than traditional alternatives. Part of this is a ‘push’, as asset managers see systematic strategies that lend themselves well to automation and scale, offering value over pure ‘beta’ in a traditional active management framework. Relatively small further reallocation by asset owners towards these strategies could still drive significant growth.”

To be sure, this invasion of Math Ph.D will harldy come as a surprise to regular readers: back in 2009 we predicted that with central banks obviating fundamentals, it was only a matter of time before the mathematicians and physicists took over. Well, they have:

Quants tend to have a different background to typical hedge funds. More than half of Two Sigma’s 1,200 staff come from outside the finance industry, with most educated in mathematics and computer science. They include the winner of a Japanese backgammon tournament and the “world’s first open-source software artist”, according to a graphic novel handed to new recruits.

As programmers and data scientists have taken advantage of ever-cheaper computing power and ravenous investor appetite, a flurry of new start-ups have emerged in the quant investing field in recent years, But the biggest growth is happening at the largest, most-respected players, according to Emma Bewley, head of fund investment at Connection Capital.

“The big firms are getting bigger,” she said. “There’s a real sense that while a lot of hedge funds are building out their quantitative side, they don’t have the know-how of the established quant firms.”

There are pros and cons to this substantial reallocation to quant funds away from conventional, fundamental “active” managers: on one hand, “the rapid growth of quantitative investing has sparked a ferocious war for talent, with banks, traditional asset managers and hedge funds desperate to attract more coders.” But, as the FT’s Robin Wigglesworth observes, such clustering creates a risk of all “traders” being on the same side at the same time:

The greater worry for investors and the industry is that the inflows of money into the space is ramping up risks to markets.  While strategies can vary greatly, there is concern that with more money gushing in some trades can become “crowded”, and unravel quickly if the market environment shifts.

To avert such concerns, many quant funds are careful to monitor for signs of crowding, and limit how much money a strategy or fund manages at any time.

For example, Two Sigma’s equity and macro hedge funds, which manage about $35bn, have long been closed to outside investors.

And while quants claim their strats are now less aggressive, and use less leverage and deploy more varied strategies, there is no way to know until the next downturn, a downturn which refuses to occur precisely because of quants, whose primary directive it appears is to Buy The Dip, Any Dip before the other Math PhD does, and not only ask questions later, but ideally never ask anything as more greater fools emerge to bid up risk even higher, which luckily these days also includes central banks.


USDJPY Inches Higher As Japanese Stocks Set For Longest Winning Streak In History

Yen is weaker and Japanese equity futures notably higher following a landslide election victory for Japan Prime Minister Shinzo Abe which theoretically ushers in yet more easy monetary policy. USDJPY has jumped above 114.00 in early trading, sending NKY futures up almost 1% in the pre-market.

If this equity rise holds it will mark the 15th consecutive gain for the Japanese market – breaking the 1961 record of 14 straight days to become the longest winning streak in Japanese stock market history.

Nikkei 225 is at its highest since Dec 1996.

Meanwhile, much has been made recently of the decoupling between USDJPY and the Nikkei 225

However, this chart masks a closer relationship between USDJPY and the relative performance of Japanese and US equities.

So there really is no regime shift.

What are the drivers of this persistent negative correlation between the yen and Japanese equities and which flows supported this negative correlation this year?

On Friday, JPMorgan presented three fundamental explanations to justify the link between Japanese equities and the yen.

One typical explanation is that the yen, being a major funding currency for the world, should rise in a risk-off equity environment and vice versa. But this argument is not supported by the fact that there is much lower correlation between the yen and global equities. It is also not supported by the structural break in the correlation between Japanese equities and the yen shown in the chart above. The yen was the most prominent or sole funding currency before the financial crisisof 2007/08. After the financial crisis the yen was joined by the dollar and later by the euro as funding currencies. So if anything the negative correlation between equities and the yen should have been even more negative before the financial crisis. But the opposite happened. The negative correlation only intensified after the financial crisis.


A second explanation, with causality running from yen to Japanese equities, is that a weaker yen has a positive impact on corporate profits inducing equity investors to buyJapanese equities and vice versa.


A third explanation is that Abenomics was always thought of as a combined trade for overseas investors: buy Japanese equities and sell the yen. And reverse, i.e. sell Japanese equities and buythe yen, when Abenomics wanes.

But JPM notes both of these last two explanations have a problem: why does the yen not go up as foreign investors buyJapanese equities? In principle when foreign investors buy or sell Japanese equities currency-hedged there should be no currency impact. And when foreign investors buy or sell Japanese equities currency unhedged there should be in fact a positive correlation between the yen and Japanese equities. What are the circumstances then under which we have a negative correlation between Japanese equities and the yen?

We previously presented three flow circumstances:


1) If a foreign investor (buyer) purchases Japanese equities currency-hedged from another foreign investor (seller) who was long yen already (i.e. the seller owned these Japanese equities currency unhedged before), the net market impact would be an up movein Japanese equities and a down move in yen.


