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Snowball Lessons


I have a confession to make.  Despite Warren Buffett being the most successful investor of all time, I never was really interested in him.  He felt like the mega-band that everyone already knew about; like proclaiming U2 was your favorite band at the peak of Bono’s popularity.  As the kids say today, it was “basic” (i.e., extremely conventional) to call Warren Buffett your favorite investor.  I still read Security Analysis, the bible of value investing by his teacher Ben Graham, and the works by other value acolytes (Seth Klarman, et al.).  The value style of investing makes intuitive sense to me, as it does for many others.  Thus, I adopted value investing as my credo.

U.S. Economic Update


Broadly speaking, the U.S. economy continues expanding nicely. 

When looking at leading economic data from the 50 states, 45 are in expansionary mode.  Below is a sample of five states in different regions of the country.  We typically see a synchronous decline prior to any trouble.  The worst state today is North Dakota, shown in green, due to less fracking activity and the heavy reliance on oil.

Stock Cycles and Value


“Reversion to the mean is the iron rule of financial markets.” – John Bogle, founder of Vanguard

On a cyclical basis, regional outperformance tends to beget outperformance.  We call this the ability of markets to ‘trend,’ while our contemporaries describe it as ‘momentum.’  Yet it does not go on forever.  The chart below displays how emerging markets and the S&P 500 have traded the lead over the past 29 years.

Why Do We Love Round Numbers?


As the stock market pushes to new highs, the Dow Jones Industrial Average Index is nearing a level it never breached before – 20,000.  Financial news anchors are downright giddy (so we hear, watching too much CNBC can rot your eyes). 

There is something satisfying about round numbers.  Per a News Works article, SAT takers are more likely to retake the test if they fall just short of a round number.  Major League baseball players are four times as likely to end the season with a .300 batting average than .299.

The Starting Line for Reagan vs. Trump


There is a post-term narrative on each President’s economic policies.   Blame or praise comes from the performance of businesses, the economy, and financial assets.   There is probably too much time wasted cheerleading the accomplishments, and too much time spent by the other side tearing it down.  The “team” you are on determines the prism through which you view the success of a Presidency.  This is true from Reagan to Clinton.  Far more important to the big picture are financial and economic factors along with the life stage of technology at the start of each Presidency.

Big Bad Bond Market


The biggest post-election news is the bond market.  Yields are up over one half of a percent to 2.25% on the 10-Year Treasury, which means bond prices fell.

The main reason behind the move in prices was higher inflation expectations. One of the main risks bond investors take into account is future inflation.  With President-Elect Trump’s big plans for infrastructure spending and tax cuts, it could mean greater money flowing in the system.  In addition, protectionist trade policy, if implemented, would also be inflationary for goods and services due to less competitiveness among companies.  In turn, this would lead to a larger federal budget deficit.  Traders and investors are pricing in the likelihood of these policies being passed by the Republican led Senate and House.  These policies go against many Congressional Republicans who spent the last several years threatening to shut down the government due to high budget deficits.

Post-Election Outlook


Political values are important to individuals, but mixing politics with portfolio decisions is not profitable on a consistent and repeatable basis.

Analysis based on fundamentals and the valuation of asset classes is what matters for investments. We plan to stay in our lane and take a non-partisan view to what this election means for the economy and investments.

Do You Know What’s In Your Index?


Passive investing is all the rage these days.  Low fees, tax efficiency – who wouldn’t want to be in on this party?  We sure are.  In our view, it makes sense for certain parts of our portfolios.  Per Morgan Stanley, since 2007, US passive strategies have seen $914 billion in inflows while active funds had $857 billion in outflows.

In certain asset classes, there are nuances with indices that may not be what the end user intends.  But because indexing is automatically considered great these days, few are going beyond the surface to dig deeper.

IRA + HSA - The Alphabet Soup of Retirement Savings


Health Savings Accounts (HSAs) have been around since 2003 as a tax-preferred savings vehicle for participants in high-deductible health insurance plans. Despite their name, HSAs can serve as an excellent tool for retirement savings as well.

Real Estate is the New Kid on the Block


For the first time since adding technology in 1999, Standard & Poor’s is adding a new sector to the S&P 500 Index.  Real estate, previously falling under the classification ‘financials,’ just became an independent sector.

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