Investment Committee/Investors Prepare for Mistakes - Weekly Blog # 570

Mike Lipper’s Monday Morning Musings

Investment Committee/Investors Prepare for Mistakes

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

     
                               

Bright People Are Sometimes Wrong

I have assembled and often chaired investment committees of bright, experienced investors. I have been curious as to why these bright investors make unexpectedly bad judgements. Individually, they have a history of making good choices in terms of securities and the timing of their transactions. I bring this up as we approach a general market turning point. I am totally convinced that we will see record high prices for the major indices and I also have confidence that we will experience both recessions and substantial market declines. The order, timing, and magnitude of these are unclear to me. What I am sure of is that many investment committees and most investors will get their timing absolutely wrong!!!.

Why?

We are social people who mostly prefer to agree with others than to express a strident minority view. The group dynamic in most investment committees is to move to a unanimous decision. Unless we have very deep-seated opinions there is a tendency to go along with the sensed majority view, despite our own private opinion which may be better. This tendency has been labeled the “Abilene Paradox”. I suspect that this is one of the reasons that political pools have proven to be inaccurate. One can often sense the answer the questioner wants to hear and we have sympathy for those who ask.

Current Factors

Double digit gains were achieved by the major stock market indices despite the global slowing of economies. The gains if repeated would result in record price levels, led quiet possibly by the NASDAQ Composite, the most volatile of the major stock indices. This volatility could be driven by the larger tech companies or less capital being committed to over-the-counter market making.

The latest Atlanta Fed Real GDP fan chart estimate ranges from under 2.5% to under 1%, reflecting market fears.

China appears to be the most important driver of global economic growth. Some believe changes in Chinese policies are having a bigger impact than the Fed. In part this is true because interest rates driven by the Fed are currently in the mid-range. They have not gone high enough to attract savings (4%) or low enough to spur a declining economy.

One large fund of funds manager has re-juggled its list of managers in favor of concentrated “high-conviction” managers. Others are adding leverage to their portfolios to overcome low returns. From a market viewpoint the combination of leverage + volatility = dynamite.

Helpful Hints from Mutual Funds

Mutual funds are now required to show their best and worst quarters. These are often next to or close to each other. Often the magnitude of the gains and losses when linked together almost cancel each other out, although sometimes it may take two up quarters to recover the losses from the bad quarter. If the percentage gains and losses are large, it is an indicator that the fund is volatile.

The coverage of mutual funds can be misleading, as media and sales efforts focus almost exclusively on the best performers in relatively short time periods. The leaders and laggards are often highly concentrated in terms of the number of issues held, giving the impression that these mutual funds are bought for speculation, although that is not always the case.  

The vast majority of the equity funds are in just four investment objective categories and are listed below in descending order of assets, which also appears to be at increasing levels of perceived risks as you work your way down the list: 

Growth & Income    $4.27 Billion  

Growth              3.84                 

International       2.48                 

S&P Index           2.19                 

The first three investment objectives carry cash to meet extreme redemption needs and opportunity reserves. The biggest use for these funds is to meet retirement and for estate building purposes. Most redemptions are caused by life changes. Index funds always have no cash and buy the most popular stocks.

Turning Point Reactions Produce Relatively Small Gains and Large Losses

Historically, momentum becomes the enemy of capital preservation when we near peaks and troughs, unless an investor possesses trading skill. Investment committees at this juncture become captives of the “Abilene Paradox”.

Don’t say that you weren’t warned, but good luck and stick to your convictions.

  

Did you miss my past few blogs? Click one of the links below to read.

https://mikelipper.blogspot.com/2019/03/the-actively-worrying-classpassively.html

https://mikelipper.blogspot.com/2019/03/long-term-trends-may-not-be-friend.html

https://mikelipper.blogspot.com/2019/03/the-top-before-big-top-weekly-blog-567.html

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The Actively Worrying Class/Passively Investing Holders - Weekly Blog # 569

Mike Lipper’s Monday Morning Musings

The Actively Worrying Class/Passively Investing Holders

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

       

                                  

In many sporting events and wars the side that talks most often exhausts themselves, or at least is constrained by their public statements. The theoretical wall of worry that bull markets climb is constructed with bricks of displayed worries. Currently, particularly for some this weekend, there is a lot to worry about. The pundits in the media and salespeople are clever annunciators of worries. As both a student of words and investors actions, I have noticed relatively few actions on the part of investors. What follows are two worries linked to two true concerns and one very current display of actions.

