Category Archives: Executive Views

A Matter Of The Utmost Importance

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Developing Your Portfolio Framework: Priorities

I’ve been laying out the content generation strategy for this blog. Why? Because the Internet is a vast wasteland of disorganized information and analysis. What you don’t need is more of that. This blog is not about providing stock picks. This blog is not about company analysis. And only occasionally, will I discuss thematic investing. It is my opinion that this is not fruitful for you. However, I can be of value elsewhere on your journey. I am going to provide you with something original.

What we need to develop—together—is a framework. This framework needs to build upon the new rules. The rules are different today because the players are different. High frequency trading, algorithmic formulas, and the ubiquity of information has sensationalized limitless possibilities within the investment arena. In this arena we are out of our league; the game favors our opponent. But we will discuss this more in depth at a later time. Continue reading

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Investors Prefer Commissions? Really?

The investors that prefer not to pay an ongoing fee do not perceive the value. And unfortunately, the last 10 years of flat performance for domestic equity markets has reinforced this perception. As we transition to a tactical investment management era, commissions will be harder and harder to justify. Commissions create a barrier that needs to be overcome in order to break even. While asset-based fees also create a barrier, the barrier is much smaller and the tradeoff is flexibility. Furthermore, I believe most services that are purchased upfront (e.g. commissions or hourly) disincentivize a continued healthy relationship. An asset-based fee requires, theoretically, continued satisfaction; whereas, a commission requires the opposite. Continue reading

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A Redefined Landscape Requires An Updated Map

Imagine creating a map 250 million years ago during the supercontinent phase of Pangaea. You are probably long overdue for an update. Similarly, there is a paradigm shift that is taking place among the investment management community. It is evolving slowly and growing out of necessity. Let’s refer to these strategies as “traditional” and “new normal.” I only suggest “new normal” because it is an already popularized phrase used to describe a time period with a new landscape. The difference between portfolio strategy from the traditional perspective and the new normal perspective is constraint; time constraint, weight constraint and, most importantly, mental constraint.

With time constraint, I’m referring to holding periods with long-term philosophies. With weight constraint, I’m referring to maximum mandated percentages of particular holdings or asset classes. What establishes the prior two obstacles is an emphasis on history; an emphasis that constrains the possibility of what a portfolio structure should resemble in the future. If this is a new normal economic period, it stands to reason that portfolio strategy should be redefined as well. Continue reading

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Past Performance Does Predict Future Performance

Market predictions can be made for several reasons: industry fundamentals, technical analysis, etc. However, the most influential factor in market predictions is past performance. The psychological mindset of the investor dominates the assessment of the future. This is obviously an unintended and unwanted circumstance. Successful long-term investing requires the elimination, or significant reduction, of this behavioral risk. Predictions are not inherently bad. But it is less about the prediction itself and more about the hypothesis that created it. Continue reading

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The Prisoner’s Dilemma

Our economy currently has its own Prisoner’s Dilemma; one in which each individual will act rationally, but with little consideration of what is in his or her best interest.

The ends of recessions have very high correlations to increases in residential investment and personal consumption expenditures. More specifically, residential investment as it pertains to new manufacturing of homes. The amount of existing inventory—and shadow inventory—combined with the rate of increase in new home inventory between 2003 and 2007, will render the impact of new housing investment negligible in coming out of this recession. Therefore, it stands to reason, that personal consumption expenditures will need to pick up the slack. Herein lies the dilemma.

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