Are Investors Taking Too Much Investment Risk? - Weekly Blog # 713

 

Mike Lipper’s Monday Morning Musings

Are Investors Taking Too Much Investment Risk?

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

One can rarely earn investment gains without taking investment risks. Investors often believe they imperil too much for the risk assumed. This view has led Lee Cooperman to comment that he is a fully invested bear. (He is counting on his timing and trading skills to save his capital) I am in a somewhat similar position in my investment account, which excludes my “burn-rate” and personal future generation endowment accounts.

Focusing on my operating investment accounts I wonder if I am taking too much near-term investment risk, as I do not believe I have sufficient trading skills and expect to be premature. The best way for me to escape a major decline might be to reduce the premature gap from “the top”. The way to do that is to recognize the excessive investment performance achieved by others as a precursor to a massive decline. Prior road trips with a young family echo in my mind, “are we there yet?”.

Listed below are an increasing number of signs of excessive investment performance:

1. Most diversified equity mutual funds produced a 20% gain for 2021, with some professionally managed investment accounts producing returns of 30% or better. History suggests that this is unusual and characteristic of an approaching top.
2. The types of stocks generating above average momentum are like those we have seen in the mid to late stages of a bull market. While stock market cycles and economic cycles don’t have to be coincident, the major ones usually are.
3. The pandemic’s economic cycle impact is unknown. In a normal investment cycle, it would either be the equivalent of an investment “bear market”, or as they say at “the track”, an aberration that should be disregarded. There is reason to disregard the impact of the pandemic, but market leadership does not look like the beginning of a new “bull market”. If we are not in a new bull market, we are in an aging expansion approaching ten years. Bull markets are not closely tied to an economic cycle, but there is something of an echo effect.
4. For some time, the predictive power of reported earnings per share has deteriorated, due to changes in accounting and regulatory rules. From a long-term investment perspective, I prefer to focus on aggregate pretax operating net income, which is not marred by non-operating net interest earnings and changes in share counts. I further attempt to back out the impact of changes in accounting rules, including recognition of depreciation and amortization.
5. We have entered a period of accelerating inflation, which needs to be considered when attempting to predict earnings power generation. This is particularly important in companies reporting significantly larger rises in net income than sales. There are many reasons for this, including operating leverage, with most of the gains coming from the exercise of pricing power to offset inflation. Earnings so generated, are not usually the source of future earnings gains.
6. There are lots of good investment managers, but some with “hot performance numbers” appear to have unsound analytical backing and may be generating gains from skilled market analysis. This is difficult to maintain and is what we used to call “racing luck”.

I am not attempting to precisely predict the future. What I am attempting to do as a good pilot is avoid air pockets that can cause a sudden drop in altitude or permanent loss of capital. 

After The Fall

To the best of my knowledge there has never been an active market that did not have intermittent declines. I therefore have a high level of confidence that at some point there will be future declines in all markets I’m invested in. 

There are two causes for wars, underlying and immediate. Analysts are unlikely to identify immediate causes beforehand but should be able to spot many of the underlying causes. Most of the causes are essentially an ongoing change in the perceived level of competition. When enough power has shifts to one side, the situation is fraught with danger. The leader sees an opportunity to further increase its power and the loser fears further loss of power. Either side may choose to react to this growing disequilibrium. I suggest the growing gap in relative safety measures are such that it is reasonable to fear some unplanned explosions.

 Whatever happens, it is our responsibility as fiduciaries to invest before, during, and after the fall. This plays to our preferred method of investing in stocks, which is through portfolios of mutual funds, mostly somewhat diversified. In preparation for this task, I read the diverse views of successful fund managers. The goal is to build focused portfolio of funds that think differently. This holiday week I had more time than usual to read what managers were thinking about the longer-term future. Two long-term very successful managers produced reports that should earn their place in equity fund portfolios, as described below:

The Capital Group published a 2022 Outlook on the “Long-term perspective on markets and economies”, which had the following highlights:

1. Market leadership is currently the same as it was before the pandemic. (This is an indication of a continuing long bull market)
2. Global economic growth is slowing, particularly in China. (Valuations have expanded, particularly under the influence of buybacks and M&A activity.)
3. Inflation should persist longer than expected, due to broken supply chains, shortages of materials, and more importantly of competent employees, particularly at the trained supervisory level.) Nevertheless, Capital believes inflation will not rise to the double-digit levels of the 1970s. In most inflationary periods stock and bond prices rose.
4. A good time to focus on stock selection by looking for pricing power, sustainable growth, and rising dividends.
5. Expect increased volatility in this midterm election year. (Perhaps this view is best expressed in the firm’s Growth Fund of America, ranked 17th of top 25 mutual funds year to date and the single best for the week ended December 23rd, gaining +3.55% vs +1.25% for the Vanguard 500 index fund. (Compared to many other growth funds, this multimanager vehicle is more risk aware.)