2) If a foreign investor (buyer) purchases Japanese equities currency-hedged from a Japanese investor (seller) and this Japanese investor uses the proceeds to purchase foreign equities currency-unhedged, the net impact would also be an up move in Japanese equities and a down move in yen. This flow appears to have taken place since mid-September. Foreign investors were buyers of Japanese equities, at the same time as Japanese investors sold domestic equities and as Japanese investors stepped up their purchases of foreign equities. But since September, the purchases of foreign equities by Japanese investors were smaller in magnitude relative to the purchases of Japanese equities by foreign investors. So the negative impact on theyen from the former flow was more muted relative to the positive impact on Japanese equities from the latter flow.



3) Another flow example is related to dynamic hedging by existing holders of Japanese equities, Existing foreign holders of Japanese equities could have unwound previous FX hedges in response to equity price declines in recent months, even if they did not sell any Japanese equities themselves. This is because equity investors tend to dynamically adjust their FX hedges to match the size of the hedges to the value of their equity holdings. So as the price of Japanese equities goes down in local currency terms, these foreign investors cut some of their previous FX hedges, pushing the yen up in the process. The opposite flow takes place in periods of Japanese equity appreciation: existing foreign holders of Japanese equities have to increase the size of their FX hedges to match the increased equity values, pushing the yen down in the process.

This dynamic hedging flow suggests that there should be an even stronger correlation between the performance of the yen and the absolute performance of Japanese equities in local currency terms, relative to the correlation between the yen and the relative performance of Japanese vs. US or global equities. But the two charts above show that the opposite happened this year. The correlation between the yen and the relative performance of Japanese vs. US equities has been stronger than the correlation between the performance of the yen and the absolute performance of Japanese equities. This suggests the above flow stemming from dynamic hedging by foreign investors of existing Japanese equity holdings, has likely weakened this year.

So from the above three flow circumstances, it is the second one that appears to offer the best explanation of what happened since September in the Japanese equity/yen space. 

So, following the recent buying, how overweight have foreign investors become in Japanese equities?

So in all, it appears that overweights in Japan have been focused mostly among leveraged overseas investors including CTAs, making Japanese equities vulnerable to an unwind of some of these positions in the near term. Non-leveraged institutional investors or retail investors are rather neutral.

To conclude, JPMorgan finds no reason to believe that the historical negative correlation between Japanese equities and the yen has broken down. The relationship between Japanese equities and the yen has been closely aligned this year if one looks at the relative rather than the absolute performance of Japanese equities.

More recently, since September, the purchases of foreign equities by Japanese investors were smaller in magnitude relative to the purchases of Japanese equities by foreign investors. So the negative impact on the yen from the former flow was more muted relative to the positive impact on Japanese equities from the latter flow. Going forward, overseas leveraged investors present the main vulnerability for Japanese equities, in our view.


VIX Shorts Hit Record Highs As US Households Load Up On Stocks

With VIX at its 2nd lowest level weekly close in history, amid storms, quakes, dismal data, oh yeah and nuclear armageddon looming, it is perhaps no surprise that speculators sold more VIX futures last week… to a new record level of shorts…

As Reuters reports, the long stretch of low volatility for U.S. stocks has made betting on continued calm a popular and lucrative trade, but traders and strategists warn that risks to the trade have mounted, while the potential for profits has shrunk.

Some traders, however, have grown more wary of increased risks to the trade.

“I think a lot of folks have gotten lulled into a false sense of security because the short trade has gone so well for so long,” said Matt Thompson co-head of Volatility Group at Typhon Capital LLC, in Chicago.


“We are still shorting volatility but we have an itchier trigger finger.”

Assets under management for the top two short volatility products is at $2.8 billion and their exposure to volatility is at an all-time high, according to Barclays Capital. But the very popularity of the trade has cranked up the risk.

And of course, we all know who ends up wearing it at the end…

Positioning in these products, primarily driven by retail players, may be more skewed to the short side than the broader market where institutional investors hold sway.


“I don’t think the risk is necessarily as big on the institutional side as it is on the retail side,” said Omprakash.

In fact, it seems that only FX options traders are seeing through the bullshit…


Which is interesting since, while the Dollar Index just completed its best 2-week rally since December


Speculators remain at their most short the Dollar (in aggregate across FX Futures) since early 2013…


And finally, as speculators have never been more levered long of the US equity market, so households are loading up on US Stocks.

As Dana Lyons explains, the percentage of financial assets that households currently have invested in stocks has only been exceeded by the 2000 bubble.

From the Federal Reserve’s latest Z.1 Release (formerly, Flow Of Funds), we learn that in the 2nd quarter, household and nonprofit’s stock holdings amounted to 35.7% of their total financial assets. This is the highest percentage since 2000. In fact, the blow-off phase from 1998 to 2000 leading up to the dotcom bubble burst was the only time in the history of the data (since 1945) that saw higher stock investment than now. You might say that everyone is in the pool.



