Tag Archives: investment

The Year of Reconciliation, Part I

Last year was a very difficult year in terms of investment management; very rarely will I speak in extremes, but 2011 could have been the most challenging year ever. There was, and still is, a confluence of factors too divergent to properly quantify. This created an environment of high volatility; so high that tactical strategies had trouble achieving, and subsequently maintaining, investment gains. “Buy and Hold” has its own issues involving behavioral risk.

This industry is marred with contradictions. Our timeframes are too long and, simultaneously, too short. Investors seek to maximize growth and moderate risk. Our focus is divided between the macroeconomic situation and microeconomic considerations, both of which drive portfolio decisions. Returns are benchmarked variably; on an absolute basis or relative basis depending on the particular day and/or perspective. 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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The Individual Investor is at a Disadvantage

In the following video, Michael Lewis, author of “The Big Short,” delivers his personal experience with investment management during the financial crisis. He describes the inherent conflict of interest investment banks have because of their dual roles as both client advisors and proprietary traders. Continue reading

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Playing by the Rules and Winning the Game

You can distinguish one money manager from another by how well they play the game. In order to determine the winners and losers, you must know the objectives. Here they are: consistent returns, positive returns, and–for the bonus round–outperformance of equity benchmarks at all times. There is no rulebook for this game. Nor was this game shrink-wrapped neatly on the shelf of a Toys-R-Us [sic]. These are the rules imposed by clients. While these requirements do change, the past ten years and the current “new normal” economy have formed these parameters. Continue reading

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Lithium: The Next Oil?

A unique and highly reactive metal, lithium is the lightest and least dense solid element known. For years the relatively rare element has been studied and utilized for a variety of applications ranging from medical usage to nuclear power generation. More recently, lithium has being touted as “the next oil” and as a cure-all for the energy and climate problems facing the world. Investor interest is increasing daily as the material has generated considerable excitement. Despite the great aspirations, it is important for a prudent investor to avoid being caught up in the hype. Examining the true fundamentals of this anomalous metal must be done in an objective manner if investors are to safely profit from lithium.

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