Cullen Roche: Pragmatic Capitalism

I usually hate historical comparisons but every once in a while a time comes along where there are just too many similarities to ignore.  And right now looks a lot like one of those times.  The 1998 Asian Currency Crisis is looking all too familiar here.  We had a bunch of countries with pegged currencies who were experiencing trade imbalances, foreign denominated debt crises, ultimately leading to economic slowdown, foreign currency turmoil, commodity turmoil and economic turmoil. 2015 is a...

I was on the Disciplined Investor podcast over the weekend with Andrew Horowitz discussing China’s “black box” of finance and some of the ways in which investors can stress test their portfolios. We move into the area of robo-advising and how that may be hazardous to your health over the long-term.  We also touched on the craziness in the markets, Modern Portfolio Theory and my concept of the “Savings Portfolio”. I come on around the 13 minute mark. I hope you enjoy it. Got a comment or...

Over the course of the last seven years many market pundits have relied on Tobin’s Q to argue that the stock market is overvalued and I’ve argued that the indicator is misleading (see here for a sampling of the many predictions made with this metric).  And then today I noticed this piece on MarketWatch arguing that the stock market could fall 70% because Tobin’s Q says the market is overvalued.  That’s very scary so let’s explore this some more. First, what is Tobin’s Q?  Tobin’s Q was a...

The hardest part is not paying close attention. I know. You want to read everything. We have access to so much information. Real-time stock quotes and real-time news and it’s all jammed in our faces 24/7.  But as I noted previously, all of this information isn’t making us better investors. It’s making us worse. Because it’s feeding off of every emotion we have.  And when you let your emotions drive your investment strategy it always derails. Are you still reading?  I told you to stop before...

Yesterday’s post on hedge funds got me thinking again about how vague “risk factors” are.  CAPM uses a one factor model showing that risk explained why certain assets performed better than others.¹ Basically, take more risk and you’ll generate a better return. That didn’t exactly explain things though. In fact, higher risk often correlates with worse returns.² Over the course of the last 25 years the idea of “factor investing” has really boomed.  And investment companies loved this because...

This was a weird research piece arguing that hedge funds are “passive”.  Here’s the basic conclusion from the paper: “Over the long run many hedge funds behave like alternative beta portfolios and maintain linear exposures to systematic risk factors.” The very smart Matt Levine notes that the researchers are being very specific here when they define active and passive management: “Active management should be manifest through nonlinear exposure to the systematic risk factors that drive...

Here are some things I think I am thinking about. 1)  Should We Get Awards Just for Participating?  James Harrison made headlines this past weekend when he said his kids would be returning their “participation trophies”.  I have to say that I don’t understand this trend in giving people an award just for showing up. Maybe I am too old school or something, but athletics, to me, is inherently competitive.  Just like academic work prepares one for the mental competition of school, athletics...

There is still a lot of chatter about the potential for a September rate hike by the Fed. I have to be honest – I think this is nuts at this point. Here are some general thoughts: We are still muddling along following the financial crisis. Yes, the crisis is in the rear view mirror, but the effects still linger. Housing, for instance, is still historically weak despite some of the progress we’ve seen in recent data.  Here’s private fixed residential investment as a percentage of GDP.  Does...

This Bloomberg piece about hedge funds created quite a stir today. The basic gist of the article was – hedge fund performance is bad and they charge high fees which makes them really bad.  It’s easy to jump on this bandwagon, make a bunch of oversimplifications and come to the populist conclusion that hedge funds are just a “compensation scheme masquerading as an asset class”.  The reality is much more complex though and the whole idea of “hedge funds” has become a rather nebulous concept....

Click here to check out the show notes, resources, and links mentioned in this episode: http://www.chrisdunn.com/009 Most financial pundits on TV have ulterior motives... They're either selling gold, or have a strong political bias about the markets. Fortunately, Cullen Roche is one of the "good guys". He's offering a pragmatic way for the average person to understand the truth about money, the Fed, and investing. Cullen started his own private investment partnership at the...