We’ve talked about this data series many times. It is certainly not a timing tool. Rather, it is what we call a “background” indicator, representative of the longer-term backdrop — and potential — of the stock market. It also serves as an instructional lens into investor psychology. For these reasons, it is one of our favorite metrics pertaining to the stock market, as we wrote in a September 2014 post:

“This is one of our favorite data series because it reveals a lot about not only investment levels but investor psychology as well. When investors have had positive recent experiences in the stock market, i.e., a bull market, they have been happy to pour money into stocks. It is consistent with all of the evidence of performance-chasing pointed out by many.


Note how stock investment peaked with major tops in 1966, 1968, 1972, 2000 and 2007. Of course, investment will rise merely with the appreciation of the market; however, we also observe disproportionate jumps in investment levels near tops as well. Note the spikes at the 1968 and 1972 tops and, most egregiously, at the 2000 top.


On the flip side, when investors have bad recent experiences with stocks, it negatively effects investment flows, and in a more profound way than the positive effect. This is consistent with the scientifically proven notion we’ve discussed before that feelings of fear or loss are much stronger than those of greed or gain. Stock investment during he 1966-82 secular bear market provides a good example of this.


After stock investment peaked at 31% in 1968 (by the way, after many of the indexes had topped in 1966 — investors were still buying the dip), it embarked on steady decline over the next 14 years. This, despite the fact the stock market drifted sideways during that time. By the beginning of the secular bull market in 1982, the S&P 500 was right where it was in 1968. However, household stock investment was at an all-time low of 10.9%. If the stock averages drifted sideways, why did stock investment drop by two thirds? The repeated declines over that period left investors scorned and distrustful of the stock market. They never really started putting money back into stocks until 1991.


What is the significance of the current reading? As we mentioned, it is the highest reading since 2000. Considering the markets are at an all-time high, this should not be surprising. In fact, while most of the indexes surpassed their prior peaks in early 2013, household stock investment did not surpass the 2007 highs until the first quarter of this year. The financial crisis put a dent in many investors’ psyches (along with their portfolios) and they’ve been slow to return again. However, along with market appreciation, investor flows have seen at least streaks of exuberance over the past 18 months, boosting investment levels.


Yes, there is still room to go (7.5 percentage points) to reach the bubble highs of 2000. However, one flawed behavioral practice we see time and time again is gauging context and probability based on outlier readings. This is the case in many walks of life from government budgeting to homeowner psychology to analyzing equity valuations. The fact that we are below the highest reading of all-time in stock investment should not lead one’s primary conclusion to be that there is still plenty of room to go to reach those levels.


There are no doubt many investors who are still wary of returning to the stock market due to the two cyclical bear markets in the past dozen years. However, while there may be a certain level of investor mistrust, the moniker of “most hated bull market of all-time” does not seem appropriate. It should not be lost on investors that we are at the second highest level of stock investment ever, behind only the most speculative stock blowoff in U.S. history.”

*  *  *

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. Considering what we believe will be a very difficult investment climate for awhile, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!


Weekend Reading: Yellen Takes Away The Punchbowl

Authored by Lance Roberts via RealInvestmentAdvice.com,

September 20th, 2017 will likely be a day that goes down in market history.

It will either be remembered as one of the greatest achievements in the history of monetary policy experiments, or the beginning of the next bear market or worse.

Given the Fed’s inability to spark either inflation or economic growth, as witnessed by their dismal forecasting record shown below, I would lean towards the latter.

The media is very interesting. Despite the fact there is clear evidence that unbridled Central Bank interventions supported the market on the way up, there is now a consensus that believes the “unwinding” will have “no effect” on the market.

This would seem to be naive given that, as shown below, the biggest injections of liquidity from the Fed have come near market bottoms. Without the proverbial “punch bowl,” where does the “support” come from to stem declines?

I tend to agree with BofA who recently warned” the paint may be drying but the wall is about to crumble.”

This point can be summarized simply as follows: there is $1 trillion in excess TSY supply coming down the line, and either yields will have to jump for the net issuance to be absorbed, or equities will have to plunge 30% for the incremental demand to appear.”

“An unwind of the Fed’s balance sheet also increases UST supply to the public. Ultimately, the Treasury needs to borrow from the public to pay back principal to the Fed resulting in an increase in marketable issuance. We estimate the Treasury’s borrowing needs will increase roughly by $1tn over the next five years due to the Fed roll offs. However, not all increases in UST supply are made equal. This will be the first time UST supply is projected to increase when EM reserve growth likely remains benign.


Our analysis suggests this would necessitate a significant rise in yields or a notable correction in equity markets to trigger the two largest remaining sources (pensions or mutual funds) to step up to meet the demand shortfall. Again, this is a slower moving trigger that tightens financial conditions either by necessitating higher yields or lower equities.”

Of course, as I have discussed previously, a surge in interest rates would lead to a massive recession in the economy. Therefore, while it is possible you could experience a short-term pop in rates, the end result will be a substantial decline in equities as money flees to the safety of bonds driving rates toward zero.

