Margin Of Safety
The pursuit of investing is to obtain a satisfactory return on principle and a return of principle. But, the future is uncertain and investors must face several potential realities including; Adequate Diversification = Insurance A poor outcome may occur at the individual security level even though an adequate margin of safety appeared to exist. But […]
Continuously Assess Risk: Inflation Risk
Inflation is too much money chasing too few things. Inflation results in the decline of purchasing power of a currency over time and measures the rate which the value of a currency is falling or being debased. The Federal Reserve has a stated target of 2.0% inflation……which means the dollar will be worth 50% less […]
Bubbles and Manias
Bubbles—when asset prices are largely inflated relative to their values—and the mania that accompanies are notably events that cause volatile markets. Some bubble ingredients such as cheap money and the “no price too high ”mentality are observable in the market today. We believe maintaining an intrinsic value approach to investing can help navigate such volatility […]
Control The Controllable
Investors often focus their time on things that are out of their control rather than focusing on things they can control. Seth Klarman, the founder of Baupost, describes what cannot be controlled in investing. The following is an excerpt from the 2005 fund letter: “For most investments, much can go wrong, including numerous factors beyond […]
Intrinsic Value vs Value & Growth:
The two investment styles – Value and Growth – have divided the investment world for over fifty years. The two styles have become not only schools of investment thought, but labels for indexes, portfolio managers and mutual funds. Intrinsic value is defined as the “present value of discounted cash flow”. Intelligent investing can only be […]
The Future is Uncertain and Managing Risk
“Doubt is not a pleasant condition, but certainty is absurd” –Voltaire The future may always “uncertain” but there are many things that can be counted upon. The following are a few illustrations of longer-term certainties;
Microsoft
The following two graphs summarize 20 years of Microsoft’s results. The top graph is earnings per share (EPS) and price per share. The bottom graph is price to earnings ratio (P/E) and earnings yield. The observations taken from both graphs are the following: • Post Dot Com era: Microsoft’s EPS grew 420% from $0.35 to […]
Equity Investment Performance Over Market Cycle
The investment objective for long term assets was reduced over 2 years ago to an annualized return target of at least 6.5%, over a market cycle (generally 7-10 years). The reason for the reduction in expectation was due to rising prices relative to underlying economics. In addition, the most recent market cycle was much longer […]
Markets Are Acting Crazy – Again
3 Primary Headlines: “In the short-run the market is a voting machine but in the long run, it is a weighing machine” -Ben Graham What is the performance of the markets YTD 2020? Depends on what index is used and the definition of the market. The S&P 500 index is increasingly influenced by recent concentration […]
Equity Market Update
The following is an update summarizing current equity markets and volatility. The real world generally fluctuates between “pretty good” and “not too bad.” But, equity markets fluctuate more, between “overly optimistic” to “overly pessimistic” due primarily to human emotions. Current fears and concerns have resulted in equity market declines nearing 20% year-to-date. Over the last […]