I share military service with the two President Bushes (Captain, USMC) and the current President, who had a secondary school military experience. Those military experiences arouse strategic considerations that all too few are paying attention to, some that threaten peace.

China
In the early part of the 20th century there was much written about global geopolitics. The German general staff believed that whoever controlled the landmass of continental Europe and Asia would control the world. US Admiral Mahon believed that whoever controlled the oceans would control the world. These beliefs are still very active in the minds of global leaders and explain much of today’s news.

Some of the investment managers we use have for decades invested in China. They believe the current government does not have territorial ambitions, but economic ambitions to be the respected as an economic leader of the world. They are very anxious to reach this point in order to avoid becoming too old before they become, on a per capita basis, rich. As is often the case, people look back on periods where things were better for them. The ancient silk road brought acknowledgement of the riches of China to the rest of the known world. China was the most advanced country in the world in terms of economics, technology, and culture.

The current Chinese leadership is rebuilding the silk road with the help of its neighbors, a land route for rail and road from China to Europe. In addition, they are equally busy building a series of sea routes and friendly ports through the South China Sea, across the Indian Ocean, and up the coast of Africa into Europe. This week’s Chinese visit was intended to establish closer trade relations between Italy and China. Remember the return of Marco Polo to Italy from China and the enormous wealth a few Italian cities earned from their trade with China. (Many years later Boston generated some of its wealth through the Clipper ship trade with China. Taking care of the wealth of successful sea captains while they were gone for periods often longer than a year was the foundation of a good bit of the trust business controlled by Boston law firms, who had their own money managers.)

I don’t know what the current President learned at the New York Military Academy or at Wharton (University of Pennsylvania), but I can share my views. The current so-called trade war with China is an attempt to modify China’s long-term strategic thinking. The first objective is to insure freedom of naval passage in the South China Sea, through which a great deal of China’s strategic imports must move. Europe is increasing its reliance on Chinese imports to meet its needs, including its technology needs. The future of technological dominance is even more important to President Trump than the naval considerations.

While China can produce low level semi-conductors, they must import the most advanced semi-conductors to meet both their industrial and military needs. These issues will soon play out in the control of space and become the point of maximum disruptive power. Thus, it was not at all surprising that the White House sought to establish a sixth independent military service, a space force. This initiative was defeated on “The Hill” and it will now be incorporated within the Air Force. In my opinion, tariffs were a means to get the Chinese to the table to resolve more strategic questions.

Answers to Productivity
Some of the best scientific and political brains have been struggling with the fact that US productivity appears to be stuck at a low level of about 1% per year. In past periods when the US was growing in the mid-single digits, productivity was growing at similar levels and for awhile reached 7%. There are at least three reasons for the slow growth. The first ties back to my education in the US Marine Corps.

For the most part the Men and women who join The Corps are no different than the general population, they are just trained better. From the very beginning they are trained in leadership, which was why I wanted to be a Marine. My desire to learn leadership skills originated one summer when I was in high school. I had a manual job in a small laboratory where I heard of the lack of leadership in the low and middle management tiers of large US companies.

A survey of US workers states that no more than 30% are engaged in what they are doing on the job. Gallup and others believe that the main fault lies with the immediate supervisor of the workers. Contrasting that with my training as a junior officer in The Corps, we learned that battles and tasks are often won by the leadership of the non-commissioned officers. These corporals and sergeants lead by example, by training, by their own discipline, and by caring for their troops. As officers our job was to support the NCOs and our Marines in any way we could. Those attitudes are not present in the supervisory workforce today. Workers need to be inspired to do their jobs better and help others in the group so that become promotable.

Another way to improve productivity is to see the challenges of automation. There are far too many articles about people being replaced by machines, an issue first raised by the Luddites attacking automation in the spinning mills. Machines are good at repetitive functions but require people to figure out how they should best be used. Like identifying the next steps in the process and how to create the need for new products and services. Perhaps there are unmet needs to re-educate workers and users, both for existing products and services and for those of the future.

A third answer is perhaps the single best way to increase productivity, through better schooling and education. The distinction between the two is that schooling is what you are taught, education is what you learn most often from life experiences outside of school.  We need to have people recognize that everyday experiences can lead to an education. The idea of a workless retirement is no longer relevant for most, as not working leads to increased spending. There is still important and fulfilling work in the charitable sector that is necessary for our society to progress.

