Month: June 2016

Meet the “Junior Staff”

Do you know about our junior staff? These four appear in our real-time new media venues. They are tasked with producing a weekly comment, posted on Mondays. They also make other appearances from time to time.

portrait_grumpymcfussface

Grumpy McFussface was the first to join the team. He is definitely a ‘glass-half-empty’ type, serving as Junior Analyst. We value his input, a way to keep in touch with negative sentiment in the marketplace. We usually do the opposite of what he suggests, but please do not tell him. He might throw a tantrum.

portrait_brainyMcbaby

Then Brainy McBaby joined the team as Research Intern. He’s wiser than his years, a thoughtful one. He has an uncanny ability to take the long view, even though he isn’t quite two years old. A true prodigy.

portrait_happymctoddler

Happy McToddler is a good counterweight to Grumpy. She is almost always positive. Happy is our Trader Trainee, helping us implement our strategies. Of the whole junior staff, Happy does the most to help us keep your portfolios in shape. She loves to talk investment tactics and strategy.

portrait_youngwarren

We may have the only shop in the world with an investment philosopher on staff. Young Warren adds a lot, usually by posing questions of fundamental importance. He makes you think.

You can look in on the junior staff and see their work in any of three venues. You do not need to register or anything to see all of our daily comments, notes, links to articles, and other real time features if you go here: http://twitter.com/MarkLeibman. Of course, if you are a Twitter user, please click the ‘follow’ button.

Facebook users can ‘like’ our Facebook page to connect: http://facebook.com/LFnews. It is a two-step thing: click the link AND ‘Like’ the page. This won’t put your stuff out there to our other clients, it just shows you what we are talking about.

LinkedIn is another alternative. Click and connect, if you are registered: http://linkedin.com/in/lfnews.

For now, the junior staff appears only in these ‘real time’ media outlets. Hope you follow them.Twitter

The Beauty of Simplicity

© Can Stock Photo Inc. / renatas76

The high priests of investing preach in a strange language, filled with jargon and confusing acronyms. But some of the people who have actually made the most money investing speak in plain language. Nearly anyone can understand Warren Buffett and Charlie Munger, for instance.

In a recent Wall Street Journal interview, Munger said “There isn’t one novel thought in all of how Berkshire is run. It’s all about… exploiting unrecognized simplicities.” This elegant idea may be at the heart of the difference between effective investors and those who try to play one in real life, the high priests.

Simple ideas have been central to things that have been good for us. Before we cite examples with which you may be familiar, it is only fair to note that there is a yawning gap between “simple” and “easy.” What we do—what you put up with—is not easy.

Historically, the stock market has tended to gradually rise over time. Simple. But what would they talk about all day on CNBC if they didn’t act like the next sneeze or burp from the Federal Reserve (or whatever) would either doom us or make us rich?

Buy low, sell high. Simple. Many if not most investors end up doing the opposite, following trends, jumping on bandwagons, joining stampedes. We know how doing the opposite works out, buying at high prices and selling at low prices. Not pretty.

Own the orchard for the fruit crop. Simple. Yet only rarely does one hear this wisdom from the high priests. They talk about volatility as if it were risk, when the truth is, if the fruit crop is big enough for you to live on, you do not have to worry what your neighbor would pay for the orchard, or if his offer is higher or lower than the day before.

We’ve always believed that what we do is simple. Sure, there are a lot of fine points and nuances. We invest a lot of time and resources to find and learn the pertinent information. But in the end, we ought to be able to explain it to you. This is our goal. If we have missed, or you would like help interpreting something else you do not yet understand, call or write.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.

The Risk You Don’t See

© Can Stock Photo Inc. / larryhw

United States Treasury Bonds have long been considered among the safest investments in the world. But bonds with extended maturities, twenty or thirty years, have a lot of risk. This risk seems invisible and under-appreciated in today’s environment.

How would you like a twenty year long term Treasury bond paying 7%? Would that be good for you? People thought so in 1977. But by 1982 when interest rates had risen to almost 15%1, those bonds were only worth fifty cents on the dollar. Worse yet, inflation ramped up and damaged the purchasing power of interest earnings. When rates rise, the value of existing bonds goes down.

Since the financial crisis of 2007-2009, hundreds of billions of dollars have gone into bonds—a record tidal wave of money. One might guess this represents a flight to safety amid the uncertainties of the world. Some people got hurt in real estate, some were hurt by selling stocks after a crash, and they just want to keep their money safe.

