WHO YOU SELL TO DETERMINES WHAT YOU BUY AND WHEN? - Weekly Blog # 646

 

Mike Lipper’s Monday Morning Musings

WHO YOU SELL TO DETERMINES WHAT YOU BUY AND WHEN?

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

This week showed the value of reverse thinking. Most investors choose what to purchase based on the perceived characteristics of the investment. They choose when to make the purchase based primarily on their own needs or possibly a headline event. This thinking has not produced profits over the latest two weeks.

Who to Sell to?

Basic securities analysis textbooks assume that investors sell to investors that think like them, which is long-term, although the eventual buyer may be another company in a merger or acquisition. One of the nice things about life and markets is that each year brings new people wanting to invest. Each generation produces young people wishing to get rich quickly, who believe that making smart decisions and acting very quickly pulls off that trick. (Wouldn’t we all like to find Eldorado, the mythical gold mine.) 

While sheltering in place the youth discovered their brokerage firms allow them to trade on margin (borrowed money). Stocks and bonds cost too much money and move too slowly, so they quickly discovered put and call options. Options normally expire worthless or are sold, but they can require delivery or acceptance of the underlying shares. To protect the sellers of these options they buy or short the underlying shares. During the last two weeks the market has become aware that in aggregate these options plus some owned by a large Asian fund group is huge. This is one of the explanations of the two-tier market we have been experiencing. 

The first tier is about ten stocks including a couple of Asian companies. Through the end of August these stocks gained much more than +20%. The remaining stocks, the second tier, is still down a few percentage points year-to-date. Our intrepid youth has concentrated their attention on these tech leaders in the first tier. Options are written for various time periods, from a day to multiple years. Most institutions using options typically hold them for one or two months, but these youth are often in and out within two days. A complicating issue is the belief that the equity underlying these trades, on both the buy and sell side, could be as low as 7%. This in and of itself is causing rapid trading on the other side of these transactions. Short-term traders expect the other side of their trades to be similarly motivated by short-term views. During the last two weeks this has been the added increment to the market, adding to both volume and probably much more to volatility.

The Time Hurdles

Politics

As I’ve suggested in prior blogs, we have entered an emotional trading period which can last until mid-November. By the end we will have the initial results of the election. For forward-thinking investors who know history, the impact of the Presidential election will prove to be less important than who will be the chair and probable ranking member of various Congressional committees and possibly sub-committees. It will be this small group that puts words to the President’s wishes. Based on history, campaign slogans will either be totally disregarded or so modified that the results will be very different than what voters perceived on election day. 

By January, I believe both political parties will be splintered into different groups on many basic issues. Committee chairs will not automatically be able to send their wishes to the “floor” of their house without some support from the ranking (senior) opposition member of the committee. While all members always think of their next election, the defeated party will be focused on how to reverse the past election and how to improve their own chances for the next election. The ranking member has less ammunition than the chair, as they aren’t able to appoint sub-committee chairs. Additionally, members from the minority party will undoubtedly be split as to the reason for their side’s loss in the last election and will blame some of the remaining party members. Thus, they will not be easily led. Their immediate concern will be the 2022 mid-term and regaining the majority in 2024, where the two Presidential candidates will likely be new to those roles. 

COVID-19

We are likely to get frequent reports on the progress of vaccine trials and therapeutics, which are not as much in the news but possibly more important in terms of the number of people treated. Personally, I am very concerned with the execution of production and distribution of these lifesaving or at least life altering medicines. These are very large tasks that frequently run into problems. 

Other News Elements Before 2021

• BREXIT + UK Economic Recovery Faster than Continent
• Some rising commodity prices affecting some consumer prices

Market Indicators

• Very few fund investment categories rose this week - precious metals, agricultural commodities, Japanese and European equities
• NASDAQ fell -11% from its all-time high
• Dow Theory has a buy signal (often late, but sometimes early)
• AAII survey sample increasingly bearish
• Used car prices rising

What Should Investors Do?

Traders should trade, but remember, they want to finish with cash in the end. Investors should sit through this emotional trading period unless the market moves 20% either way. If a specific issue has some unexpected news causing reinterpretation of the situation, perhaps some change might be warranted. In general, sound investors with good portfolios and not too much cash should use a 20% market gain to add to reserves. Investors should use a 20% market drop to look for new bargains, which will benefit quickly if the market adapts to new strategies. (One might consider long-term producers or transporters of natural gas, or companies whose revenues are tied to market prices.) 