After Worrying, Probably Do Nothing
If one looks at the last 3 days of the previous week, one can see reasons for worry. The table below shows the closing prices, price changes, and volume for Moody’s, a stock owned in our financial services fund.

Date    Price Change    % Change    Share Volume    Last Price
3/20       -1.38          -0.77       1,269,927       $177.25
3/21       +4.74          +2.67       1,700,888       $181.99
3/22       -4.10          -2.25         987,175       $177.89

Interest rates generally drive potential opportunities for Moody’s ratings on new bonds and credit instruments. On Tuesday the 19th the Federal Reserve said it was not going to raise rates, suggesting more money could be raised. By the next day some had concerns that the Fed, by not raising rates, was worried that the economy was closer to a recession. The following day sentiment changed again and the market viewed things more positively, leading the stock price to move to a new 2019 high on much better than average volume. Only to be followed by a pull-back on Friday to Thursday close, but with only 58% of Wednesday volume.

One could interpret from this tiny sample that while there are lots of things to worry about, most investors will continue to hold on to their long-term stock investments, at least for the moment. Because of the announcement on the Presidential investigation today, I expect that those with a strong view will react on Monday. My guess is that whatever happens there will be a reversal later in the week.



Did you miss my past few blogs? Click one of the links below to read.

https://mikelipper.blogspot.com/2019/03/long-term-trends-may-not-be-friend.html

https://mikelipper.blogspot.com/2019/03/the-top-before-big-top-weekly-blog-567.html

https://mikelipper.blogspot.com/2019/03/2-speed-vs-2-directions-old-better-than.html




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LONG-TERM TRENDS MAY NOT BE A FRIEND - Weekly Blog # 568

Mike Lipper’s Monday Morning Musings

LONG-TERM TRENDS MAY NOT BE A FRIEND

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

                     
     

“Big Mo” in the political world, “The Trend is your Friend” in the commodities world, and momentum investing are beliefs in continuing that which is into the future. Certainly, various media pundits stress current trends. Salespeople of all stripes find it is easy to sell their wares by highlighting current conditions. As a contrarian investor I am delighted to see great levels of enthusiasm for the currently popular, because it leads to significant mispricing of both rewards and risks, creating opportunities for the careful investor. For those swept up in what is currently popular, it should be a well-earned learning experience.

Faulty Long-Term Predictions

This week there were two very relevant notices in the press. The first was a statement by Ajay Sing Kapoor, an analyst at Bank of America/Merrill Lynch. The statement said “There is really no permanent trend just lazy intellectuals confusing a long cycle for a perpetual-motion machine.” This is a useful insight in the climate change debate. One of the best market analysts I know grew up on a farm which he has owned for 30 years. He mentioned the feast and famine cycles experienced while living there, much like the biblical seven fat years followed by seven lean years. 

The belief in long-term trends is present in today’s investment selection, which focuses of selected factors based on selected histories. The strongest of these is the belief that changes in earnings per share will dictate the price of the shares. This was true even when I was a junior analyst at a trust bank, where investment leaders used the change in reported earnings per share to make investment decisions. Even then I was suspicious, feeling that reported earnings were the result of both controllable and uncontrollable forces. It is only later that I became more conscious of the changes in Generally Accepted Accounting Practices (GAAP). Today, earnings report releases emphasize “adjusted earnings, adjusted operating margins, adjusted profit margins and even adjusted revenues”. The SEC has mandated that these reports must also show the results according to GAAP, but they don’t  highlight the fact that almost every year AICPA makes changes to GAAP. Corporate data complements government produced data as critical inputs to thinking on the economy according to Jim O’Neill, the former Goldman Sachs partner and global economist who coined the “BRICS” term for the rapidly developing emerging markets countries. He writes, “Though economics aspires to the rigor of the natural sciences, at the end of the day it is still a social science.” Thus, the specific numbers produced by economists are kidding us with their precision, particularly when they are expressed with decimals.

An Improved Fan Dance

If the base data is questionable, its use as the foundation for future prediction is extremely questionable. Consequently, The Bank of England and some of the US regional Federal Reserve Banks are showing charts using the most current or corrected datapoints, then adding a fan like wedge showing the range of future predictions.  My natural skepticism questions if the wedge is too narrow. I can accept that a narrow fan probably includes most of the probabilities utilizing a single up and down standard deviation. However, as an investor I like most others feel much worse after a decline than a pre-tax gain. I would much prefer a wider wedge that includes the reasonable possibility of two or three standard deviations. (I believe that both long-shots win and racing accidents happen on occasion, depriving the best horse from winning.)

