30 Jun 2016

Mr. Market Trades the Brexit

Legendary investor Benjamin Graham wrote in his 1940 classic book, The Intelligent Investor, about a fictional character named Mr. Market. Graham asks you to imagine jointly owning a business with Mr. Market, who frequently offers to buy or sell your shares.  The trouble with Mr. Market is that he’s manic depressive and the prices that he offers swing wildly over short periods. Even though the true value of the business… Read More

28 Jun 2016

Currency Prices are Efficient Too (and sometimes wrong)

The Brexit has caused legions of analysts, economists, strategists and other pontificators to busily rework their assumptions about the world economy incorporating what seemed like an outside possibility last week to the new lay of the land. Markets fiercely incorporated their new assumptions into prices almost instantaneously – looking a chart of the British pound, you can see when the polls started to show that the Remain camp wasn’t a… Read More

27 Jun 2016

Friday Could Have Been Worse

While markets were obviously down, one piece of good news is that they weren’t chaotic.  You may think I’m grasping at straws here for a silver lining, but wild macro events can cause markets to get sloppy and that didn’t happen Friday. Last August, when markets were selling off, the heavy trading volume caused a number of stocks and ETFs to behave erratically in what some people described as a… Read More

24 Jun 2016

Britain to Leave EU: Keep Calm and Carry On

I stayed up later than usual last night to see how the vote would turn out and by the time I turned out the lights, it looked like the Leave camp was going to win. Personally, I thought that they would vote to Remain, partly because of the polls, partly because I thought it was in their best economic interests and partly because voters in Scotland and Quebec stayed in their… Read More

5 Apr 2016

Capital Markets in Perspective

We all know that the first quarter was a wild ride as the S&P 500 fell -10.29 percent through February 11th and then rocketed back over the rest of the quarter and finished in the black. When I tallied up the results for the first quarter, I have to admit that I was surprised by the range of returns within the major asset classes, from the -5.4 percent decline in… Read More

10 Feb 2016

Predictions are Really, Really Hard

Nearly as soon as we sent out yesterday’s Daily Insights where I said that the banking system is far less leveraged today than it was in 2008 (click here for the article), I saw this article in the New York Times: ‘As Worries Mount, European Banks Face Sell-Off More Savage Than 2008’ (click here for the article, though a subscription may be required). The article says that European banks are… Read More

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9 Feb 2016

Why This Isn’t Another 2008

In December of 2008, I went to a new client meeting and made a call: ‘I don’t think we are in a second Great Depression.’ With the benefit of hindsight, that doesn’t seem like much of a prediction, because we know after the fact that gross domestic product (GDP) only fell -4.3 percent during the 2008 global financial crisis, which is small compared to the estimated -15.0 percent decline in… Read More

27 Jan 2016

Drawdowns Part Deux

Yesterday’s insight on drawdowns was quite popular and enough people asked for the same thing, so I thought I would do an immediate update.  (Click here for the original post.) The first request was for the full history of the S&P 500 since yesterday’s chart only went back 25 years.  I picked 25 years somewhat randomly, but mostly because the other chart that went with it was difficult to read going… Read More

26 Jan 2016

Drawdowns Help Visualize Losses

Until I read the book ‘Hedge Hogging’ by Barton Biggs before the 2008 financial crisis, I had never heard the term ‘drawdown,’ which refers to the peak-to-trough decline of an investment or market. A drawdown measures the depth and length of a decline and illustrates how long it takes to earn back money lost from the last peak. It’s a commonly used term in the hedge fund community, partly because… Read More

22 Jan 2016

Stock Losses Take a Breather

Yesterday at lunch, when stocks were down more than three percent, I was reading market analysis and one analyst said that investors were disappointed by the ‘lack of policy response.’ That really struck me because markets were off sharply and it hadn’t occurred to me that the Federal Reserve hadn’t said anything material this year that might shore up stocks. Although we are steeped in losses very early in the… Read More