“From many perspectives, the real risk of the heavy equity exposure in portfolios is outweighed by the potential for further reward. The realization of ‘risk,’ when it occurs, will lead to a rapid unwinding of the markets pushing volatility higher and bond yields lower. This is why I continue to acquire bonds on rallies in the markets, which suppresses bond prices, to increase portfolio income and hedge against a future market dislocation.”

My best guess is the Fed has made a critical error. But just as a “turnover” early in the first-quarter of the game may not seem to be an issue, it can very well wind up being the single defining moment when the game was already lost. 

In the meantime, here is what I am reading this weekend.



Research / Interesting Reads

“If you are playing the rigged game of investing, the house always wins.” ? Robert Rolih


15 Risk Management Rules For Every Investor

Authored by Lance Roberts via RealInvestmentAdvice.com,

Last week, I was discussing the rather “Pavlovian” response to Central Bank interventions which has led investors into a false sense of security with respect to the risk being undertaken within portfolios.

This got me to thinking about “risk” and reminded me of something Howard Marks once wrote:

“If I ask you what’s the risk in investing, you would answer the risk of losing money. But there actually are two risks in investing: One is to lose money, and the other is to miss an opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive.


I think of it like a comedy movie where a guy is considering some activity. On his right shoulder is sitting an angel in a white robe. He says: ‘No, don’t do it! It’s not prudent, it’s not a good idea, it’s not proper and you’ll get in trouble’.


On the other shoulder is the devil in a red robe with his pitchfork. He whispers: ‘Do it, you’ll get rich’. In the end, the devil usually wins.


Caution, maturity and doing the right thing are old-fashioned ideas. And when they do battle against the desire to get rich, other than in panic times the desire to get rich usually wins. That’s why bubbles are created and frauds like Bernie Madoff get money.


How do you avoid getting trapped by the devil?


I’ve been in this business for over forty-five years now, so I’ve had a lot of experience.  In addition, I am not a very emotional person. In fact, almost all the great investors I know are unemotional. If you’re emotional then you’ll buy at the top when everybody is euphoric and prices are high. Also, you’ll sell at the bottom when everybody is depressed and prices are low. You’ll be like everybody else and you will always do the wrong thing at the extremes.


Therefore, unemotionalism is one of the most important criteria for being a successful investor. And if you can’t be unemotional you should not invest your own money, period. Most great investors practice something called contrarianism. It consists of doing the right thing at the extremes which is the contrary of what everybody else is doing. So unemtionalism is one of the basic requirements for contrarianism.”

It is not surprising with markets hitting “all-time highs,” and the mainstream media trumpeting the news, that individuals are being swept up in the moment.

After all, it’s a “can’t lose proposition.” Right?

This is why being unemotional when it comes to your money is a very hard thing to do.

It is times, such as now, where logic states that we must participate in the current opportunity. However, emotions of “greed” and “fear” are kicking in either causing individual’s to take on too much exposure, or worrying that risk is too high and a crash could come at any time. Emotional based arguments are inherently wrong and lead individuals into making decisions that ultimately have a negative impact on their financial health.

As Howard Marks’ stated above, it is in times like these that individuals must remain unemotional and adhere to a strict investment discipline.

RIA Portfolio Management Rules

It is from Marks’ view on risk management that I thought I would share with you the portfolio rules that drive own own investment discipline at Real Investment Advice. While I am often tagged as “bearish” due to my analysis of economic and fundamental data for “what it is” rather than “what I hope it to be,” I am actually neither bullish or bearish. I follow a very simple set of rules which are the core of my portfolio management philosophy which focus on capital preservation and long-term “risk-adjusted” returns.

The fundamental, economic and price analysis forms the backdrop of overall risk exposure and asset allocation. However, the following rules are the “control boundaries” for all specific actions.

  1. Cut losers short and let winner’s run. (Be a scale-up buyer into strength.)
  2. Set goals and be actionable. (Without specific goals, trades become arbitrary and increase overall portfolio risk.)
  3. Emotionally driven decisions void the investment process.  (Buy high/sell low)
  4. Follow the trend. (80% of portfolio performance is determined by the long-term, monthly, trend. While a “rising tide lifts all boats,” the opposite is also true.)
  5. Never let a “trading opportunity” turn into a long-term investment. (Refer to rule #1. All initial purchases are “trades,” until your investment thesis is proved correct.)
  6. An investment discipline does not work if it is not followed.
  7. “Losing money” is part of the investment process. (If you are not prepared to take losses when they occur, you should not be investing.)
  8. The odds of success improve greatly when the fundamental analysis is confirmed by the technical price action. (This applies to both bull and bear markets)
  9. Never, under any circumstances, add to a losing position. (As Paul Tudor Jones once quipped: “Only losers add to losers.”)
  10. Market are either “bullish” or “bearish.” During a “bull market” be only long or neutral. During a “bear market”be only neutral or short. (Bull and Bear markets are determined by their long-term trend as shown in the chart below.)
  11. When markets are trading at, or near, extremes do the opposite of the “herd.”
  12. Do more of what works and less of what doesn’t. (Traditional rebalancing takes money from winners and adds it to losers. Rebalance by reducing losers and adding to winners.)
  13. “Buy” and “Sell” signals are only useful if they are implemented. (Managing a portfolio without a “buy/sell” discipline is designed to fail.)
  14. Strive to be a .700 “at bat” player. (No strategy works 100% of the time. However, being consistent, controlling errors, and capitalizing on opportunity is what wins games.)
  15. Manage risk and volatility. (Controlling the variables that lead to investment mistakes is what generates returns as a byproduct.)

