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1st Quarter 2017 Commentary

Conference Call Replay

In past reviews, we’ve titillated you with some of the more startling and story-worthy examples of the distortions caused by the indexation vortex. We have chosen far flung examples in order to direct one’s attention, through all the noise of conflicting information from the financial news media, toward the bubble conditions that ETFs have wrought. But, because those examples have been drawn from more marginal sectors on the market, many of you might have wondered whether they are relevant to their portfolios. So, in this quarter’s letter, we go mainstream, to see what’s going on in the most basic portfolio building blocks, the bread and butter asset classes: first, the S&P 500 itself, and then a typical mainstream growth fund and a mainstream value fund that an everyman or everywoman would use. The kind of fund that is relevant.

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4th Quarter 2016 Commentary

Conference Call Replay

This past year was interesting on so many more fronts than 2015. And this coming year could be more interesting still. In 2016, the financial markets saw all sorts of records and precedents – and not in a good way. We have been taking some time to prepare our client portfolios for advantage. Advantage hinges on the ability to make opportunistic investments, to take what the market gives, not what it doesn’t. Opportunism has a field of play when prices have declined. Sometimes they decline suddenly, other times slowly, sometimes the whole market together, other times just pieces of it. But entry to that field of opportunity itself hinges on having sufficient liquidity; without liquidity, the opportunities are just an idea of what might have been.

Money flows into ETFs and similar funds have not only pushed up the prices of the major index-centric companies, but also created an artificial downdraft among the thousands of non-indexation securities. That is where the companies with less systemic risk will be found. There will be more in the way of idiosyncratic investments with the opportunity for true optionality. Perhaps our portfolios will have to have fewer, but more selective securities with perhaps larger weightings in those companies with truly discounted valuations and a truly superior business position.

So, the watch words are preparedness, and sobriety. Dr. Louis Pasteur said, “fortune favors the well-prepared mind.”

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Market Observations

Our musings on the current markets: valuation anomalies, capital flow trends, and the risks and opportunities facing investors.
Under the Hood Index Series
Predictive Attribute Series
The Yield Famine
Other Eclectic Musings

Asia Opportunity Commentary

Our outlook on the Asia markets, including macroeconomic events and valuation commentary.
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