The other fund management group that has produced thoughtful pieces is the London based Marathon Asset Management. They are a successful global investor with a sizable sub-advisor and separate account business in the US. What distinguishes their thinking is their focus on the supply side of the equation, whereas almost all the other investment managers first focus on the changing levels of demand for a company’s products and services. This tends to put them earlier in the timing of the investment cycle. Their portfolios tend to look like those of a value investor, making Marathon a good investment diversifier in an otherwise growth-oriented portfolio. The following are some of their investment ideas:

1. Moody’s and S&P Global are viewed as an oligopoly taking fees for assessing credit instruments. (This is not completely accurate as there are a number of smaller credit tracking agencies, both in the US and elsewhere. What makes them attractive businesses is their ability to access a small increase in prices each year, as well as a fluctuating demand level. (At least I hope so, as both are in accounts I manage, and in a somewhat similar position is Fair Isaac, which provides FICO credit ratings on 99% of US credit securitizations.)
2. With a limited number of new copper mines coming on stream and local governments pushing tax collections, the price of copper is rising. It will probably rise much further as auto production moves to battery electric vehicles (BEV) from internal combustion engines. BEVs, which use roughly 80 lbs. vs 20 lbs. of copper per vehicle.
3. “Private equity will face major headwinds in a governance play with little leverage as topping” (This is another set of headwinds as it is an overcrowded area, with entry prices expected to rise and provisions expected to decline.) “Growth valuations are based on visibility, the ability to push out time horizons ten or twenty years into the future with sufficient certainty to justify paying for that outcome, a very difficult call in a new world based on political whims.”
4. Japan has not adopted the US approach to corporate governance and has limited M&A activity and corporate raids. Stock options are evolving, with more shareholder friendly conditions. (A number of global investors, including Lazard, have a long-term favorable view of Japan, despite its recent economic record. Japan is becoming a more needed US ally, both militarily and economically.)

Next week I hope to devote the blog to some things I and other investors have learned (or relearned) in 2021. Please send me an email on what should be included in the list.    

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https://mikelipper.blogspot.com/2021/12/mike-lippers-monday-morning-musings.html

https://mikelipper.blogspot.com/2021/12/selections-weekly-blog-710.html

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Dull Markets Are Dangerous for Investors - Weekly Blog # 683

 

Mike Lipper’s Monday Morning Musings

Dull Markets Are Dangerous for Investors

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

Why?

Not only because “quiet comes before the storm”, but dull markets give you the luxury of time for thinking and researching. Investors can use unhurried time to search for better investments and improve on the selection process, although most investors focus their energies on security selection. Some wise investors will ponder the processes used to manage their investment responsibilities, while commentators focus on the first group in the majority. As an investor for more than sixty years managing money for a limited number of investors and for my large family group, I am more concerned with the second need. Few pay enough attention to a periodic review of how we make decisions. Assuming you can make reasonable selection decisions, improving the decision processes will produce better results for the beneficiaries of your efforts in the long run.

Why Now?

Rarely can we assess in an unhurried fashion and review how we think about investing. We have such an opportunity right now. For at least the last six weeks the popular US stock market indices have been fluctuating within a trading range on relatively low and unconvincing volume. This is very logical if you believe equities are primarily priced on what they are expected to report in future periods, not what they have already reported. Expected future earnings are usually discounted at the current “riskless” interest rate of government bonds. Currently, many believe interest rates on US Treasury paper insufficiently discounts future inflation, pointing to the weakness in the valuation of the US dollar in multiple foreign exchange markets.

Others feel that after more than year of stock market gains it is time for a rest. Some point to the likelihood of not as favorable earnings comparisons after an expected large jump in the second quarter, especially when compared to the slow initial rebound in last year’s second quarter. Naturally, third and fourth quarter comparisons are expected to be more labored considering the 2020 recovery began picking up steam in the second half. (On the same basis, some believe earnings gains in 2022 will have tougher comparisons versus those in the coming quarters of 2021. Current spending plans for the rest of this year very much favor consumption with a lower investment value than productive capital expenditures.)