Currently, the long-term bullish trend that began in 2009 remains intact. The correction that began in early 2016 was temporarily cut short by massive, and continuing, interventions of global Central Banks. There is a limit, of course, to the efficacy of those interventions.

A violation of the long-term bullish trend, and a failure to recover, will signal the beginning of the next “bear market” cycle. Such will then change portfolio allocations to be either “neutral or short.”  BUT, and most importantly, until that violation occurs, portfolios should be either long or neutral ONLY.  

The current market advance both looks, and feels, like the last leg of a market “melt up” as we previously witnessed at the end of 1999.  How long it can last is anyone’s guess. However, importantly, it should be remembered that all good things do come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives.This is why focusing on “risk controls” in the short-term, and avoiding subsequent major draw-downs, the long-term returns tend to take care of themselves.

Everyone approaches money management differently.

This is just my approach and I am simply sharing my process.

I hope you find something useful in it.



Investor Apathy: Crashes (& Valuations) Matter After All

Authored by Lance Roberts via RealInvestmentAdvice.com,

Recently, Ryan Vlastelica penned a column suggesting investors should simply be “apathetic” when it comes to their money.

“Apathy doesn’t sound like a sensible investment philosophy, but it may be one of the most successful approaches a person can employ to grow wealth.”

Listen. I get it.

You can’t beat the market, so just “buy and hold.”

Over a long enough period, I agree, you will make money.

But, simply making money is not the point of investing.

We invest to ensure our current “hard earned savings” adjust over time to provide the same purchasing power parity in the future. If we “lose” capital along the way, we extend the time horizon required to reach our goals.

Crashes Matter A Lot

Ryan makes his case for “apathy” by quoting Barry Ritholtz who stated:

“If you don’t want to invest in equities because you fear a market crash, then you should never be in equities, because equities always crash.”

While Barry is absolutely correct in his statement, investing is never an “all or none” proposition. Being an investor is about understanding the “risk to reward” relationship of placing capital into the financial markets.

There is no “great investor” in history, not even Warren Buffett, who is apathetic about investing. It is also why every great investor has one simple rule in common:

“Buy low, Sell high.” 

Why? Because it is the ONLY manner in which you truly create wealth.  As Ryan notes:

“Ritholtz stressed that investors should diversify, in part to mitigate their concerns about portfolio volatility, but added that the best buying opportunities were when things looked the worst.”

The problem with being “apathetic” should be obvious. If you never sold high, then where will the capital come from to “buy low?”

Think about your personal situation.

  • If you have a big cash pile at the moment, then you aren’t investing and are “missing out,” according to Ryan. 
  • If you don’t have a big cash pile, then where would you come up with the cash to buy “when things looked their worst?”

Yes, that’s the problem with “buy and hold” and “dollar cost averaging” which will become much more apparent momentarily.

Crashes matter, and they matter a lot.

Let’s set up a quick example to prove the point.

Bob is 35-years old, earns $75,000 a year, saves 10% of his gross salary each year and wants to have the same income in retirement that he currently has today. In our forecast, we will assume the market returns 7% each year and we will use 2.1% for inflation (long-term median) for planning purposes.

In 30 years, Bob’s equivalent income requirement will roughly be $137,000 annually.

So, starting with a $100,000 investment, he gets committed to saving $7500 each year into his index fund and sits back to watch it grow into a whopping $1.46 million nest egg at retirement.

See, absolutely nothing to worry about. Right?

Not so fast.

This is where problem number one arises for the vast majority of Americans. Given the economic drag of the 3-D’s (Debt, Demographics & Deflation) currently in progress, which will span the next 30-years, long-term interest rates will remain low. Therefore, if we assume that a portfolio can deliver an income of 3% annually, the assets required by Bob to fulfill his retirement needs will be roughly $4.6 Million.

(Yes, I have excluded social security, pensions, etc. – this is for illustrative purposes only.)

The roughly $3-million shortfall will force Bob to reconsider his income requirements for retirement.

The second problem is that “crashes” matter and they matter a lot. The chart below is a $100,000 investment plus $7500 per year compounding at 7% annually versus actual market returns. I have taken historical returns from 2009 to present (giving Bob the benefit of front-loaded returns at the start of his journey) and then projected forward using a normal standard deviation for market returns.