Jason Zweig on the Wrong Long-Term

The second important item in this week’s press is a column by my friend Jason Zweig. He cautions against investing in companies that are building for the long-term, properly concerned that the focus on long-term investing can lead to the mistaken allocation of resources. Tech companies spend substantial capital on new facilities and equipment for future markets that might not evolve. Think of the engineering and construction geniuses responsible for the construction of the Egyptian Pyramids. The pyramids were monuments to the rulers while living, as well as in their after-life. I am much more interested in the long-term development and acquisition of talent, including the building of multiple generations of leadership at all significant levels. 

Investing for the Long-Term

I have devoted most of my investments to the long-term and where appropriate for my clients I have done the same. While this on average generally means a low turnover of securities and funds, it is not a lock-step process of holding regardless of current input. It requires careful examination of current information versus long term perspectives, both of the specific investment and its place in the portfolio, as well as any changes in the needs of the beneficiaries. I accept the cyclicality of both the markets and my ability to correctly analyze the inputs. I often expect to be premature and less often to be wrong. My long-term attitudes are derived from the study of some of the best investors as far back as I have information. In general, these attitudes have been good for my accounts and family over time.

Mid-Term Platform or Lid?

Each week I look at the investment performance of mutual funds around the world as a good representation of the results of managed money. This week I paid attention to the average returns of US Diversified Equity funds for the five years ended this week. The period included the final years of the past administration and the first couple years of the present one. The importance of politics is questionable. The twenty-investment averages for the five years generated an annualized compound growth rate of +5.69%. This included some extremes on the upside: large-cap growth funds +12.13%, S&P 500 index funds +10.72% and multi-cap growth funds +10.16%. On the down side there were dedicated short bias funds -19.35% and alternative equity market neutral funds -0.74%. These results suggest that large-cap tech companies produced a disproportionate portion of the gain and that being out of equities was a loser. 

Five years is a little longer than the average US stock market cycle and roughly equates to the presidential cycle. Being a contrarian I would not expect the two extremes to repeat over the next five years. The extreme contrarian would examine the funds that produced negative results feeling they could be the leaders at some point. In that vein I would be scanning for any indication that things are changing for the better for commodities funds, particularly those involved with different aspects of energy and agriculture. I don’t currently see a catalyst, but I can afford to be late as I suspect that most of the selling in these sectors is over.

Short-Term = Confusion

As is often the case the future direction from current conditions is not clear to me. Banks do not appear to need deposits to make loans as the interest rate offered on average is 0.59%, down from 0.61% the week before and its recent cycle high of 0.63%. Lack of new loan demand is not encouraging. The latest survey sample of the American Association of Individual Investors (AAII), a very volatile measure, shows the three alternative predictions for the next six months are all between 31% and 36.5 %. On a more positive note, the roster of price moves in the Weekend WSJ showed 64 out of 72 being positive. Of the 25 best performing funds for the week, 14 were growth funds and 3 were health-oriented funds.

The one certainty after a period of level market performance is that there will be a breakout on the upside or a breakdown, possibly both, based on  higher volume and enthusiasm.

Another Favored Myth Destroyed

For many years during a US recession Americans talked about moving to Australia with their US acquired skills. Very few did, but it was in the back of their minds as an economic escape. In the nuclear age several Americans thought that the safest place to live with their families was the South Island of New Zealand. The tragic events of this week have shown that there is no practical place to escape. We are going to be forced to deal with present and future problems where we are. The destruction of myths often leads to the recognition of the benefits of where we are and focuses our attention on making our lives and investments better.          

  

Did you miss my past few blogs? Click one of the links below to read.

https://mikelipper.blogspot.com/2019/03/the-top-before-big-top-weekly-blog-567.html

https://mikelipper.blogspot.com/2019/03/2-speed-vs-2-directions-old-better-than.html

https://mikelipper.blogspot.com/2019/02/lessons-from-warren-buffett-and-italian.html

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The Top Before the “Big” Top - Weekly Blog # 567

Mike Lipper’s Monday Morning Musings

The Top Before the “Big” Top

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

                 

                

The one certainty about markets is their rise to tops and fall to bottoms. With this knowledge market analysts have developed many techniques to identify extreme movements, hoping to spot the appropriate time to reverse course and increase the chance of avoiding large losses or improve the chance of capturing large gains. Market analysts have probably used price charts since the beginning of organized markets in the ancient world. One of the charts that has a good record of predicting future movements is called a Head & Shoulders pattern. (No statistical or other measure is 100% successful over time. Being correct roughly 2/3rds of the time produces satisfactory results and the Head & Shoulders pattern generally does that.)

