Don’t blow the client up.
Gretchen Morgenson worries about muni bonds, given the lack of disclosure on whether states and municipalities will give pensioners haircuts to make lenders whole.
Robert Samuelson discusses the benefits of the baby boomers at the economic expense of younger generations. The younger generations will now begin to have their say.
Sital Patel interviews Bernard Madoff. Key quote (from Madoff):
People asked me all the time, how did I do it. And I refused to tell them, and they still invested,” he said. “Things have to make sense to you. You should ask good questions.
Few journalists have done as much to popularize and study CAPE as John Authers (maybe only Brett Arends). This interview explains what CAPE is, but Authers’ interlocutor thinks a historically high CAPE is sustainable. Earnings go up over time, as the interviewee says, but it’s unclear why that invalidates CAPE from forecasting future returns.
I love when Authers asks, “It’s okay that the market’s ahead of itself? Carry on…..”
Fundamental (RAFI) Indexing is not investing; it’s randomizing errors. There’s no value component to it. Fascinating…..
Losing my Religion, Sam Lee, Morningstar
Large-Caps Vs. Small-Caps, Avondale Asset Management
Using Investment Checklists, Mariko Gordon
Ingersoll-Rand Completes Allegion Spinoff, Stock Spinoffs
A short one here. Gundlach indicates that he has to be cognizant of all asset classes to understand bonds. He also comments on Amazon, saying he’s “mystified” at its elevated price relative to its current earnings.
Go. Waste your money on some rubbish at the mall. But next time Black Friday comes on the markets, don’t forget to buy.
Howard Marks writes that there is lots of complacency and risk-taking going on in the markets. Investors are accepting lower yields on bonds, lower cap rates on real estate, and worse covenants. Everyone’s paying a bit more to earn a bit less. But then Marks ends with a thud, saying we’re not at the extreme risk point yet.
Perhaps he’s correct, but how likely is he or anyone else to know when we’re at the maximum risk point? What’s the practical advice one can gain from this letter? That it’s still okay to pick up pennies off of train tracks?
Sometimes, when you get to be as big as Marks, you have to say something — anything. You have to play this cute game of predicting precisely where we are at every point in the pendulum’s swing away from or towards fair value. Getting big in terms of assets and in terms of reputation forces you to abandon a margin of safety in favor of false precision.
Seth Klarman, by contrast, is just giving money back to his limited partners due to a dearth of investment opportunities. There’s no “margin of safety” (the title of Klarman’s book), and that should be a good enough warning for a sound value investment strategy.