The important point is to denote the shortfall between what is “promised to happen” versus what “really happens” to your money when crashes occur. The “sequence of returns” is critical to the long-term success of your investment outcomes.

Bob’s $1.5 million projected retirement goal comes up short by $500k. This only compounds the shortfall between what is actually required to create an inflation adjusted income stream at retirement.

This is specifically why there are more “baby boomers” in the workforce today than ever before in history.

“So, stop blaming “baby boomers” for not retiring – they simply can’t afford to.” 

Yes, Valuations Matter Also

As I noted last week in “The Rule Of 20”

“Importantly, it is not just the length of the market and economic expansion that is important to consider. As I explained just recently, the ‘full market cycle’ will complete itself in due time to the detriment of those who fail to heed history, valuations, and psychology.


There are two halves of every market cycle. 

While valuations should NEVER be used as a means to manage a portfolio in the “short-term,” valuations have everything to do with how you invest long-term. 

As I have shown many times previously (most recently here), the level of valuations at the start of the investing period are determinant of future returns. The chart below makes this extremely simple to understand. The chart shows the composite of total real compound returns over the subsequent 30-year period when valuations were either less than 10x earnings, or greater than 20x. I have then used those composites for Bob’s potential outcomes given valuations are currently greater than 20x on a trailing reported basis.

(Starting investment of $100,000 with $7500 annual savings)

Again, the outcome for Bob’s financial future comes up meaningfully short.

A Fix For Bob’s Financial Insecurity

Ryan quoted Barry again:

“It isn’t the market crashes that get investors, it’s the high blood pressure. They trade excessively and their investment philosophies are all over the place. They do things they shouldn’t, then stick with it when they shouldn’t. They flip from one style to the other. They’re overconfident. They make emotional decisions.”

Ryan, Barry and I can all agree on that point.

Psychology makes up fully 50% of the reason investors underperform over time. But notice, the other 50% relates to lack of capital to invest. (See this) Again, where is that capital going to come from to “buy low?”

These biases come in all shapes, forms, and varieties from herding, to loss aversion, to recency bias. They are all the biggest contributors to investing mistakes over time.

These biases are specifically why the greatest investors in history have all had a very specific set of rules they followed to invest capital and, most importantly, manage the risk of loss.  (Here’s a list)

Here’s what you won’t find on that list. “Be apathetic.”

So, what’s Bob to do?

There is NO argument Bob needs to save and invest in order to reach his retirement goal and sustain his income in retirement. 

A simple solution can be designed using a well-known growth stock mutual fund and intermediate bond fund. The management method is simple. When the S&P index is above the 12-month moving average, you are 100% invested in the growth mutual fund. When the S&P index is below the 12-month moving average you are 100% invested in the bond mutual fund. I have compared the outcome to just “buy and holding” and “dollar cost averaging” into JUST the growth stock mutual fund.

For Bob, the difference is between meeting his retirement goals or not.

Over the next 10-years, given where current valuation levels reside, forward returns are going to be substantially lower than they have been over the last 10-years. This doesn’t mean there won’t be some “rippin'” bull markets during that time, there will also be some corrections along the way.

Just remember:

“Getting Back To Even Does Not Equal Making Money.” 

Planning To Win

With valuations elevated, the economic cycle very long in the tooth, and the 3-D’s applying downward pressure to future economic growth rates, investors, along with Bob, need to consider the following carefully.

  • Expectations for future returns and withdrawal rates should be downwardly adjusted.
  • The potential for front-loaded returns going forward is unlikely.
  • The impact of taxation must be considered in the planned withdrawal rate.
  • Future inflation expectations must be carefully considered.
  • Drawdowns from portfolios during declining market environments accelerate the principal bleed. Plans should be made during rising market years to harbor capital for reduced portfolio withdrawals during adverse market conditions.
  • The yield chase over the last 8-years, and low interest rate environment, has created an extremely risky environment for retirement income planning. Caution is advised.
  • Expectations for compounded annual rates of returns should be dismissed in lieu of plans for variable rates of future returns.

Chasing an arbitrary index that is 100% invested in the equity market requires you to take on far more risk that you most likely want. Two massive bear markets over the last decade have left many individuals further away from retirement than they ever imagined. Furthermore, all investors lost something far more valuable than money – the TIME that was needed to reach their retirement goals.

Investing for retirement, no matter what age you are, should be done conservatively and cautiously with the goal of outpacing inflation over time. This doesn’t mean that you should never invest in the stock market, it just means that your portfolio should be constructed to deliver a rate of return sufficient to meet your long-term goals with as little risk as possible.

Don’t be apathetic about your money. 

There should be no one more concerned about YOUR money than you, and if you aren’t taking an active interest in your money – why should anyone else?


Mauldin: “4 Charts Why You Should Run Away From The S&P 500”

Authored by John Mauldin via MauldinEconomics.com,

My friend James Montier, now at GMO, and his associate Matt Kadnar have written a compelling piece on why passive investors should avoid the S&P 500.