  

 

     

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https://mikelipper.blogspot.com/2020/09/turning-point-or-bump-weekly-blog-645.html

https://mikelipper.blogspot.com/2020/08/caution-ahead-emotional-turns-likely.html

https://mikelipper.blogspot.com/2020/08/mike-lippers-monday-morning-musings_23.html

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A Good Week for Long-Term Stock Investors - Weekly Blog # 516

Introduction

“Six months ago everything was good you couldn’t find a reason to sell stocks. Now you can’t find a reason to hold them.”  I was delighted to read this quote in The Wall Street Journal. I only hope there are more expressed sentiments of discouragement. As our subscribers have learned, such views and increased volume of transactions are necessary to have a successful test of a bottom. The actual index close can be higher, lower, or equal to the questioned low point, but without a change in sentiment it is just statistics.

Parsing out the quote I found the singular buy and sell driver encapsulated in one word, “a”. Perhaps it is my long training as an analyst and portfolio manager, as well as a racetrack handicapper, or just living through these times. However, I have never not had conflicting reasons to buy or sell or take any other actions. One of the training techniques for salespeople when trying to make a sale is called “The Ben Franklin Close”. Perhaps the wisest of the Founding Fathers, who was essentially a successful businessman, used the approach of listing the plusses and minuses of a proposal in two columns on a single page. As long as the potential buyer accepted the validity of the list and the positives out-numbered the negatives, Ben Franklin closed the deal. To make a final decision, I require the weighting of each listed item not just the number of items. My experience has made me a contrarian. I always have doubts.

Investors make the most money in periods of doubt. These periods of doubt are often ones where the bulk of the “experts” are on one side or the other. For example, the vast group of experts who were against the British leaving the European Union predicted dire results if the foolish people voted for Brexit. They predicted unemployment would rise significantly, the value of the currency would drop, and London would be deserted by the financial community. In a front page article in the weekend WSJ Review section, a British editor indicated that the Brits are doing just fine. Unemployment is the lowest it has been in years and the pound is higher than it has been in some time. Additionally, the number of the financial people being transferred to the Continent appears to be in the hundreds not the thousands predicted.

Recognizing that I can and have been wrong, or at least premature, periods of doubt represent opportunities that “experts” can be wrong. After all, the Western Hemisphere was discovered during a period where many “experts” believed the earth to be flat, because they could not see beyond the horizon. By definition, long term investors must look beyond their current horizons.

An Explanation via Fund Data

Investment Performance

One of the main differences between growth and value fund investors is the time horizon expected to bring gains.

The growth investor is looking to a brighter future for the companies in which they invest. Value investors are betting that there will come a time when the values they perceive become more appreciated. Over time both have produced good results, but at different times. (This is why in many of our fund portfolios there is a sample of each discipline. Due to the long underperformance of value-driven funds, a contrarian might start to nibble. It is quite possible in the next wave of acquisition activity that smart acquirers will recognize the value properties before the market does.)

Currently, while the “popular” media is full of headlines as to problems, successful investors are evidently favoring growth. In the year to March 22nd, most equity funds are down a bit, but there are only eight fund peer group averages that are up 3% or more. Of the US Diversified Equity funds, only the four growth fund categories produced 3% or more. In the Sector fund group, just the Global Science and Technology funds make the grade, and they were higher than the Growth funds. Just two other investment objective categories: Latin American funds and China Region funds made the 3% gainers leaders.

Flows

While exchange traded products are governed by many of the same regulations as conventional mutual funds, the reasons their owners use them are different, therefore they should not all be lumped together in deciding market implications. The vast bulk of the money in ETFs and ETNs is invested in broad Index funds, which are primarily used by trading entities like hedge funds and discretionary advisors. In numerous cases these have replaced more expensive derivatives.

Mutual funds, a much older investment vehicle, were primarily designed for retirement, estate building, and other long-term needs. They are found in individual accounts, defined contribution plans [401k], and individual retirement accounts [IRA]. As the participants fulfill their needs they redeem their existing funds and use the money, or change to more conservative investment options. For many years growth funds were among the most popular funds, performing quite well and above most retirement measures. Because of the lack of growth of new investors, redemptions are not being offset by new sales. To my mind these are “completions” of earlier promises.

