One of the more infuriating issues surrounding the credit crisis of 2008 is compensation. Decades ago investment banks were run as partnerships and were not publicly traded. This meant that capital
for deals, investments, private equity, trading, etc. was partner capital. They had skin in the game. Such is not the case today. …
I came across an interesting article in The New York Times (by Jeff Sommer) a while back regarding mutual fund investor returns and balanced allocations. The key difference is that a recent DALBAR
study shows that investors in mutual funds actually underperform the stock indexes due to sub-optimal, emotional decision making. …
One of my biggest concerns is what will happen when (not if) inflation arrives to our investment portfolios. At first blush, bonds would be at the top of the list of securities that would get hurt
during a high inflation/rising interest rate environment. However, based on modern portfolio theory, bonds play a critical role in portfolio construction and they are an even larger asset class than
stocks. …
I promise this will be my last entry on the topic of valuations (for today). The quantity of entries on this topic is an expression of how important it is to determine appropriate valuation levels in
our asset allocation work. While I have stated how it is difficult to use forward looking estimates due to lack of accuracy (even by the best in the business), we continue to look at trailing
earnings with today’s note. …
On the heels of my comments yesterday on potential fundamental valuation constraints I wanted to add another wrinkle (or two) to the discussion. …