Their essay argues that the forward growth potential of the S&P 500 is significantly lower than that of other opportunities, especially emerging markets.

Let’s look at a few of their charts.

For the Next 7 Years, S&P 500 Returns Will be a Negative 3.9%

The chart above breaks the total return from the beginning of the current bull market in the S&P 500 into its four main components: increasing multiples, margin expansion, growth, and dividends.

He notes that this total return is more than double the level of long-term real return growth since 1970.

If earnings and dividends are remarkably stable (and they are), to believe that the S&P will continue delivering the wonderful returns we have experienced over the last seven years is to believe that P/Es and margins will continue to expand just as they have over the last seven years. The historical record for this assumption is quite thin, to put it kindly. It is remarkably easy to assume that the recent past should continue indefinitely, but it is an extremely dangerous assumption when it comes to asset markets. Particularly expensive ones, as the S&P 500 appears to be.

More bluntly put, the historical record supporting this assumption is non-existent. It never happened. Just saying…

The authors then describe how they build their seven-year forecasts of S&P 500 returns.

They argue that for the next seven years, returns will be a negative 3.9%. Note that GMO is not a perma-bear money-management business. Their forecasts were extremely bullish in February 2009.

They are a valuation shop, pure and simple. Investors—typically large institutions and pension funds—that are leaving Grantham’s management firm now are going to regret it. The consultants or managers who suggested that move are going to need to polish their résumés.

No Good Options Are Left

The bottom line? “The cruel reality of today’s investment opportunity set is that we believe there are no good choices from an absolute viewpoint – that is, everything is expensive (see the chart below).”

For a relative investor (following the edicts of value investing), we believe the choice is clear: Own as much international and emerging market equity as you can and as little US equity as you can. If you must own US equities, we believe Quality is very attractive relative to the market. While Quality has done well versus the US market, long international and emerging versus the US has been a painful position for the last few years, but it couldn’t be any other way. Valuation attractiveness is generally created by underperformance (in absolute and/or relative terms). As Keynes long ago noted, a valuation-driven investor is likely seen as “eccentric, unconventional, and rash in the eyes of average opinion.” [Emphasis mine.]

In absolute terms, the opportunity set is extremely challenging. However, when assets are priced for perfection as they currently are, it takes very little disappointment to lead to significant shifts in the pricing of assets. Hence, our advice (and positioning) is to hold significant amounts of dry powder, recalling the immortal advice of Winnie-the-Pooh, “Never underestimate the value of doing nothing” or, if you prefer, remember—when there is nothing to do, do nothing.

Markets appear to be governed by complacency at the current juncture. Indeed, looking at the options market, it is possible to imply the expected probability of a significant decline in asset prices. According to the Minneapolis Federal Reserve, the probability of a 25% or greater decline in US equity prices occurring over the next 12 months implied in the options market is only around 10% (see Exhibit 12). Now, we have no idea what the true likelihood of such an event is, but when faced with the third most expensive US market in history, we would suggest that 10% seems very low.

Those are wise words indeed.


Some Thoughts On “Long-Term Investing”

Authored by Lance Roberts via RealInvestmentAdvice.com,

Last week, I was having lunch with a prospective portfolio management client discussing the current market and economic backdrop and the related risk to invested capital. During our appetizer of stone crabs and lobster-corn chowder, (if you ever drift into a Truluck’s restaurant I highly suggest both) he discussed how his father had bought a basket of stocks 25-years ago and had essentially performed in line with the markets during that time.

Why shouldn’t he just do the same?

It’s a great question.

The most valuable commodity that we all have is “time.” While the markets may have recently hit “all-time” highs, for the majority of investors this is not the case. They didn’t sell at the previous peak, and they sure as heck didn’t buy at the financial crisis lows. In fact, the reality is quite the opposite, and once again investors appear to be buying the market peak under the belief somehow “this time is different.”

The chart below shows, according to the American Association of Individual Investors (AAII), investors currently have the highest allocation to stocks, and lowest to cash, since the Dot.com bubble in 2000.

But, even if investors have fully recovered from the financial crisis, or the “Dot.com” bust, the time lost in getting back to even can never be recovered.

Unfortunately, for far too many Americans today, time will run out for them as they are faced with the tough retirement choices of being forced to work far longer than any of them ever planned.

Yet, after two major market reversions, business remains brisk for fortune tellers, psychics and market analysts who continue to make guesses about the future. Amazingly, individuals still place too much faith in predictions of these future outcomes when it comes to their savings, and more importantly, their retirement.

I was listening to an interview recently by a leading asset manager who says that the market will end the year higher and that you should remain fully invested in the market. This sounds great, and there is a decent possibility he will be right. However, this is the same prediction made every year…even in 2000 and 2008. The issue is that when these “prognostications” go wrong it can be fatal to those retirement goals.

In order to be truly successful over the long term, and this is especially important if you are close to your retirement date, a focus on 1) capital preservation and 2) returns at a rate to offset inflationary pressures are the most critical. The second part is the most important. People that try to build wealth by investing, rather than saving, tend to lose more often than not as they inherently take on excessive risk trying to “beat the market.”