To respond to the lack of growth in sales of funds at the retail level, brokers in the US and elsewhere have been reducing the number of funds being offered and reducing the number of fund houses with which they are dealing. Funds are not the most profitable products for brokers and some managers. At some point this may change.

On the Horizon

Committees in the US Congress and the Administration are working on a second tax bill. Some of the possible provisions address the need to create more retirement capital in the US. Other countries are also addressing the lack of sufficient retirement capital in an era of extending life spans, expensive health care, and slower to no worker growth. Seniors vote, while often young people don’t.

Conclusions

Despite perceived and perhaps more importantly unperceived problems, equity risk investing is needed by the world and will happen.

The more people sell the more opportunities exist for the patient buyers and their advisors.

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Single Portfolio Cannot Do Multiple Jobs - Weekly Blog # 502

Introduction

Would you choose to go to a pharmacy that had only one medicine, a plumber who had only a wrench, or an auto repair shop that had only a screwdriver? My guess is no, you would want a reasonably complete set of tools with some being alternatives to a given general solution. Yet most individual investors and many institutional investors gather their securities investments in a single portfolio and report to themselves and others in terms of a single performance result for the most current period. This is similar to going to an inadequately supplied pharmacy, plumber, or auto repair shop! For this very need, I have developed a different way of arranging investments. My preferred structure is based on the timespans that investments specifically need to perform in terms of cash generation and asset price performance. This structure, TIMESPAN L Portfolios®, leads to the way I examine all of the various inputs to making investment decisions including the weighting of buy, sell, and holding choices. Thus, I am continually looking to solve simultaneous equations with multiple unknowns to drive specific solutions.

TIMESPAN L Portfolios

I am using four separate portfolio structures as filters to examine inputs. (I would be happy to discuss with subscribers the various inputs as they may apply to their portfolio structures which are mentioned.)

Current or Operating Portfolio

This is the portfolio that must need current operating payment needs. For far too many this is their only focus. Current price performance becomes paramount to all of their investment thinking. In these nanosecond responses to news/rumors, global marketplaces speed to change directions that may be more important than the depth of thought. For example this weekend there are two inputs that can shape actions. The first is that on Friday, December 15^th, the NASDAQ Composite’s price broke out of a month-long constrained price pattern. For some this may be a bullish event. For most of this year the combination of mid and small technology companies plus the well known FAANG companies were driving the major stock market indicators. For the last month while the NASDAQ was flat, the Dow Jones Industrial Average and the S&P 500 were rising. There was a worry that if the performance leader was not moving higher, the followers would eventually stall as well. Thus the Friday breakout could be viewed as important. This is particularly true because in the week that ended Thursday night the only US Diversified Mutual Fund averages to decline were those of the Mid and Small market-caps, excluding the Short Biased funds which also declined.

The second input was the volatile American Association of Individual Investors’ weekly survey showed a major jump of bullish investors to 45% of their sample compared with 37% and 36% the weeks before. The progress of the US tax bill was probably the cause for the surge. I personally find this as extremely premature. As of Sunday I have not seen the conference committee’s full draft. There is still room for some changes as both houses pass a bill. As a practical matter until we see the implementing regulations which are likely to be more complex than the bill itself, we won’t be able to carefully apply the bill to our own taxes. Relatively soon there is likely to be a Tax Corrections Act plus there is a good chance that tax and/or civil courts will modify the regulations.

Both of these inputs are speculative but give support to the bulls near-term.

Replenishment or Presidential Cycle Portfolio

This is an unusual portfolio device to replace the funds allocated to the operating portfolio that have been expended to meet the current needs of the account. Its timeframe pivots on probable changes. These changes may be in terms of political or corporate leadership. The second element would be significant if the bulk of the investments are concentrated in companies with critical roles to their success leaders.

At the moment this portfolio has the biggest hurdles to climb. In the normal course of market history it is reasonable to expect to see a stock market price decline and recovery in periods of four to seven years. Currently, it appears we are building toward a peak. The very inputs mentioned for the Current/Operational Portfolio shows signs of providing the missing enthusiasm which is present immediately prior to a peak. One of the ways to get stock buyers to join in on the rise is to suggest that the rise is not a cyclical phenomenon but part of a long-term growth trend. We are already seeing broker’s headlines declaring “Global Economy Stronger for Longer.” We are also seeing earnings estimates going out to 2020-2022.

