Morgan Creek Capital’s Yusko on investing

“Alternative Thinking About Investments” was the topic addressed by Mark Yusko, CEO and chief investment officer, Morgan Creek Capital Management, when he spoke at the annual conference of the Financial Planning Association of Massachusetts on May 7. Yusko’s wide-ranging talk was provocative and entertaining, with some great one-liners that became tweets that I quote below.


Alternatives deserve more attention

Yusko thinks investors should put more into alternative strategies. A small allocation simply cannot have a big enough impact.

This is a lesson that target date fund (TDF) managers should consider, suggested Ryan Alfred, co-founder and president of BrightScope, in response to my tweet. As he explained,

Going back to Yusko, he also suggested that your clients should have at least one-third of their assets in illiquid investments because such investments “win” after recessions. He’s assuming that your clients have plenty of money that they plan to pass on to others in their wills. Yusko didn’t specify which illiquid assets he was talking about.


Provocative 
Yusko isn’t fond of mainstream media. “Cancel your subscriptions to The Wall Street Journal and The New York Times. It’s all wrong, it’s all biased.” He used the example of the war between Russia and Georgia to make his case, mentioning that Morgan Creek pays someone to read Russian newspapers for them. 

Yusko also spoke in favor of high fees. He seemed to suggest that fees rise along with the investment manager’s ability to deliver performance.

Humorous Yusko 
In closing, here is some Yusko humor.


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Copyright 2010 by Susan B. Weiner All rights reserved

Roger Ibbotson attacks asset allocation "folklore"

“The time has come for folklore to be replaced with reality” says Roger Ibbotson in “The Importance of Asset Allocation” in CFA Institute’s Financial Analysts Journal (March/April).

Folklore means “the idea that asset allocation policy explains more than 90 percent of performance,” which is a misinterpretation of the classic 1986 article, “Determinants of Portfolio Performance” by Gary Brinson, Randolph Hood, and Gilbert Beebower, says Ibbotson. 

“Asset allocation is very important, but nowhere near the 90 percent of the variation in return is caused by the specific asset allocation mix,” writes Ibbotson. Rather, active management plays a role equal to that of asset allocation, as shown by “The Equal Importance of Asset Allocation and Active Management,” an article co-authored by Ibbotson with James Xiong, Thomas Idzorek, and Peng Chen in the same issue of the Financial Analysts Journal.

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Copyright 2010 by Susan B. Weiner All rights reserved

Marketing via U.S. mail still pays

“Don’t give up on mail,” wrote marketing consultant Libby Dubick in “Four marketing resolutions for 2010.” I agree that investment and wealth management firms should continue to use the U.S. mail.

Letters and brochures ranked high when Dubick conducted an informal survey of how senior marketing executives would like to be introduced to a wealth manager. They came in second only to personal referrals.

If you write a sales letter, remember these tips

  • Emphasize your prospect’s WIIFM–What’s In It For Me–rather than talking about your firm
  • Keep it short–People have short attention spans.
  • Don’t send it and forget it–Follow up with the individual.

Related posts

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in September. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter. Copyright 2010 by Susan B. Weiner All rights reserved

Treasurys vs. Treasuries — Which is the right spelling?

What’s the right way to spell the plural of Treasury, as in U.S. Treasury bond?

Should it be “Treasurys,” following the rule that the members of the Murphy family become Murphys? Or should it follow the normal rules of creating plurals for words that end in the letter y?

I panicked when I saw “Treasurys” in The Wall Street Journal. Eek! Have I been spelling the word wrong for 20-odd years?

However, I quickly discovered that opinions are split. When I Googled the terms, there were 2.2 million results for Treasuries vs. only 1.5 million for Treasurys. 

The evidence for Treasuries
Here’s the rule that would typically apply. “…if a word ends in a -y that isn’t preceded by a vowel, the plural is formed by omitting the -y and substituting -ies…,” according to Garner’s Modern American Usage. Garner makes an exception for proper names ending in y. He agrees that Murphy becomes Murphys.

Does Treasury qualify as a proper name? Proper names are usually personal names–such as Murphy–or geographic names–such as Washington, D.C. Following this reasoning, Treasuries makes sense.

My friend, financial editor Harriett Magee, found that sources including the Barron’s Dictionary of Finance and Investment Terms agreed with Treasuries. Plus, her spell-checker flagged Treasurys as a mistake. 

If you prefer Treasurys…
You’ve got some high-powered company if you stick with Treasurys. When The Wall Street Journal spells it that way, that legitimizes it in my eyes.

If you can’t bear not knowing what’s 100% correct, then use the workaround that Harriett Magee suggests. Refer to Treasury bonds, Treasury notes, and so on. It’s bit wordy, but correct. 

Follow this advice, no matter what you decide
It’s important to use your words consistently in your corporate communications. Pick one spelling and stick with it. 

Consider creating a corporate style guide that lists preferred spellings. It’s a lot easier to have an authoritative source for your company than to try to keep the rules in your head.

My thanks go to David Glen, senior vice president at Boston Private Bank, for raising this question.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net.

Watch out for inflation, says veteran value manager Jean-Marie Eveillard

Value investing was the focus of the presentation by Jean-Marie Eveillard, senior adviser and board trustee to the First Eagle Funds and senior vice president of First Eagle Investment Management, LLC, to the Boston Security Analysts Society (BSAS) on April 13. Eveillard also opined on the world economic outlook.