US stock markets are currently being held back by what one large US bank affiliated brokerage firm refers to as the 3 Rs= Rates, Regulation, and Redistribution. Some global investors, including those in the US, see foreign stock markets performing better than those in the US, as shown in the following table:

Stock Market Year-to-Date Gains

Canada        +20%

South Africa  +17%

France        +16%

U.K.          +15%

Taiwan        +15%

How to Improve Your Investment Processes

There are several ways to improve the various processes, unfortunately they require more work than  the sound-bite/pundit driven world would suggest. Often, the best communicator is more of a commercial success than a better investor. 

People like quick comparisons that lead to an ordinal ranking result, often leading to the identification of a leader at the peak of their performance. One of the more successful institutional investors, Marathon Asset Management, decries this approach in the following quote “categorization purposefully reduces complexity and nuances”.

Nuances are critical to the understanding of comparisons, no critical analysis of peers is simple and straight forward. The following is a list of categories: stocks, bonds, growth, value, return on sales, operating earnings, earnings per share, book value, and tax rates. On a personal level, what about our significant others, or the schools we chose to attend. What is missing in these comparisons is the attention to quality, sustainability, integrity, personality, and the fit within the existing structure or portfolio. I suggest statistical comparisons do not provide answers, although they are useful in framing important questions exploring the answers to the “soft” questions.

Another critical technique is to not pay more than once for the same positive. For example, the chance of success for a company developing a new product or service creating new customers and opportunities is generally priced into the value of that stock. However, that premium should be eliminated once the product is on the market and operating earnings from the new product are counted in current earnings. R&D is critical for many large companies to maintain existing earnings power, it is therefore not worth an added value.

Turnarounds can be great investments, but the key is understanding if they can keep adding value in the future or are one-trick ponies. Proxy statements are useful in this analysis. After a new CEO has been in place for about five years, the degree of senior management and director turnover provides a clue as to whether the heavy work of the turnaround is complete or ongoing.

While I would be happy to discuss other analytical techniques with subscribers privately, I will include one final critical analysis for portfolio managers. How a considered investment modifies the existing portfolio and at what cost.  A new investment will determine how the existing portfolio is modified and at what cost. Is the new investment going to reduce the chance of risk or add to performance in good periods? How much time will be needed to follow and deepen an understanding of the new investment? What is the appropriate starting position size and what are the likely points to augmenting the size over time? Are we comfortable with the other shareholders, both old and new?

Question of the Week: 

Have you modified your investment thinking in 2021? If not, are you likely to make changes before year end?   

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2021/05/faulty-comparisons-weekly-blog-682.html

https://mikelipper.blogspot.com/2021/05/extreme-views-can-be-good-lessons.html

https://mikelipper.blogspot.com/2021/05/where-is-stock-market-going-next-weekly.html

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Shorter-Term Worries, Longer-Term Opportunities

Introduction

We are not enjoying complacency about securities' prices, we are suffering from petrification. One of the supposed benefits of holidays be they secular such as Labor Day, bank holidays or religious fast days, is it gives investors and those who are dependent upon investors a chance for introspection.

On the surface we are experiencing relative calm with the month of August posting the second lowest volatility in a decade of S &P 500 performance. I have yet to meet any professional or individual investor who is happy with the markets - stock, bond, or commodity. The relative lack of movement is anything but creating complacency but rather a deep seated fear of being wrongly positioned for the next market. Until magically they see further into the future than they are now, investors are petrified to act.

Short-Term Worries

Several new books and other long treatises can drone on as to all of the problems facing our global societies, economies, political leadership and securities markets. I am going to list a number of concerns that occurred to me over this three day weekend and it is not an exhaustive list:

1.  Over-valuation of leading components of popular securities indices due to flows into passive portfolios, including ETFs. These buyers are participators not evaluators.

2.  A record level of long contracts on the Dow Jones Industrial Average. (This level of speculation is normally wrong. However, in today's world I wonder how many of these contracts are paired with shorts on individual stocks.)

3.  Moody's^* warns "take cover if defaults climb through 2017."

4.  John Authers of the FT in suggesting rules for investing success, recommends the need to be humble as the markets are not perfectly efficient and the greater the price paid for a security the lower the potential return.

