Quarterly Commentary

January 2016
A couple of years ago, with the 2008 crash fresh in our short-term memory, I recall a sense of astonishment when I read that the typical stock investor continued to expect double-digit returns from stocks. In the past year, I have been encouraged by signs that investors are finally beginning to understand that such results are not sustainable or realistic.
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October 2015
I have written before about the single most important question in investing. If I am allowed to ask just one question of an investor, it is this: When do you want the money back? If we can answer that question, many other pieces of the puzzle will fall neatly into place.
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July 2015
We are unrepentant skeptics. If you want to get our attention, make a claim about a factual matter without providing any proof or data to back up your claim. Even worse, provide bad or incomplete data. The practice of skepticism has a long and shining history, starting with the Greek philosophers and running through such modern luminaries as Albert Einstein and Neil deGrasse Tyson. Read More »

January 2015
The overwhelming investment themes in 2014 were the twin stock-market stimuli of collapsing oil prices and continued Fed accommodation. After peaking in June, oil prices have fallen by half — with most of that coming in the fourth quarter alone. Read More »

October 2014
We’re not investing anymore…we’re just guessing what the Fed is going to do. Some years back, we made the observation that there is a difference between investing and speculating. Investing is the process of allocating your money to some productive purpose or enterprise, with the inherent expectation that the enterprise produces cash flows and returns those cash flows to you. Read More »

July 2014
Since about a year ago, the Federal Reserve has consistently made clear its intent to slow its purchase of bonds. Most commentary speculates that this will lead directly to rising interest rates. A more careful examination leads us to think…not necessarily. Read More »

January 2014
In a normal year, good returns can be had from numerous asset classes. A diversified portfolio having, say, 6 asset classes will tend to see at least 4-5 of those provide strong returns. In most years, all 6 would do well. In 2013, only one of the core asset classes delivered after-tax returns above low single digits. That asset class was: Stocks from the developed countries. If we break the core asset classes down into a dozen sub-groups, only two delivered decent returns: US stocks and foreign developed stocks. High-yield bonds did OK, at 5.9%. Most asset classes were money-losers, or nearly so, in 2013. Read More »

October 2013

As summer moves to fall and as events in Washington move from comic to absurd to tragic, we contemplate the state of the markets. As devoted value investors, we turn first to the fundamentals. What are the earnings on stocks, and will those earnings grow faster than the rate of inflation over time? Is the price the market has set for a dollar of those earnings in line with our long-term investment expectations? What is the interest rate on bonds, and will that rate properly compensate us for inflation over time? Read More »

July 2013

As the stock rally rolled forward in the first half of the year, market bulls made the case that, no, the stock market was not built upon the shaky foundation of support by the Federal Reserve’s bond-buying program. No, stocks were going up at a double-digit annual rate completely independent of Fed action. With earnings growing at 2-3% per year, stocks were going up at three times that rate of growth. Yes, that makes no sense. But it’s different this time. Read More »

January 2013

If you were reading the paper or watching the news a couple of weeks ago, you might be under the impression that congress and the White House reached an agreement on the “fiscal cliff.” And you would be right, in a sense. They did, in fact, reach a deal to forestall automatic tax increases and automatic spending cuts. Read More »

October 2012
Scientists and engineers in the business of sifting through streams of data struggle with picking out the useful bits of information from the torrent of not-useful information. Is that a planet orbiting a star out there, or is the atmosphere above my telescope turbulent? Read More »

July 2012

The system by which money is created and gets into the economy is perhaps the single greatest financial mystery to most of us. Ask a person, “Where does money come from?” and they most commonly answer, “From the government…Read More »

April 2012

We wrote a few years ago that there were a series of bubbles rolling through the global economy. Bubbles are driven by, among other things, easy access to credit. It is very hard to imagine a genuine bubble that does not involve easy credit…Read More »

January 2012

Among the first lessons taught in an introductory economics class is the notion that most economic changes have outcomes that simultaneously pull in separate directions…Read More »

October 2011

As we go to press with this quarter’s commentary, all eyes are on Europe. Over the past few months, the US stock market has seemed to rise and fall based on the daily news trajectory from across the pond. We say, “seemed,” because, well, it seems that way…Read More »

July 2011

When it comes to our investment strategies, we have to accept the world as it is. We can’t structure our portfolios so that they profit if and only if politicians make the right choices. They rarely do so, and we have to take that into account…Read More »

April 2011

Since early 2008, when the financial crisis moved into full tilt, we have been largely occupied with rapidly changing market conditions. We sold risk assets, then bought some of them back. We sold foreign bonds, then bought them back. We bought muni bonds, sold them, and bought them back again…Read More »

January 2011

When I think about the term “recovery,” I can’t help making an instinctive connection to athletic training and endurance sports. Having dabbled in long-distance cycling and running, I think of “recovery” in physical terms…Read More »

October 2010

The restaurant chain that opened in 1958 started an arms race with its casual-dining competitors in the mid-1980s to offer ever more food at evercheaper prices…Read More »

July 2010

We started floating the term “Austerity” around here at the office late in 2009. At first, we kept it to ourselves since it’s not the kind of thing proud Americans would ever think applies to themselves…Read More »

May 2010

The stock market volatility this week seems to us to reflect a contagious recognition that the debt crisis that began in 2007 is not yet over. As we have known for some time, the credit expansion bubble of the last 25 years did not come to a sudden stop with the collapse of mortgages and Lehman Brothers…Read More »

April 2010

The first quarter was relatively uneventful. Domestic stocks slid downwards for a while and then recovered near the end of the quarter to produce a solid gain of about 6%. Foreign stocks did less well as the Euro zone suffered some pressure due to its continuing efforts to bail out Greece…Read More »

January 2010

Whenever the conventional and familiar term for some thing begins to carry a supposedly negative connotation, it is convenient for someone to proffer a new and, shall we say, more digestible term. In 1966 the familiar term “conquer” was recast as “pacification” …Read More »

October 2009

What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse…Read More »

July 2009

The second quarter saw a continuation of the late March recovery of the equity indexes. Equities had reached irrational lows in early March, and have recovered back to fair value…Read More »

April 2009

The first quarter saw the continued deterioration of the broad economy, and the stock market followed suit. Stocks were, at one point, down 25% from year-end 2008…Read More »

January 2009

Much of the mathematical underpinnings supporting classical economic theory derive from a longabandoned effort in physics using roughly the same approach: Create a set of equations and solve for conditions of “equilibrium.”…Read More »

July 2008

The second quarter of 2008 saw continuing declines in stocks and other long-dated assets. While foreign stocks had helped offset declines in our domestic holdings in the past year, they did not help much in Q2 2008…Read More »

April 2008
The headline story from the first quarter was an across-the-board decline in stocks of every category. Large-cap domestic stocks declined by 9.5%; small-cap domestic declined by 9.2%; and the broad international stock index declined 8.5%…Read More »