Utilities – Running on Empty: Major Disruption Ahead

Electric Utility stocks fell 15% between January 2015 and the end of July. Given the serious structural decline facing this sector and how important it is to many income investors, we republish our late 2014 white paper on the threats facing these companies, including the first instance of reduced demand in the history of the industry. The modest stock price drop thus far may well be just the tip of the iceberg – the Electric Utility sector should be approached with great caution.

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March 2015 Commentary – Time and Chance

This month’s commentary revisits the importance of a buy and hold strategy, especially during periods of market volatility. While the temptation may be strong to pull assets from the market during pullbacks, historical data show that, over the long run, attempting to time the market is detrimental to an investor’s long run returns.

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September 2014 Commentary – The Russell 2000® and the S&P 500®

From year-end 1994 through year-end 2013, the Russell 2000 outperformed the S&P 500 by only 23 basis points per annum. Extend the time period by only eight months to August 29, 2014, and the Russell 2000 underperforms the S&P 500 by 20 basis points over an almost 20-year period. We discuss the relative valuations of the two indexes, and the flows into and out of the exchange-traded funds that track them.

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May 2014 Commentary – Large Capitalization Stocks

This month, we discuss large capitalization companies. In the past, large capitalization companies tended to be stable, established firms. Recently, however, some nascent firms have rapidly expanded their business such that a large market capitalization is warranted, and are investing in their business at a rate that may justify a high price to earnings ratio. We consider the implications of this shift on investment decisions.

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March 2014 Commentary – Corporate Risk Reduction

As investor biases increasingly emphasize liquidity needs over investment, the largest companies continue to prioritize cash balances at the expense of long-term value creation. Along with other headwinds, the unwillingness to deploy cash reserves seems likely to adversely impact earnings for the largest companies and indexes going forward, such that the companies and sectors with the most attractive predictive attributes will be found outside of the major stock indexes.

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February 2014 Commentary – Publicly-Traded Private Equity Firms

With tax season fast approaching, K-1-generating securities come up frequently in client discussions. It is timely, then, to review why we hold publicly-traded private equity companies, a number of which are structured as LPs, in some of the portfolios. You might find some of the reasons surprising.

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August 2012 Commentary – Volatility Level as a Criterion for Stock Selection

In this month’s commentary, we discuss the recent introduction of high- and low-volatility exchange-traded funds (ETFs). For a selection of high- and low- volatility ETFs, we review their performance in the year following launch and opine on the inferences, if any, that may be drawn from the valuations reflected in these securities.

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March 2012 Commentary – A Different Way to Think About Diversification

The current industry sector diversification system used frequently by individuals, professional money managers, and risk managers is based on Securities Industry Classifications (SIC codes), which have very obvious deficiencies. We will advance the proposition that examining portfolios on an ecosystem basis rather than a position basis, using a measure of diversity called the Herfindahl Index, is a better approach to diversification.

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Market Volatility

We offer our thoughts on recent market conditions as compared to those experienced during the last period of high volatility: the financial crisis of 2008.

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The Revolution in Software

We explore how the rapid proliferation of open architecture, specifically through the development of various application (“app”) stores, is having a profound impact on cellular phone companies, computer manufacturers, video game developers and a host of other businesses.

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