The understanding that has been lost in recent years by both advisors and investors is the financial markets are a tool to make sure that your “savings” maintain their future purchasing power parity. In other words, your savings are adjusted for inflation over time.

It is important to remember this. NONE OF US are investors.

Not in any sense of the word.

We are all SPECULATORS betting on the future price movement of the market. The difference, just as gamblers in a casino, that separates winners from losers is knowing the odds of success on each and every bet you make. If the odds of success are high then make a bet. If not, don’t.

I have never understood the rationale of individuals who tell me they “have to be invested”.


Investing just for the sake of having your money in the stock market is a fools bet. As the old adage goes:

“If you are sitting at a poker table and can’t figure out who the pigeon is…it is probably you.”

If you truly have 30 years to be invested before you retire, then you can ignore this article, buy a stock market index fund, stick 20% of income into it every month and most likely you will be better off than most. However, if you are like me, and the millions of other Americans who are within 10-15 years to retirement, we don’t have the luxury of time on our side. Therefore, sudden market losses can be devastating to long term financial sustainability in retirement.

The most basic goal of investing is to “buy low” and “sell high.” This is the only way money is actually created out of the investment process. Unfortunately, this obvious rule is consistently disregarded as investors panic and sell at market lows, or greedily buy market tops. It is human nature, and emotionally based investing almost always results in losses. For those individuals willing to bet at the casino without even looking at their hand, they are most likely going to lose much more often than they win.

Let’s assume that you want to maintain an annualized return of 10% over the next 5 years. Here are the hypothetical market returns:  +10%, +10%, +10% -10%, +10%.  Those returns look stellar on the surface.  However, the impact on actual investment dollars is quite different.

While many individuals profess to regularly beat the market – the reality is that few do. Most investors tend to do well on the way up but fail to sell before the decline. However, for argument sake, we will assume that the average investor exactly matches market returns. The table shows an investment of $100,000 based on our hypothetical returns for the five-year period.

The important point is that it only takes one draw down over any one-year period to destroy compounded returnsIn our example, it would take an astounding 34% return in year 5 to return the portfolio to the original goal. Furthermore, the compounded annual growth rate is cut by almost half due to the one down year. This is why most investors real net returns since the turn of the century are far less than that of the actual market. Emotional mistakes of selling low, and buying high, have consistently put investors on the wrong side of their investment goals.

As Albert Einstein once stated:

“The most powerful force in the universe is that of compounding.”  

However, compounding of returns only works with investments that have NO downside risk. Price declines destroy the effect of compounding rapidly. This is why employing a more conservative approach to investing over the “long term” has a higher chance of success than chasing a random benchmark.

Let’s go back to my lunch conversation.

While his father had done very well by simply holding stocks and performing “in line with the market” over that 25-year period, my question was simple:

“How much better would he have done by avoiding some of the drawdowns along the way?” 

This was a point I addressed recently:

“The chart below is the inflation-return of $1000 invested in 1995 with $100 added monthly. The blue line represents the impact of the investment using simple dollar-cost averaging. The red line represents a ‘lump sum’ approach. The lump-sum approach utilizes a simple weekly moving average crossover as a signal to either dollar cost average into a portfolio OR move to cash. The impact of NOT DESTROYING investment capital by buying into a declining market is significant.”

“Importantly, I am not advocating ‘market timing’ by any means. What I am suggesting is that if you are going to invest in the financial markets, arguably the single most complicated game on the planet, then you need to have some measure to protect your investment capital from significant losses.”

The difference to long-term returns by managing drawdown risk is significant.

This brings up some very important investment guidelines that I have learned over the last 30 years.

  • Investing is not a competition. There are no prizes for winning but there are severe penalties for losing.
  • Emotions have no place in investing. You are generally better off doing the opposite of what you “feel” you should be doing.
  • The ONLY investments that you can “buy and hold” are those that provide an income stream with a return of principal function.
  • Market valuations (except at extremes) are very poor market timing devices.
  • Fundamentals and Economics drive long term investment decisions – “Greed and Fear” drive short term trading.  Knowing what type of investor you are determines the basis of your strategy.
  • “Market timing” is impossible – managing exposure to risk is both logical and possible.
  • Investment is about discipline and patience. Lacking either one can be destructive to your investment goals.
  • There is no value in daily media commentary – turn off the television and save yourself the mental capital.
  • Investing is no different than gambling – both are “guesses” about future outcomes based on probabilities.  The winner is the one who knows when to “fold” and when to go “all in”.
  • No investment strategy works all the time. The trick is knowing the difference between a bad investment strategy and one that is temporarily out of favor.

As an investment manager, I am neither bullish or bearish. I simply view the world through the lens of statistics and probabilities. My job is to manage the inherent risk to investment capital. If I protect the investment capital in the short term – the long term capital appreciation will take of itself.