5.  In a recasting of the famous economist's view of a “Minsky  Moment,” the illusion of control encourages risk-taking behavior. Much of what is being pitched these days is expressed as low risk due to the fact that they are government actions and in the past history few things have gone bad.

*Held in the private fund I manage.

In the latest Marathon Asset Management Global Investment Review, the London-based firm tells the story of a famed Soviet professor of statistics who regularly did not take shelter during the Moscow air raids in World War II. When asked, he pointed out that there were seven million people living in the city and one elephant living in the Moscow Zoo. Thus he felt comfortable not going into the shelters until one night he showed up at a shelter. He then announced that the prior night they killed the lone elephant. The message: Change when the facts change.

Longer-Term Opportunities

This weekend I sat next to another guest at a wedding; she had worked in development at Yale before it was famed for extraordinary investment performance, but during the period that it was building that record. We chatted about the Chief Investment Officer who had introduced alternatives to stock and bond portfolios. We concluded that one of the reasons for Yale's success during that time was that few or any of its major academic competitors were taking advantages of these opportunities.

During the current period of complacency/petrification I see a similar opportunity. Too many very bright investors are focusing on the current (apparently insurmountable) problems and not at the opportunities that always exist but too often are hidden to us because of our perception deficits.

Keith Ambachtsteer contributed an article to the FT entitled "Long-term thinking will lead the way to improved returns." He knows by experience in affecting a number of Canadian and to a lesser degree, US pension funds. His focus is to keep the attention on the long-term and not get bogged down in the short-term.

If one does focus on the longer-term, an investor has two mathematical advantages working in his/her favor. The first is the compounding impact of reinvesting income. Over the last five years the reinvestment of distributions from the stocks in the Dow Jones Industrial Average raised the DJIA total return by 33.85% over its simple price change gain. The second mathematical power going for investors in the long run is that almost all of our lives we have been in a period of secular growth with both demographics and technology helping to enlarge the demand for what we produce.

During a period when the negatives are being accentuated, too few people are searching for positive opportunities. In the US and some other countries, we will have both new political leaders as well, I believe, quite different legislative bodies. Perhaps we will also have some movement in the judiciaries. As much as many would like, they are not going to be able to slavishly copy what was done in the past. Even slight changes will create opportunities for those who are looking for them. Major changes can create major opportunities. I believe we will see many. 

While it may be too early to tell, one should look for ways to foresee changes in both the labor and consumer markets. As an example, keying off this weekend's news of the poor showing of Germany’s ruling party in Angela Merkel’s own district due to the rise of an anti-immigrant party that has potential implications in Germany, the rest of Europe and possibly the US.

How to Play

During these uncertain times I believe our preferred structure of sub portfolios addressed to specific time spans can be of particular value. Regular readers may be familiar with my TIMESPAN L Portfolios^®.  I would suggest that the need to meet payment requirements over the next couple of years will require close, very short-term management that is extremely sensitive to changes of credit conditions and shifting short-term interest rates. (The first, or Operational Portfolio.)

The replenishment requirements of the expended operational funds (the second or Replenishment Portfolio) probably need to deal with at least one down market year before the new government leaders leave office. On the other hand, investing for endowment (the third portfolio in the series) and other intermediate and long-term money have a great opportunity to invest wisely in less popular investments. For the truly long-term investor there will be ample opportunities to invest in both new and established disrupters.

Question of the week: Please help me find disrupters, what are your current favorites? 

_________________

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Investing with the Uncertainty Principle

Introduction

Valuable insights can be derived from the same principle when making decisions for investing in securities and betting at the race track. While I am a senior trustee at Caltech, I do not claim to understand quantum mechanics. What I do recognize is that in 1927 Werner Heisenberg identified a way of thinking now called the Uncertainty Principle. He found that there is a fundamental limit to the precision of measuring unequal objects. Stripping out all the math, which is beyond me, the mere act of measuring the difference changes its precision. Translating this to my dollars and sense world means that the value of a comparison in terms of utility declines the more it is measured. In effect the more popular an analytical relationship becomes the less valuable it is.

