My eyes were wrestling between my phone and the beautiful glass ceiling of the restaurant. It was late August or early September 2011 and I was waiting for one of my most important clients to arrive for lunch. Nervous action potential was above average. This was technically supposed to be a catch up meeting. Yet, I knew a portfolio review was also on the tacit agenda.

My meeting was with the President / co-founder of several substantial companies. He is a big investor with us and sways several others. Luckily, he is also an all-around amazing person. One of the best. And we have done very well for him. There was no reason to be anxious really. But there was one thing. He told me he really didn’t like the outlook for the equity market two or three months prior because of all the noise in Europe, and I didn’t listen. This client never, ever provided a market perspective to me before this. Continue reading “To Buy or Not to Buy; That is the Question” →

“A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” – Burton Malkiel, “A Random Walk Down Wall Street”

Have you ever trounced a blindfolded monkey with a clipboard? It is harder than you think.

I have though. Continue reading “Besting Dart Throwing Monkeys with a Clipboard” →

Welcome back and thank you for sticking with it! Beats shopping for a washing machine but most people spend more time doing that than they do trying to do better with their investments. Anywho, let’s now pivot the conversation towards the slippery “when to sell?” question. The first part of our talk will cover some applicable behavioral considerations and we will discuss more quantitative tenets in the latter part.

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“Ok, so I am up something like 67% on XYZ Inc. but it is starting to roll over on me. The last quarter missed pretty bad and management is making some confusing strategic changes. I also took that hit locking in a 34% loss earlier in the year on ABC LLC? Should I protect the gain in XYZ and offset the loss a bit for my taxes? I probably should. Yet, XYZ still makes the grade and has been so good to me over the years. It’s just so hard to sell now. It was $112 per share earlier in the year and it is $91 per share currently. No, I can’t sell it here.” – My inner thoughts at some point 20 years or so ago I am sure.

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There is so much wrong with the brain vomit above. Continue reading “Are You Selling Out? Can you Trust Yourself to Know?” →

“Seriously. It is like dating. Do you really want to go after the most attractive person at  school? The probability of success is low and even if you do succeed you will be spending a lot of your time looking over your shoulder. The smarter call is probably to look for someone more amazing but less obvious – who sidesteps the limelight and doesn’t know how desirable they really are.” – Dave O. or another person I used to work with.

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We were watching a panel discussion at this conference in New York, and I recall telling myself, “I am not super bored. I am learning. I am engaged.”.  Then I realized that finance can be pretty boring when it is really dubitable. This respectable conference panel was organized to highlight diverse perspectives, and they did end up saying pretty much all different things. The problem was that they could not all be right so they all sounded wrong. Boring. Nobody risked getting to far into the weeds, except this one portfolio manager. Continue reading “Weeds, Water and Nicer Flowers” →

Selena Gomez and Richard Thaler may find this shameful, but I used to build and sell collateralized debt obligations (CDOs). Phew. I said it. It was actually somewhat of a natural progression from traditional fixed income sales as our institutional clients pressed for these in the early to mid-2000s. CDOs can really be built out of any pool of assets and/or securities that produce a predefined cash flow stream; including mortgages, bank loans, credit default swaps and, as Selena and Richard focused on, other CDOs themselves.

One of the things that most amazed me during my experience on the structured fixed income desk was our reliance on the major credit rating agencies. Most of our biggest institutional investors could not touch anything that did not have a minimum rating from two different agencies – one of which had to be either Moody’s or S&P – preferably both. These agencies owned us, which gave me the impression that they could charge us whatever the heck they wanted. What were we going to do? Go to a competitor? Nope, not going to happen because our clients won’t buy it. This got me wondering what they did with all the money we sent them. They didn’t have any factories, ships, trucks, inventory or anything that needed to be purchased or maintained. They had people and IT.

I figured I better own these stocks, and anyone who looked like them… Continue reading “The Power Three” →

“Slow is smooth and smooth is fast” – US Navy Seal maxim

Compounding returns is the real magic of investing. Investors who dollar cost average into the market (i.e. consistently invest at fixed incremental intervals through the year) and let their portfolios compound over time will do very well in the end. When you dollar cost average into a market you tend to care a little less about the risk of a market correction because you will be a buyer through it. Keep the faith. This strategy works. $100,000 invested in annual $3,300 increments over 30 years gets you to $333,541. Keep putting $3,300 away each year at 7% over 55 years leaves you ~$2 million.

Say someone committed $100,000 today to a foundation payable in 140 years and it earned 7% over the 140 years. The foundation gets $1.3 billion. That’s just four generations. This stuff matters. Continue reading “Average In & Compound Returns” →

We spoke of the importance of process discipline to generate consistent performance. IMHO this one deserves special mention and not as a mere Thinkling. Companies with a consistent history of increasing their dividend have a tendency, on average, to notably outperform index benchmarks over time. Worth noting here is that these companies do not necessarily pay high dividend yields. They just keep increasing the dividend per share each year. The absolute yield does not need to increase if the market rewards this prosperity with a higher share price. This process can be owned cheaply and easily through several ETFs. Put them in the oven and set the timer for forever. https://www.marketwatch.com/story/dividend-aristocrat-stocks-post-almost-double-the-returns-of-the-sp-500-in-2016-2016-09-06

“Maybe I don’t want to own Amazon.” – look down

The pattern is simple. XYZ is small and unnoticed. XYZ gets a bit bigger over years two to four – yet still unnoticed. XYZ skyrockets in years 5 to 7 and is now on everyone’s radar. TV shows and blogs. Friends bring it up over drinks. Co-workers start talking about it like it is the weather. But some of them want to impress you and enliven themselves with tiny colorings of the truth. Of course, they “bought in a few years ago”. But you know you didn’t. Damn.

And that was an upper. FOMOs also come in downer versions. Like all those luminaries who cashed out in the summer of 2008. You just don’t see downers as often because they are more expensive.

And this is how it happens my friend – how the investor starts using and getting high off the latest version of the Fear Of Missing Out (FOMO) drug. You can tell when someone is using. They will often be happy to tell you, as we suggested. There are subtler symptoms of ‘outcomes chasing’ FOMO dependancy as well; including an inability to articulate the basis for an investment position, or holding numerous ‘buzz word’ positions in a portfolio with recent purchase dates. I guess it all started for me twenty years ago. I mean. I was rolling out of university in 1999 for heavens sake. Tech-laced FOMO drugs were everywhere. I hate to say it, but I still get urges to this day. Continue reading “Just Say No to FOMO; Processes > Outcomes” →