Mike Lipper’s Monday Morning Musings
Short & Long- Term Thoughts
I. Confusion or Choices
II. Critical Investment Business Trait
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –
I. Easter Week Signals
The US trading week consisted of only four trading days this week. Nevertheless, it created two different implications. A columnist at The Financial Times thought it signified a confused market. I on the other hand thought it implied multiple choices of future market movements. Let me explain. Over the four days 8.2 million NYSE shares traded to the downside, which was more than the 7.8 million shares traded to the upside, suggesting a falling market. On the other hand, the NASDAQ upside share volume was 9.8 million, which was above its downside volume of 9.2 million, favoring the bulls. The often contrarian AAII summary survey reached an extreme bullish reading of 15.8%.
What to me is more significant was that within various investment sectors some leading firms purposely lowered profit margins. They did this by increasing spending on new sectors by adding to their dominant positions. In the financial sector, Goldman Sachs, T. Rowe Price, and JP Morgan Chase spent today’s dollars for new sources of capital, new markets, and new ways to reach new clients. If all they foresaw was a cyclical decline, they like their competitors would have let their profit-margins rise. However, all three made the choice to invest for a broader and probably better future, instead of just enjoying a cyclical expansion. There were similar moves in other sectors. Long-term investors should think about these expenditures when considering a future bull market.
(I have cautioned blog readers that I would be looking across market valleys to the beginnings of subsequent rising markets.)
II. Critical Investment Business Trait
We are always searching for new investment advisors of funds, or separate accounts, while simultaneously reviewing existing holdings. If you think it is difficult to select funds and managers for future performance, I can assure it is more difficult than choosing individual securities.
I attempt to learn the business traits of portfolio managers and their business leaders. As it is unlikely I will be present when an actual or potential investment opportunity surfaces, I rely on my memory as to how the manager reacted to similar opportunities in the past. The key to that muscle memory is budgeting.
One of the many missing topics for CFAs and others is budgeting. If they are the keepers of clients’ wealth, it is helpful to see how they spend their time.
- Managers in every period spend at least 50% of their time on existing holdings, including following competitive positions.
- Managers new to their responsibilities should spend another 25% searching for new or better names. Even established portfolios should attempt to increase new names by about 10% each year and market cycle.
- The remaining time and talent should fill two buckets.
- The first should focus on the care of clients, helping them to become more aware of the realities of the investment process as applied to their own situation.
- The final bucket should be part of the firm’s early warning system, being aware of new competitors, people, or ideas.
The ultimate responsibility of the manager is to secure the clients longevity beyond the manager’s employment. You guessed it, budgeting is the heart and soul of managing, something not taught to CFAs and others.
Did you miss my blog last week? Click here to read.
https://mikelipper.blogspot.com/2022/04/is-this-great-investment-era-ending.html
https://mikelipper.blogspot.com/2022/04/wwiii-slightly-delayed-bear-market.html
https://mikelipper.blogspot.com/2022/03/not-much-weekly-blog-726.html
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A. Michael Lipper, CFA
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