One Successful Asset Manager’s Application

Marathon Asset Management of London starts a section in its well-written monthly report entitled: TOO MUCH INFORMATION, with a quote from T.S. Eliot. “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”

What Marathon is decrying is the frequency that the modern publicly traded company is supplying information to the market directly or through analysts and the media. This flow of information is augmented by trade associations and others’ intra-period industry data. Market prices move in the direction of the perceived value of the information only to be reversed often on the interpretation of the next morsel of information. This leads to stocks turning over much more rapidly than in the past. I have noted that the increase in individual stock turnover has led to a general increase in active mutual fund turnover. Unfortunately, this trend has not added to investment returns. 

Through June 9^th on a year to date basis in the fund asset class identified as US Diversified Equity funds - with one exception - the two best performing groups were the Mid-Cap Value funds + 7.80% and Small- Cap Value funds +7.68% (S&P500 Index funds were up +4.23). What is more interesting to me is an almost double gain from the one exception of +13.00% for Equity Leverage funds. This suggests to me it is not the fund’s selection skills but the use of borrowings (margin) and derivatives. One would think we are describing hedge funds. However, two others fund performance statistics tell a more complete story: Dedicated Short Bias funds -14.20% and Alternative Long/Short Equity funds -0.10%. I have now transmitted to you too much information.

Marathon would believe that the information above is a dump not a filter in terms of data discrimination, giving equal weight to each factor. There was no attempt to fathom what is missing. (I have often found that what is missing from an investment proposal is more important than what is provided.) The frequency of information input or overload leaves little time for deep thinking and pondering not only what is missing, but what weight one puts on each factor considered and how much to value what is unknown. The last exercise is critical to avoid the single biggest contributor to large losses, overconfidence. The last step often leads to a decision not to do something. While not axiomatic, lower turnover funds produce higher on average results over long-term investment periods that we favor.

Unfolding Brexit Pictures

We have one more weekend before the referendum. I hope in next week's blog post to devote more space to its impact and probabilities. However, in reaction to last week’s blog plus some conversations I had at a meeting sponsored by the London Stock Exchange on the value of listing funds at that exchange, there are three thoughts that I would like to share:

1. Unless the spread between the Remain and the Leaves is greater than 10 percentage points, the odds favor other elections on this and related topics in the UK and within the EU.

2. Regardless of the result, the 2017 elections in both Germany and France will be impacted possibly in different directions.

3. The use of foreign political leaders and foreign media comments can prove that such outside influences are counter-productive to the mass of voters.

Has the Commodity Cycle Bottomed?

As noted above, the US Diversified Equity funds have produced low to middle single digit returns year to date. There are ten sector funds that are showing on average double digit returns. Not only are these Precious Metals funds +88.89% but also Energy, Base Metals, Agriculture and Infrastructure funds. Clearly these are recovering from deep multi-year bottoms. But when the average Sector fund is up+9.58% compared with the US Diversified funds’ gain of 3.26%  are the markets telling us something? This is exactly the kind of question that Marathon and I are both calling for some deep thinking. The data above was compiled by my old firm, Lipper, Inc., part of Thomson Reuters.

A Professional Analytical Pause

On most weekends I draft these posts on Sunday, but this week because a significant concert of the New Jersey Symphony Orchestra, I am beginning to draft Saturday afternoon. But I am going to suspend my scribing to watch the 148^th running of the Belmont Stakes. For many track followers this is the single most important race for three year-olds. Its importance is similar to the senior prom in many US high schools. In both cases this one event will be remembered for a lifetime and a point of passage for these equine adolescents. In almost all cases this is the only time they will be asked to race for a mile and a half. The winner will initially be highly valued as a sire of future champions.

I will be watching not only from a racing standpoint, but also from an analytical viewpoint. Earlier in the week the weather looked for rain at race time. In theory this would have helped the favorite who has won in the rain several times in the past. The backers of the favorite were hoping for a repeat set of conditions and therefore results. This may be like picking a fund on the basis of superior past performance in down markets. But in each case for the very moment the question is how will the candidate do with a change in conditions?

Conclusions After the Belmont

As is often the case, lessons from one field have application in others. The race was won by a long shot meaning the experts and the bulk of the betters were mistaken. The interesting thing for me is the application of the Uncertainty Principle. It did rain right after the race, but that did not appear to be the deciding factor why the favorite (while close during the race) faded at the end of the race to finish almost last. If one filtered all of the past performance data and only looked at what could have been expected to be the interim best time at each leadership position, one could have deducted that this year’s Belmont Stakes had too much early speed and took the favorite too much effort to get to the front and couldn’t easily overcome the early leaders. In addition, there were a couple of fresher closers at the end.