A price chart is produced for stocks each trading day in The Wall Street Journal, covering each of the three major stock indices: Dow Jones Industrial Average, Standard & Poor’s 500, and the NASDAQ Composite. The three generally move in the same direction, but at different speeds. For the past couple of weeks, the three have produced the same rounding top chart pattern seen during past tops. The critical task is weather to take action based on these patterns or ignore them. I wonder if this is a sign of an important reversal, as the reversal pattern shows three distinct top formations. 

Since the current market is down a bit from the former 2018 highs, a head is in place. Combine this with the relatively brief rounding tops mentioned and this pattern is predicting the end of the ten-year bull market that we have enjoyed for so long. A normal reversal is to approximately give up between 1/3 to 1/2 of the prior gain. (If I knew for sure, each of you would be invited on my personal Boeing 747 on the way to a voyage on my battleship sized yacht. But I don’t know.)

There is a second possibility, that the pattern of the last couple weeks is a possible first shoulder to a new high above the 2018 level, with a more distant final shoulder before a major decline. The current absence of “irrational exuberance” for stocks gives me some hope for the second possibility.

Cautionary Signs for Short-Term Investors

In general, commodity prices have been falling for more than a year since they completed their own bull market. While governments and central banks have attempted drive up growth and the rate of inflation. The continuing abnormal flows into fixed income and credit funds by both individual and institutional investors, at a time when the long-term outlook calls for rising interest rates, suggests that the new buyers are either naive or believe that they have superior trading skills in an increasingly illiquid market. Finally, there is the performance of mutual fund averages through last Thursday night, showing those with year to date gains in excess of 15%: 

China Region Funds       +17.75%

Energy MLP Funds         +16.22%

Energy Funds             +15.98%

Small-Cap Growth Funds   +15.23%

Mid-Cap Growth Funds     +15.05% 

I suggest that those funds currently showing year-to-date gains of +15% are speculative and should be traded out quickly in a decline. However, if investors believe they have these trading skills, the fund categories may be appropriate for short-term focused portfolios.

Thoughts for Long-Term Investors

While short-term investors dominate trading, long-term investors own the bulk of equities around the world. For the US taxable investor, the last ten-years has fattened their prior gains. This raises a question for those seeking to leave a legacy based on a stepped-up basis, without paying capital gains tax, is it better to take the valuation now and pay capital gains tax or the alternative valuation as of the date of death? Even with a major market decline, beneficiaries will inherit more than they would have previously. Institutional Investors concerned with the use of capital for multiple generations could stay invested as some of the present holdings may serve them very well.

MOHAMED A. EL-ERIAN, chief economic advisor at Allianz, and formerly with PIMCO, Harvard Management and the IMF, has published a piece criticizing economists, particularly those within governments, for their reliance on mathematical models without using behavioral science and game theory. Markets often seem to be better equipped than economists in predicting future trends. 

There appears to be some help on the way, the Bank of England is publishing a fan chart of possible future directions in their studies. The Congressional Budget Office (CBO) is already shows a fan chart where 2/3rds of the possible outlooks lie. The CBO study predicts that the US government deficit will rise by about 50% as a percent of GDP in 2019. This could be a low estimate, as both political parties are big spenders. I suspect the next Democrat administration will easily outspend the current occupant in the White House. (This is one of the reasons to bet that inflation will rise.)

History Suggests A Brighter Future

After long periods of stagnation, beyond the world of numbers, forces have saved various societies from their foolish management. The Dark Ages in Europe effectively ended with the discovery and importation of Latin American gold. After years of war spending in 19th century Europe the harnessing of steam power brought greater prosperity, as did the use of electricity. There is a chance that our world will be both disrupted and advanced through the spread of 5G networks, which will practically reach every person, vehicle, and activity. Within this century the rising education, productivity, and savings coming from South East Asia could be another spur. Finally, the evolution of African resources and its people would produce major benefits to the world economy.

