Category: Missives

What will the next ten years look like in the U.S. stock market? As we often do, we refer you to one of our favorite songs, “I Can Only Imagine,” and a book by George Friedman, The Next 100 Years. We believe the best performing securities of the next ten years will be very different from the securities and the sectors which currently capture the “popular imagination” of investors.

Elon Musk is possibly the most interesting man in the world, in our opinion. His nobility comes from his past as a founder of PayPal, but his popularity only grows in this era as he seeks to tackle big projects that include the car business, space, mass transit and other subjects. Rarely in an era does one person rise to this height of importance attributed to them by the society and time they live in. As an example, his cameo on the CBS show “The Big Bang Theory” crowned his popularity in 2015. What we’d like to do is look at the rhymes of history to ascertain where we are as the pendulum swings and if there are other symptoms today that are needed to guard our independent thinking as investors. Let’s look back in time at an analogous period of global history.

Printable Version “The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.” — Warren Buffett Dear fellow investors, During the season opening baseball game for

I came across a book titled The Matter of the Heart by Tom Morris that is a great history of the medical accomplishments and advances for the human heart. Mr. Morris details eleven operations and their evolutionary success over the course of the book. What amazed me in his book is how the practitioners had to take risk and balance benefits at levels other weren’t comfortable with. This duress in is not dissimilar to the pressure the markets place on the oversight of an investor’s capital. His stories have powerful implications for how we can look at other fields of study. It effects how sentiment can ebb and flow, while creativity, entrepreneurialism and passion grind on to a brighter future.

Money flowed into passive investment vehicles at an ever-increasing rate in 2017. It was a record year for these products designed to replicate a stock market index and agnostically own a basket of securities without discretion. As investors who build our portfolios from the ground up through careful security selection, we think the ramifications of this passive ideology should be revisited, as we believe its impact will be felt in our markets for the foreseeable future.

A few weeks ago, I caught myself pulled in by an old James Bond classic, The World is Not Enough, starring Pierce Brosnan. In the movie, an oil heiress, Elektra King, is kidnapped. While in captivity, she becomes a victim to Stockholm Syndrome and plots with her captor to destroy an oil pipeline running to the Bosphorus Sea. There is a scene in the movie that encapsulates where we are in today’s stock market environment

In the 2017 Berkshire Hathaway Annual Letter, Warren Buffett told us what he is doing, and, in as quiet a voice as he could use, what he says to do. Our readers will not be surprised at our summation of Buffett’s letter, but here we go anyway.

Is the underperformance by most large-cap value investing strategies in this lengthy bull market the “darkest hour” for value investors? This is the longest underperformance stretch of four relatively poor stretches for value in the last 80 years.

Long term success in common stock ownership is much more about patience and discipline than it is about mathematics. There is no better arena for discussing this truism than in how investors measure risk. It is the opinion of our firm that measuring a portfolio’s variability to an index is ridiculous, because it is impossible to beat the index without variability.

It is hard to think about 1981, my first full year in the investment business. Three-month Treasury bills were paying 18%, longer-term Treasury bonds yielded 15% to maturity and cheap stocks got 20% cheaper. In the summer of 1981, we saw a stock market decline from an already depressed market trading at eight-times after-tax profits down closer to six times. Participation in the stock market was down to 13.2% of U.S. household financial assets at the market bottom in 1982.