As a young junior analyst struggling to come up with annual earnings estimates I became apprehensive when I started to see the justification for buying certain stocks on the basis of their purported five year projected price/earnings ratios after a “hockey stick” type of growth pattern. The result did not turn out well. We are now seeing estimates that global stock markets may reach levels of $100 Trillion and at least one company expected to reach the $1 Trillion level.

US investors are not blind to all of the risks in today’s marketplaces. Their aggregate response to these risks is to invest outside of this country. The largest single net flows this year are into International/Global Equity mutual funds and ETFs, with the latter being driven by institutional owners. Perhaps it is warranted as most markets are selling with price/book value prices below those in the US. (There may be less massaging the book values than the reported earnings.)

Endowment or Post-Decline Portfolio

I believe it is reasonable to assume that there will be both a stock market decline and a recovery which eventually will lead to much higher price levels. There are two keys to benefiting from this prediction. The first is the careful management of assets going into the peak and recovery cycle and the second is to benefit from the probable change in market leadership.

The endowment period is probably as long as the youngest decision maker is in that position, but likely more than ten years.

Typically new leadership comes from overlooked companies and sectors that have gone through major structural changes during the peak/decline cycle. This is often the type of period where prior momentum plays lose ground to contrarian plays. I have two examples of this thinking. The first could be Britain. Because of necessity, the UK comes out of BREXIT stronger than when it entered the divorce procedures. As is often the case the winners could be centered in the mid and small-cap domestic oriented companies.

The second good endowment prospects are what we use to call “warehouses.” These were not physical warehouses, but stocks that would not lose much value in a decline and had reasons to have a better than historical experience in the future. Today there are two, somewhat controversial, opportunities of interest. The first is the oldest warehouse for more than a century, AT&T. While in truth it is the recast Southwestern Bell along with a number of acquired former Baby Bells. I am not attempting to guess the final result of the proposed merger with Time Warner. My interest is focused on the likely leader in the Fifth Generation internet which could well be dominated by AT&T as the technological and capital leader. The declining value of their long lines infrastructure could be reversed.

The other warehouse that is even more controversial is General Electric, which was the first large company I analyzed. The slimmed down current company is essentially being rebuilt around its capability with engines. The power business, particularly in the conversion to the use of natural gas, should be a major plus. The aircraft engine business is very attractive in terms of the parts and services involved. What are labeled their healthcare products are in reality supplying the mechanical/electronics patient movement businesses.

I view both of these stocks as substitutes for ten year US Treasury Bonds, which currently yield 2.4% and AT&T yields over 5% and GE 2.7%.  The income from the bonds is fixed. I suspect that the two warehouses will raise their dividends at least equal to published inflation if not higher. Further over time their pension expenses will decline through pension risk transfer contracts with Prudential Financial or other insurance companies. Also I expect that the number of employees and their ages will decline easing their retirement expenses.

Legacy/ Future Generations’ Portfolio

The nice part of managing money for this portfolio is that I won’t be around to see whether it works or not. I hope it does work because it will be important for my grandchildren, great grandchildren and their beneficiaries. This is the most challenging portfolio. While some of the future winners will be leaders from today, some will be a surprise. It is in the latter group that I am focusing on in the beliefs that there will be some changes which will lead to good investments.

The first idea is that much of what we invest in today is anchored in the so-called permanent or physical world. In future generations I think we will be living in more fluid situations. Even today’s tax bill may be driving to praising liquidity over permanence. Individual ownership of real estate could give way to greater rentals. With the growing retirement capital gap we may need to increase savings and get higher returns on our capital as we live longer and more expensively. My guess is that we will see more century and longer bonds,  possibly perpetuals.

The second idea derived a bit from the first is that business and industry structure can and will likely change. We are already entering a phase of vertical as distinct from integrated mergers. The recently proposed merger of Aetna* into CVS/Caremark is being analyzed as a process to lower the cost of drugs. I see some other, more important long-term advantages. First, as a data-hawk the idea of putting the aggregate data in terms of medicines with health and life insurance statistics could have enormous advantages to the companies and could well provide better healthcare for patients. There is perhaps an even bigger potential advantage to the proposed merger. CVS is used to their customers coming to them. Aetna has to go out to get their insured through direct or agent sales efforts. With the increase in marketing and sales supported technology the dollar levels of future sales could expand materially.

* Shares personally owned 

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Berkshire - Hathaway & Sequoia Fund: As Seen Through Alphabet, Amazon, and Apple

 Introduction

For the week that ended Friday one could focus on short-term price movements or long-term investment thinking. As my week evolved I did both, which produced positive, but disjointed conclusions.