Behavioral economics has shown that we humans tend to believe that current conditions and current trends will continue into the future. So if we pose the question, “What will a 2% bond be worth in a 5% world?,” most people can’t even conceive of the possibility of 5% interest rates. While everybody seems to understand that the stock market goes up and down, few seem to remember that the bond market also goes up and down.

As inflation begins to pick up, investors may be leery of owning 2% bonds that are going backward in purchasing power. If the sellers come out, bond values may decline while interest rates go up. The more selling, the greater the losses, which produces even more selling.

We are not predicting this will happen. But we do know a similar situation happened in the past. Fortunately, we are working on ways to preserve capital without facing the large risk from rising interest rates. If you would like to know more, please call or email us.

1Data from St. Louis Federal Reserve


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Main Street Capitalism

© Can Stock Photo Inc. / MShake

Imagine what a world we would have, if the surest path to prosperity required each of us to be of service to the rest of us. But looking around, we may not even have to imagine it. I’m pretty sure Main Street already works on precisely that principle.

Jeff the grocer can only build sustainable increases in wealth and income by helping more people feed their families. He could try to raise prices or skimp on service or pass off inferior goods, but his trade would soon dry up and he would go broke. Customers would simply shop elsewhere. So instead he works to stock the foods that people want, at fair prices, as part of a pleasant shopping experience.

Likewise, Bob the car dealer can only prosper by helping more people get where they want to go, to and from work and shopping and entertainment and on vacation. He certainly could make more money in a short amount of time by tricking customers into bad deals, but most people can only be fooled once. The trickery would doom his business.

Kevin in the auto parts store is legendary for his ability to put the right parts and tools in the hands of his customers, so they can fix their troubles. He helps people take care of their vehicles and keep them on the road.

Leibman Financial Services is not immune. Competitors abound. We have to work hard to deliver more value per dollar of cost than anyone else can, to help people pursue their financial goals.

You see the pattern, right? We prosper by helping one another. If we aren’t of use to our customers, we don’t keep the customers. When we do it right, everybody benefits. Everyone is better off. When we don’t do it right, the discipline of the marketplace is harsh and swift. All the other businesses on Main Street, and the professionals offering medical and dental and pharmacy services, are in exactly the same circumstances. We prosper by helping one another.

This is the moral basis of capitalism.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

A Lesson From An Old Friend

© www.canstockphoto.com / 06photo

Surveys indicate that many Americans dislike their jobs. If you are among them, I hope you are not irritated by the enthusiasm I have for my work.

“Job” is the key distinction, however. One individual who had a formative influence on my life did not have a job—he had an enterprise. Dean Sack founded the York State Bank in the World War II years, among many other endeavors, and ran it to the age of 92. If you have ever wondered how I arrived at the goal of working to age 92, this is it. I met Dean when he was 76, eleven years after he retired—a retirement that only lasted six weeks!

Ironically, much of our work is devoted to helping people fund and find fulfilling retirement lifestyles. Most do not have control over their working conditions to the degree that I enjoy. So retirement is a worthwhile and laudable goal for most, if not for me.

When the Depression hit in 1929, Dean was an adult, at work. He fascinated me, a student of history—and face it, not many want to hear an old man’s stories. So we grew close. Among the qualities that Dean showed: a hunger for new ideas, and to learn; consistency and honesty and integrity, no pretense and no bull; a tight focus on the things he could control. He and others of his generation did much to build their communities and the world.

I was fortunate to observe so much wisdom at an early stage in my career. Thirty years ago, nobody talked about ‘work-life balance,’ but Dean was the model for an integrated life: being the same person at work and play, with friends and customers, day and night.

We stand on the shoulders of those who have gone before, as they say. Vast wisdom resides in those generations. The lessons we may learn cost nothing, but can be valuable beyond price. Here’s to our mentors and teachers and wise elders!

Human Nature Creates Investment Opportunity

© Can Stock Photo Inc. / soupstock

Economists like to believe that human beings act rationally. Those of us that know otherwise follow the theory of Behavioral Economics instead.

One of the key findings of Behavioral Economics is that the pain of a loss is twice as great as the pleasure of a corresponding gain. Rationally speaking, $5 is $5, whether it is gained or lost. But we still feel the sting of the loss as a bigger deal than the pleasure arising from the gain. This is human nature in its raw, untrained state.

