Second Quarter 2017: Investment Perspective

Nineteen hundred eighty-four was a very good year. That year, the world witnessed a colossal technological advance with the introduction of the Apple Macintosh computer. The Mac was shiny, new, and very exciting. This essay centers on that pivotal year of 1984. However, it appears in Investment Perspectives, not on Buzz Feed, so the content has limited association with Mac excitement. Even so, we believe the story is very important for our understanding of economic cycles and security price behavior—investment stuff.

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First Quarter 2017: Investment Perspective

There is no perfect investment strategy or manager. As Charley Ellis called it decades ago, investing is a loser’s game—a game best won by avoiding losses. Study after study over the past 20 years has shown that investors in aggregate lose by chasing hot asset classes, strategies, and managers, while abandoning lagging asset classes, strategies, and managers. This truth applies to indexing as well. 

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Fourth Quarter 2016: Investment Perspective

Many market observers have described 2016 as a turbulent year. It certainly felt that way. Fears around Chinese growth in January sent the U.S. stock market down 10%. The market clawed its way back to flat in time for the Brexit turmoil. Then the surprise result in the U.S. election jolted markets upwards. If you only experienced markets through Twitter and the New York Times, it was a turbulent year. 

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Third Quarter 2016: Investment Perspective

If your eyes glaze over contemplating the miseries of sovereign real yields, consider for a moment the stock of Swiss food manufacturer Nestlé. Its current free cash flow yield is 4.40% — a healthy 500 basis point premium to the Swiss 10-year sovereign yield. So investors can pay the Swiss government 0.55% per annum to hold their capital and experience the added insult of a loss of real purchasing power. Or they can own a share of Nestlé’s free cash flow stream at an economic return of 4.40%. 

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Second Quarter 2016: Investment Perspective

Here we are showing the real (after inflation) expected returns for major asset classes over time. There are several points to consider. First, the gap between the 10-Year U.S. Treasury (blue line, 0% expected return) and the equity asset classes is near its widest point over the study period.


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