Short-Term Price Actions

On Thursday prices fell supposedly in reaction to political events. As an analyst and portfolio manager trained in the school of contrarianism, I saw the reason for the decline differently. For some time I have been aware and have commented on the price gaps in the performance of the three main individual security price indices; Dow Jones Industrial Average, Standard & Poor's 500, and the NASDAQ composite. In each case the index had two days when  prices through the day were measurably higher than the high price achieved the day before. This price gap phenomenon rarely happens and most of the time a subsequent price action fills the gap before the market resumes its prior trend. In earlier blogs I had warned about this probability. Further, I quoted a knowledgeable market analyst who was expecting a 5% correction.

On Thursday the two price gaps in the two senior indices, DJIA and S&P 500 closed both gaps. By far the strongest index this year, the NASDAQ closed one. I would expect in the fullness of time the remaining price gap will be closed. Historically when the bulk of traders focus on the political issues of the day (in contrast to the financial inputs) their emotions are a bad guide to future investment price performance.

A less followed sign is the Confidence Index published by Barron's each week. The index focuses on the difference in yields between the highest corporate bonds and those of intermediate quality. In the week ending Friday, compared to the prior week, high quality bonds yielded 3.22%, down 17 basis points whereas the intermediate credits yielded 4.27%, down only 13 basis points. This suggests that in the week high quality bonds were considered better value than the higher yielding intermediates. Often this is considered a bearish sign for equities as bond buyers are opting for lower risk securities.

In assessing the value of these two observations it is important to understand that the judgments expressed are based on a feeling for the historical odds and not certainties. As noted in my earlier blog posts there are no pure laws of economics that guaranty the same level of certainty as found in physics. One should assign perhaps a 90% certainty to your favorite economic laws. Most so called "investment laws" would be considered successful if they were correct 70% of the time. Using a technique I learned at the racetrack, I multiply these ratios (0.9 x 0.7 = 0.63). This suggests to me that I would be happy if my analysis was correct 63% of the time. I can improve my dollar return by weighting some decisions compared to others.

General Sun Tzu

Other than the Bible no other text has been used more to teach the military than Sun Tzu's "The Art of War. Considering the importance that we are putting on the rapid progress of China it is very wise for us to remain conversant with China's greatest military scholar. Friday I was refreshed in my knowledge of the general's thoughts when good friends of mine who are life long investment experts on Asian investing gave me a book by Jessica Hagy, The Art of War Visualized: The Sun Tzu Classic in Charts and Graphs.

Since in many ways competitive investing follows the equivalent precepts as successful military warriors, I am going to apply the same principles to investing. There are five particular strategies that the General recommended.

1.  Victory can be achieved through measurement, estimation, calculation  and balancing chances. (In investing it is important to measure accurately what is there and even more important what is not there; e.g., BREXIT and the Republican swing, as well as incomplete financial statements.) These are some of the times when good estimates are critical which makes it essential to know how much reliance to place on calculations of the future. In discussing the short-term data above I showed one possible way to calculate different levels of uncertainties. All of these and other factors need to be weighed in conjunction to determine whether the odds of success are sufficiently high to undertake the risk to achieve victory.)

2.  Always be prepared to attack and always be prepared to defend. (Opportunities will always occur without warning.) A good investor must be able to quickly shift to an aggressive mode and just as quickly shift into defense. Most investors have too little in the way of reserves to dramatically "juice" returns, particularly if they are reluctant to sell or reduce less favorable positions in the new opportunity context. In terms of defense we all need to part with some of our least loved positions regardless of tax implications.

3.  There are dangers to be avoided: recklessness, cowardice, hasty temper, and rich appetites. (Many will find it difficult to react wisely to the opportunities due the dangers listed. As is often the case we can be our own worst enemy. The General called for sound discipline at all times.)

4.  Do not feel safe and be a good generalist full of caution.  (Quite possibly the biggest risk to our wealth is a feeling that we are safe. We are not on the outlook for possible problems, most of which won't materialize, but some or one can be like a hole below our boat's waterline. This can be caused by our bad navigation or an enemy torpedo, Perhaps at least mentally we should practice fire drills as well as abandon ship actions.