From an investment point of view there were some lessons:

Past performance needs to be carefully analyzed and broken into components. The weight of past victories in terms of money earned was not a deciding factor. Finally, betting on future trends even when right, (the rain), the timing can be slightly off and not workout as forecasted.

In Summary

We should recognize that we live and must invest in an uncertain world. We need to focus on critical subsets of information. Finally our confidence should be measured to avoid overconfidence.

What do you think?

_________________

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Copyright © 2008 - 2016

A. Michael Lipper, C.F.A.,
All Rights Reserved.
Contact author for limited redistribution permission.

Actions Coming from China, Berkshire Hathaway, and Caltech

Introduction

I am always looking for help in investing clients’ and my family’s money each week. I review my exposures to breaking news and views. l have reviewed the actions of the latest week and there was a lot to learn.

China

One of my basic beliefs for the next fifty or so years is that what happens in China will have material impacts on global markets as well as individual lives in many locations. Whether these impacts will be positive or negative will probably be a function on how well we are prepared to understand the implications of the actions taken in the Middle Kingdom.

Market reports noted growing illiquidity in both the internal stock and commodity markets. The volume in the steel contracts is twice the combined volume of the two largest Chinese stock markets. This demonstrates that speculative interests can find outlets in local as well as global markets. I do not know how much of the steel action is short covering or anticipation of growing infrastructure spending which could well impact global commodity demand and therefore the craving for industrial stocks.

To get a handle as to how important the Chinese markets are to the global picture, one needs to understand that almost half of the derivatives traded in the world are traded in China. Because of the huge amount of leverage that can be involved in derivatives they can be a source of disruption that will affect both the banks and the stock markets in general. Thus my fellow domestic stock and equity fund holders need to keep an eye on the commodity and derivative markets in China. This is particularly true as government policy is favoring restructuring the Chinese economy and society into companies with fewer employees producing products and services in which demands exceeds supply. This is not an easy task even in a command economy.

Berkshire Hathaway's Annual Shareholders Meeting

Some may have come away from the 51^st annual meeting with the belief that very little new information was released. However, there were a number of forward-looking comments that could be useful in thinking about future investing. Some of the nuggets are as follows:

1. Too much capital going into a sector or asset class can reduce its attractiveness. A UK manager, Marathon Asset Management, has developed a successful record using the swings in capital market flows.

2. Increasingly consumers are being attracted to "pull" over "push" marketing, particularly through the Internet. Consumers are actively pulled into the net as distinct from reacting defensively when pushed. This favors manufacturers/distributors over the retailers.

3. Eventually the real value of hydrocarbon production will be to supply chemical feedstocks. Remember Dustin Hoffman’s discovery of plastics in the film “The Graduate.”

4. There are areas that are unattractive for investment that include packaged goods, general leasing, and reinsurance.

5. Cash has imbedded an option cost inherent when it is not employed.

6. As a private company rather than a public company there are distinct operating advantages (such as freedom from quarterly earnings pressure) that Berkshire can offer to an entrepreneurial, publicly traded company.

Caltech Fund Raising

Those of us that have deep interest in both commercial and non-profit activities are well familiar with fund raising. Most of the time money is being raised to expand physical capacity. More people are to be hired to serve a greater market size.

As usual, the California Institute of Technology is unusual in its fund raising. Using its own words, “Transformative investigations underway at Caltech will come to life as institute scholars recount the powerful questions they are posing and the surprising answers that emerge.”

This weekend it is entering the public phase of a $ 2 Billion campaign after raising $1 Billion in its private phase. What is unusual is the new capital is not being raised to add students to its small base of undergraduates, graduates, and post doctoral students. The money, in effect, is being raised to expand its intellectual capacity to evolve groundbreaking research. New planets and black holes are to be found, new linkages from advanced developments of biology, chemistry, physics. What particularly interests me is developing an understanding how different elements in the brain lead to various micro and macro decisions; e.g., getting married.

The big investment lesson that I draw from the Caltech campaign unlike most capital raising, is its intent is to get better not bigger which is a tall order because on many scales it is already the best at what it does. For those of us in the investment business it is a call to get better at what we do rather than getting more money to manage.

Question of the week: What are your reactions to these lessons?

________   

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Copyright © 2008 - 2016

A. Michael Lipper, C.F.A.,
All Rights Reserved.
Contact author for limited redistribution permission.