Confounding this finding is an extremely pertinent point, one that is ignored by the academics and the finance types who trade off their work. They treat a temporary decline as a loss. There is no shortage of expensive products designed to pander to this tendency by selling the promise of stability at a premium.

In the real world, many successful investors treat a temporary decline as either an opportunity, or a matter of no long term consequence. For most of us it takes education and training to overcome our behavioral tendency to feel the pain of a loss over short-term volatility. We’re here to help you with that.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Smell of Money

© Can Stock Photo Inc. / LakeviewImages

The modern world developed from a society of subsistence farmers. The metaphors of nature, crops and orchards and seasons and livestock, have deeply rooted appeal. They remind us of a simpler time. But the metaphor in this story is personal history, not a fairy tale.

As a child I was privileged to visit the Omaha Stockyards from time to time in the company of a friend and his father, a “commission agent” who bought and sold cattle for farmer clients. Mr. G was a master of his work and he loved it. The stockyards were the largest in the world. The vast collection of pens and chutes and loading facilities were a temporary home each day to thousands of cattle, in transit from one place to another.

One might say the stockyards presented a rich tapestry for the senses. The fragrance of thousands of cattle in close quarters is one of those things that cannot adequately be described with pen and ink, or electrons.

Upon my introduction to this sensation, I first heard the words thought by some to be only a cliché. But they came from Mr. G, smiling broadly, breathing deeply, with a twinkle in his eye: “Smell that, son? That’s the smell of money!” For Mr. G and his colleagues and companions, the hundreds of workers at the yards and the customers they served, it was true. And there is value in this old tale to investors today.

As contrarian investors, we are mindful that the sentiment of the crowd is a contrary indicator. High levels of optimism may be associated with market drops ahead. Rotten sentiment sometimes points to future gains. When everyone expects the same thing, that expectation usually does not come to pass.

These days, the country seems to be in the grip of pessimism and foreboding. Sentiment about the future in general and the prospects for the markets in particular is poor by many measures. It stinks.

This too shall pass, sooner or later, and the mood of the country will improve. But for now, in the spirit of Mr. G we smile broadly, breathe deeply, and say “Smell that rotten sentiment? That’s the smell of money!”


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Too Much Money?

© Can Stock Photo Inc. / Milovidov

There is a certain recurring refrain that is heard from portions of the political spectrum: greedy corporate executives make too much money!

To some extent, we sympathize. As shareholders, we have an ownership stake in the companies we invest in. Their executives are our employees, and their paycheck comes out of money that belongs to shareholders. So it should come as no surprise that we have no tolerance for executives lining their pockets at the expense of the company.

Perspective is important, however. It’s easy to be outraged when you hear eight-figure salaries being thrown around. To pick a name out of a hat, according to the company’s SEC filings General Motors CEO Mary Barra took home $28.5 million in compensation last year. To many of us, that seems absolutely insane… but she heads a company that took in $152 billion in sales that year (S&P data). Doing a little math, she got paid a comparatively modest 0.018% of GM’s revenue.

There’s some debate over just how important an executive’s contributions really are. It strikes us as a reasonable proposition that the exertions of a skilled CEO could conceivably improve company revenue, and we suspect even the biggest corporate skeptic may grudgingly concede that a capable top executive could be worth two hundredths of a percent of company performance. In this case GM’s shareholders are hardly getting robbed.

It is true, as corporate detractors often point out, that the size of executive compensation packages has ballooned over the past 30 years. On the other hand, so has the size of the corporations those executives oversee. It sounds alarming to see CEOs getting paid $10 million where they used to only get paid $1 million—but we forget that, due to mergers and acquisitions, those $10 million CEOs may literally be doing the jobs of ten of those $1 million CEOs of yesteryear.

Simple folk like us will never spend $28.5 million in our whole lives, let alone in a single year. We have no idea what on earth you spend an eight figure paycheck on—the mind frankly boggles. At the same time, the sheer scope of the billions of dollars that a talented top executive may be responsible for is equally boggling.

We have a vested interest in making sure that the companies we invest in pay their people fairly. What’s “fair” for someone who manages a company worth tens or hundreds of billions of dollars may look absurd at a glance, but that doesn’t tell the whole story. We believe in researching the story ourselves to make sure we can be confident in the leadership of companies we seek to invest in.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.