5.  An experienced General is never bewildered. Once some level of activity is commenced it is easier to accelerate or decelerate than to start to move from a standing stop. I am a believer, at times, of making partial commitments and at other times full actions. Often the key to an investment decision is not the action itself but how it positions a person or portfolio for subsequent steps.

How Sun Tzu Might Have Viewed the Actions of Berkshire Hathaway and Sequoia Fund Through Alphabet, Amazon and Apple

One is always at risk of misinterpreting or over simplifying by abbreviating some of  The General's thinking. For this exercise I am only going to focus on his first step to victory through calculation and his fourth, balancing chances. Almost all of the named securities (Alphabet, Amazon, and Apple) are owned by me or close relatives. However, the purpose of the ensuing observations are not meant to be taken as any form of recommendation. For those who are interested in converting the observations into actions, I will be happy to discuss my views tied to your specific needs, “off line.”

Berkshire and Sequoia share the same source of inspiration, Warren Buffett. Not surprising over the years they have owned some of the same stocks derived from their own work. The three highlighted stocks were recently discussed in investor meetings. The reason to focus on these three specific stocks is that it revealed their thinking.

Alphabet, the parent company of Google, was well known to both. Mr. Buffett’s view is one that was under its nose as it was extensively used by Berkshire’s subsidiary GEICO. It was just not in its universe, which is strange as GEICO is so advertising-centric (both they and I owned Interpublic one of the largest global advertising complexes recovering from very poor results). As it wasm't looking at Google, it was not in the calculation. This is similar to those who were following the polls prior to the BREXIT and Trump votes in analyzing data, perhaps the most important task is identifying what is not there.

To some degree Sequoia also had a calculation failure. Sequoia quickly grasped the advertising power that the Google search engine produced. However, it needed a "kicker" to be added to its calculation. The kicker was "AI" or artificial intelligence. Sequoia believes that Alphabet is "by far" the leader in AI, which it may be. My problem is that the current level of earnings from AI products or augmented services has not been revealed. In this particular case the lack of numbers on the AI effort was probably a factor in its balancing of chances.

Amazon is another example where the two intrinsic value investors disagreed. Because of Berkshire's operating experience it had some doubts that Jeff Bezos could succeed in the highly competitive distribution business. If he could succeed, it doubted that the same mentality that could build a highly successful distribution business could aptly handle the technologically challenging task of developing a commercial cloud business. I suggest that the financial analysts in Berkshire focused on the financials which showed robust revenue growth and marginal reported profits. Sequoia saw that the financial statement hid the internal process of taking substantial operating profits and reinvesting them into the cloud. Further, Sequoia probably saw that the keys to the success of Amazon's distribution business were based on highly automated warehouses and tightly controlled transportation. However, Sequoia like many of us, were captured by its collective experience. Bill Ruane the founder along with Rick Cunniff often focused on buying stocks "at the right price" and thus they did not buy as much as they should have as the price of Amazon went up.

Apple is another example where these two investment groups came to different conclusions based on their research methodologies. Sequoia in calling on Apple's management, could not get them to speculate what handset sales would be three years in the future, so they passed. Again the words of its founder were a hurdle. Bill said that they understood potato chips not computer chips. Berkshire only recently viewed Apple as a consumer not a technology company. They focused on both the "eco-system " that Apple was growing and the potential use of its technology and related skills in substantially new product categories not yet on the market. Interesting that both Berkshire and Sequoia want to invest in companies that have competitive advantages, which is often translated into unique products or services. Sequoia will sacrifice future growth for competitive advantage. Berkshire under Charlie Munger's prodding is more attracted to growth at a fair price. Apple effectively used the General's formula of balancing chances.

Bottom Line

As with all "school solutions" there is no guaranty of success. While the odds improve with a well thought out plan, nothing beats good execution. Thus, when we pick mutual fund and separate account managers we pay attention to both their investment philosophy and their history of good executions. More often than not good executions are the results of front line troops. That is the lesson that I learned as a US Marine Officer where it was my job to develop a plan of action and inform my senior non-commissioned officers of the plan and the logistics, communication, and heavy arms support, but let them carry out the mission as they saw how to do it. The same principle works at the racetrack. While I did not see the running of the Preakness the two horses that were leading coming into the homestretch had a good plan, but a third horse had a better execution and thus won the race.

As you can see I am always learning and hope to do so all of my intellectual life.

What are the sources of what you have been learning recently?

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A. Michael Lipper, CFA

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Contact author for limited redistribution permission.