Bottom Line

We are likely to experience reversals and volatility, but also pulsating progress. While a few may have the appropriate insights and trading skills to trade various markets successfully, most won’t be able to do it. Therefore, the best position is to stay in the game at various levels with sound and occasionally good investment managers.     

 

  

Did you miss my past few blogs? Click one of the links below to read.

https://mikelipper.blogspot.com/2019/03/2-speed-vs-2-directions-old-better-than.html

https://mikelipper.blogspot.com/2019/02/lessons-from-warren-buffett-and-italian.html

https://mikelipper.blogspot.com/2019/02/could-biggest-risk-be-confirmation-bias.html

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2 Speed vs. 2 Directions: Old Better Than New - Weekly Blog # 566

Mike Lipper’s Monday Morning Musings

2 Speed vs. 2 Directions: Old Better Than New

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

                     
                     
Investment survival and successful investing are often in conflict. This  age-old quandary is facing us now. We instinctively know that losing money does not promote successful investing. This thinking is captured in the first two great rules of investing: Don’t lose money and Don’t forget the first rule. Unfortunately, the modern solution to this puzzle, Alternative Strategies, doesn’t work most of the time.

According to the latest data from Refinitiv (owner of Lipper data), there are 1507 mutual funds investing in 8 different types of alternative strategies, with assets of $239 billion. Similar strategies are followed by numerous hedge funds. The Investment Company Institute (ICI), the mutual fund trade association, has 5 categories of alternatives. Within the ICI roster of alternative categories, the range of liquid assets is between 42% and 14%. The asset composition of alternatives includes liquid assets (cash or short-term debt) and two or more active groups of risk and debt related investments. The managers of these funds use liquid assets to cushion the periodic volatility of their more active investments, with the cushion theoretically improving the alternative portfolio’s relative ranking vs. active investment funds. While this will produce a slower speed of decline, it is rare that these strategies produce better rates of return over time. Even though cash was the only major asset class to generate a gain in 2018, it is extremely rare for the same long-shot horse to win two races in a row as a long-shot. (One of my lessons from racetrack handicapping)

Starting at least in the 19th century trustees of wealth used a balanced approach, often owning both stocks and bonds. Many early US mutual funds were balanced funds. They followed what appeared to be a sound strategy, as stocks and bonds moved in the opposite direction (two-way street) most of the time. The reason for this divergence is that bonds generally increase in value when stocks appear to be risky. This yin-yang relationship is less true today, as the movement of interest rates is driving both equities and debt.

The 757 balanced funds with assets of $485 billion gained +7.31% on average in 2019, better than the averages for all alternative asset categories. This was also true for the 5-years through this past Thursday, where balanced funds averaged a return of +5.08%. Only one of the alternative categories slightly beat balanced funds for the past 52 weeks, +3.05% vs. +2.51%. I suspect the reason for the balanced funds superior performance was that on average they only have 6.07% invested in liquid assets, compared with the 42%-14% mentioned above.

Short and Long-Term Observations
Short-term
The American Association of Individual Investors (AAII) weekly sample survey of its members are now reporting that 42% are bullish compared to 20% being bearish. This is a very volatile time series and often a negative indicator.

Long-term
 Since 1926 the annualized total reinvested return for the S&P 500 has been +10.1% and the Russell 2000 +11.9%. These factoids deserve a couple of ancillary observations. For a long period of time the equal weighted S&P 500 performed better than the more popular market weighted version, suggesting there may be more relative market risk in the popular FAANG shares. The better performance of the Russell 2000 suggests that the acquisition of its  companies has overcome the drag of its component companies with  losses. The shrinkage of the number of attractive small companies has led to managers like T. Rowe Price and Longleaf closing their small company funds. This could have the impact of raising the prices of some small-caps due to a perceived shortage.

Question of the Week:
What level of decline do you think you can tolerate without making material changes?


 
Did you miss my past few blogs? Click one of the links below to read.

https://mikelipper.blogspot.com/2019/02/lessons-from-warren-buffett-and-italian.html

https://mikelipper.blogspot.com/2019/02/could-biggest-risk-be-confirmation-bias.html

https://mikelipper.blogspot.com/2019/02/some-retire-while-others-sense.html



Did someone forward you this blog?
To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

Copyright © 2008 - 2018
A. Michael Lipper, CFA

All rights reserved
Contact author for limited redistribution permission.