Cullen Roche: Pragmatic Capitalism

Share the post "The Macro-ization of the Investment Landscape" I was intrigued by this recent comment in a JP Morgan piece of research concerning the biggest trends in finance:  The macro-ization of the investment landscape (‘macro” investors have always existed but just as the tech boom and bust created a permanent pool of money that to this day focuses on that industry beyond what its market cap and earnings contribution would justify, the same has happened to “macro” events.  The...

Share the post "Three Lessons From The Junk Bond Collapse" The junk bond collapse of the last few months has reminded us of some important lessons going forward.  Here are three that I find most pertinent: 1)  Most investors have no reason to own junk bonds.  As I discussed the other day, junk bonds are basically a crappy version of equity and don’t compare favorably to holding an aggregate bond index.  I said: Since 1985 high yield bonds have generated an average annual return of 8.1%...

Share the post "Assessing the Utility of Wall Street’s Annual Forecasts" It’s that time of year when everyone starts preparing for the New Year and Wall Street makes its 2016 predictions.  I’ll get right to the point here – these annual predictions are largely useless.  But it’s still helpful to put these predictions in perspective because it highlights a good deal of behavioral bias and some of the mistakes investors make when analyzing their portfolios. The 2016 annual stock market...

Share the post "Revisiting the Destabilizing Force of Misguided Market Intervention" I’ve spent an excessive amount of time in the last 7 years talking about the various market distortions that QE can cause (I even dedicated a paper to the commodity bubble in 2011).  I would argue that the two primary places where these distortions occurred were in the commodity markets and the corporate bond market (though probably less directly attributable in the commodity market). The thinking relative...

Share the post "Three Things I Think I Think" Here are some things I think I am thinking about. 1 . Wall Street’s Biggest Lie.   Jason Zweig had a piece earlier this week that I highly recommend.  There are a number of good nuggets in there.  He also refers to “The big lie on Wall Street” being the promise that advisors or portfolio managers can conjure the returns needed to meet your financial goals.  This is a version of promising higher returns than most managers or advisors are...

Share the post "The Dangers of Being Focused" We love guru worship in the field of finance.  We’ll find someone who sounds smart, says all the right things, makes a few good calls and cling to their every word.  Until they fall on their face.  Then we find another guru to worship until the process repeats itself.  There is a revolving door of “gurus” in this field. The problem with a lot of these “gurus” is that they’re focused.  They’re specialists in specific parts of the financial...

Share the post "Everyone Wants to Hit the Long Ball" If you ever go to a golf driving range count the number of people hitting their driver relative to the number of people hitting their pitching wedge. You’ll notice that the vast majority of amateur golfers focus excessively on how far they can hit a golf ball. This makes no sense though.  If you’re like most amateurs you probably have trouble breaking 100.  And that means you’re going to pull your driver out of your bag fewer than...

Share the post "The Relative Thinking Trap" Humans have an easier time understanding the world by thinking about things in relative terms.  These comparisons help us better compartmentalize our thoughts and benchmark our performance.  Relative thinking creates order in a seemingly orderless world.  But it can be both productive and highly unproductive since, in addition to thinking in relative terms, we also tend to overestimate how good we are at certain things. The better than average...

Share the post "Three Charts I Think I’m Thinking About" Here are three charts I think I am thinking about: 1.  Prospects for the 60/40 portfolio don’t look so good.  This is something I’ve talked about in the past, but I have to wonder – given the surging popularity of the 60/40 – are we witnessing one big example of performance chasing?  Given the low interest rate environment and strong recent stock performance (leading to high-ish valuations by many metrics) the 60/40 has entered one...

Share the post "ETFs Don’t Kill Investors, Investors Kill Investors" There was a good piece in the WSJ today discussing potential “flaws” in Exchange Traded Funds (ETFs).  ETFs are a relatively new product that have amassed huge quantities of assets in the last few decades but are still dwarfed by the mutual fund space (roughly 2.1 trillion in assets vs 12.6 trillion in mutual funds).  The SEC recently said “It may be time to re-examine the entire ETF ecosystem.”  That sounds a bit...