avoid the stampede

Hit ’em Where They Ain’t

© Can Stock Photo / dehooks

Investors can learn a lot from Willie Keeler, one of the smallest major league baseball players in history. Wee Willie stood 5’4” and weighed 140 pounds.

Playing from 1892 to 1910, Willie was a prolific hitter, with a batting average of .345 over that long career. He explained his success with words that have become part of baseball lore:

“Keep your eye on the ball, and hit ‘em where they ain’t.”

We believe it makes sense to strive to understand investment opportunities, researching companies, trends, and economic developments to try to gain an edge. This is what it means to “keep your eye on the ball.”

As contrarians, we seek to avoid stampedes. If the crowd is there, we probably want to be somewhere else. As Warren Buffett once said, “be greedy when others are fearful, and fearful when others are greedy.” Isn’t this the investment version of “hit ‘em where they ain’t?”

It would be interesting to know whether Wee Willie Keeler did any investing. Did his investing philosophy match his baseball hitting philosophy?

We cannot know the answer to that. But we do know, our investing philosophy matches up very well. “Keep your eye on the ball, and hit ‘em where they ain’t.”
Clients, if you would like to talk about his or anything else, please email us or call.


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 investing involves risk including loss of principal. No strategy assures success or protects against loss.

Expensive Lessons Threaten Teacher Retirements

© Can Stock Photo / nameinfame

An amazing tale of mistakes and worse in the Omaha Public School (OPS) pension fund has been uncovered by the Omaha World-Herald. According to the paper, the fund went from being one of the best-performing funds in the nation to one of the worst.

The most surprising thing? The same issues you and we face in managing our own investments caused a lot of the grief.

• The fund sold stocks heavily at the bottom of the financial crisis, in 2008 and 2009, dramatically reducing its holdings at the wrong time.

• Decision makers sought ways to achieve above average returns without market volatility—almost always a tale too good to be true.

• The risks of alternative investments were poorly understood, not surprisingly. Mumbai real estate, international shipping, Kazakhstan oil companies and distressed housing in Florida? (At least they didn’t buy swampland, as far as we know.)

• When stocks rebounded, the fund missed out—while suffering with poor results from its new strategies.

We endlessly encourage staying the course, hanging in there, living with volatility, avoiding the stampedes, seeking the bargains… in fact, aiming to do the exact opposite of what the OPS fund managers did. It is not easy to do the right thing, but you, the best clients in the world, have shown perseverance and patience when needed.

It is unfortunate that the people responsible for management of the fund lacked the basic good sense that you possess. Clients, if you would like to talk about this or anything else, please email us or call.


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.

All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

 

Buy Low, Sell High

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If you watch a lot of sports journalism, sooner or later you will see someone deliver some variation on this nugget of wisdom: “If we want to win, we just have to score more points than the other team.”

In investing terms, the equivalent is “If we want to make money, we just have to buy low and sell high.” This is just math: if you sell something at a higher price than what you paid for it, you make a profit.

The “sell high” part is usually easy for most people to grasp. Sometimes someone in a hot rally may get wrapped up in watching their gains go up and up and forget to cash out before things inevitably come crashing back down. But generally taking profits is fun and comes naturally to people.

It is the “buy low” part of the equation that people tend to struggle with more. Something in the news for being popular and making money is probably not trading at a low price. Buying low often means a metaphorical dumpster dive to find the unwanted dregs of the market. It is often not pleasant or easy to put your money in something that has a reputation as an unattractive investment. But if you want to buy low, that is where you frequently need to go.

The upshot is that this makes it a lot easier to get excited about a down market. It feels good to participate in a rising market, but it can be difficult to find spots to buy in when markets are up. For a value investor, market selloffs may lead to buying opportunities.

Clients, many of you already know what we are talking about. We are in business with you for a reason—we think you are the best clients in the world. We know it is not always easy to make disciplined investing decisions. But we think you have what it takes.

If you have questions about this or any other topic, please call or email us.


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 investing involves risk including loss of principal. No strategy assures success or protects against loss.

Simply Effective: Avoiding Stampedes

© Can Stock Photo / dgphotography

“Avoiding stampedes” may be the simplest and most straightforward of our three fundamental principles of investing. Let’s talk about what it means.

In our view, a stampede in the markets has two features: large volumes of money changing hands, and irrational pricing. Information, evidence and indications about money flows are readily available. The assessment of pricing is necessarily more subjective.

At the time, many believe that prices make sense—or they would not be where they are. Technology and internet stocks in early 2000, homes in 2007, and commodities in 2011 all fit that pattern. At the peak, some true believers thought there was significant room for further increases. Only with the benefit of hindsight is it obvious that things were out of whack.

These examples are all about stampedes into a sector. Money also stampedes out of things at times, as we know. Stocks during the last financial crisis and high yield energy bonds near the bottom in oil prices in early 2016 are prime examples.

You may recognize a pattern. The habit of avoiding stampedes is a contrarian approach to investing—going against the crowd. If everybody else is doing it, we probably don’t want to.

In fact, if everybody else is doing one thing, we may seek to do the opposite.
Behavioral economics lends support to our practice, in our opinion. Much work in that field purports to show that most people do the wrong thing at the wrong time, thereby hurting their returns. Doing better than average would seem to require doing the opposite of what most people do.

(Of course, no method or system or theory is guaranteed to work, or even to perform the same in the future as it has in the past. And putting a theory into practice may be difficult to do.)

In practice, being a contrarian can be lonely. The crowd at the diner is unlikely to endorse doing what nobody else seems to be doing. We don’t care—we are striving to make investment returns, not please the crowd.

Clients, if you would like to talk about this or anything else, please email us or call.


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.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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.

Steering the Herd

© Can Stock Photo / carla720

One of our core investment principles is to “avoid the stampede.” If you read this site regularly you have heard us say this over and over again, but we think it bears repeating.

As part of our work we talk to many product representatives who want a slice of our business. There are countless product providers out there competing for our attention, and your money. There are limited amounts of both to go around, so inevitably most of the wholesalers that talk to us are going to be disappointed. However, we still like talking to them as they do us a vital service: they tell us which way the stampede is going.

We are contrarians by nature. When we hear someone tell us that a lot of people are buying something, our instinct is not to line up alongside them. When a lot of people tell us that a lot of people are buying the same thing—our instinct is to run far, far away.

Lately, what we are hearing from the product wholesalers is that everyone is piling into exotic alternative investments. Everyone is looking for exciting new products that are not correlated to stock market returns, and boy, are the product providers ever ready to sell it to them.

We live in uncertain times, and it is understandable to be spooked at some of the troubling headlines we see. We understand the desire to seek safety. But, we believe that safety is not to be found from following the herd. Omaha is famous for its stockyards and slaughterhouses; we know that when the cattle are all getting steered together, it rarely ends well for the cattle.

We know there are always uncertainties with the economy and the markets. But the sales pitches we hear for everything non-correlated to stocks makes us feel a lot more secure in our traditional equity investment philosophy. There may come a time when the herd starts stampeding back towards equities and it will be time for us to look elsewhere. For now, though, our equity focus puts us in lonely company when it comes to wholesalers—and that is just how we like it.

If you want to talk about any market trends or sales pitches you may have noticed, please feel free to call or email us.


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