Three economic scenarios
Eveillard thinks there are three potential directions for the U.S. from here.
1. A typical post-WWII expansion— In this scenario, the authorities lever up the system again, so we get a three- to five-year expansion, Eveillard said. This would mean that we are still in a post-World War II environment. Eveillard is concerned about the short-term, even speculative orientation of investors in an environment in which equity mutual funds average 100% annual turnover.
2. Japanese-style stagflation–As the private sector continues to deleverage, the U.S. might fall into stagflation similar to that experienced in Japan for the past 20 years. This would happen if lenders don’t want to lend and borrowers don’t want to borrow, despite the government’s efforts to combat their resistance. Eveillard considers this unlikely because, unlike the Japanese, Americans are not resigned to economic stagnation. We’ll act.
3. Negative, unintended consequences including inflation–Eveillard is concerned about the unprecedented scale of the U.S. government’s intervention. This includes a gigantic budget deficit, zero interest rates, and the ballooning of the federal balance sheet.

The third scenario is most likely, said Eveillard, who spoke about the lessons of the Austrian school of economists. The main lesson: If you’re stupid enough to get into a really bad credit boom, you’ll have a bad credit bust. However, the Austrians also say not to do a short-term patch after a bust because you’ll compromise the medium-term and long-term recovery. This seems to be one of the roots of Eveillard’s fear of the third scenario.

But Eveillard’s inflation fears haven’t made him give up on stocks. People make the mistake of thinking that inflation is all bad for stocks, he said. He believes in owning the stocks of companies that are able to raise prices as their costs rise. For example, that’s something that newspapers were able to do back in the 1970s.

Eveillard did not comment on specific stocks that he favors now. “If I knew what my five best ideas were, that’s all I would own,” he quipped.

Benjamin Graham and The Intelligent Investor
Eveillard spent most of his time with the BSAS talking about the history of value investing. For him, the two big names are Benjamin Graham, author of The Intelligent Investor, and well-known investor Warren Buffett.

Graham’s emphasis on the role of humility, caution, and order in investing make sense to Eveillard. He illustrated Graham’s approach to investing as finding a business with an intrinsic value of $50 per share, buying it at $30-$35 per share, and starting to sell it at $40. This is what Warren Buffett called the cigar butt–one puff and it’s over, said Eveillard.

Although Eveillard conceded that Graham’s approach to investing is static and balance sheet-oriented, it still offers opportunities. There are “Ben Graham-type stocks” in Japan, especially among small caps, he said. Because “net cash is greater than market cash…you get the business for less than nothing,” he said.

Warren Buffett added qualitative to quantitative
Benjamin Graham was “all about numbers.” Even today,  value investors all start with companies’ publicly available financial information, and then move on only if they’re satisfied with the public numbers, said Eveillard.

Warren Buffett added qualitative analysis on top of Graham’s quantitative analysis, said Eveillard. For example, Buffett likes companies that have a “moat,” a sustainable competitive advantage.


Comparing Graham and Buffett, Eveillard said that the Graham approach is much less time-consuming, though potentially less rewarding, than the Buffett approach. The First Eagle Funds started out in Graham style, then switched to Buffett’s style after adding the analysts that enabled them to do the necessary research, said Eveillard.


The case for value investing
Eveillard gave two reasons for pursuing value investing. First, it makes sense. Second, it works over time. He doesn’t buy the argument that value investing works only in the U.S. In fact, First Eagle has never opened offices overseas because it doesn’t want to be influenced by how the locals think. Still, he noted, “There are few genuine value investors in the U.S., but even fewer outside the U.S.”


Why so few value investors? For starters, it’s hard work. “Sell-side research is seldom useful” because of its six- to 12-month time horizon, said Eveillard. When your time horizon is five years, it makes a big difference in how you look at a business. That’s why First Eagle’s 11 analysts are “the true heart of our operation,” he said.


The psychological hurdle to value investing is even higher than the research hurdle. It’s not easy sticking with value investing’s long-term time horizon. That’s especially true when it means your investment performance may lag its benchmark in the short-term. First Eagle lost seven out of 10 investors during the period when its performance lagged from Fall 1997 to Spring 2000, said Eveillard.

To be a value investor, “there has to be a willingness on the part of the investor to take the short-term pain.” In addition, you have to be willing to move away from the herd when it’s nearing the cliff, said Eveillard, citing Warren Buffett. Value investing takes a temperament that many lack.

If you’d like to learn more about Eveillard’s views, he’s scheduled to appear on Bloomberg TV on Wed., April 14 April 14 at 5 p.m. EST, according to the First Eagle Funds website.

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors starts April 22. Sign up to receive my free monthly newsletter.Copyright 2010 by Susan B. Weiner All rights reserved

Harry Markopolos on "next Ponzi scheme"

“Where do you think the next big Ponzi scheme will occur?” That’s what I asked Harry Markopolos, author of No One Would Listen, during the Q&A following his March 30 talk to Boston Security Analysts Society (BSAS).

Markopolos isn’t too worried about seeing another big Ponzi scheme soon. He gave two reasons.

  1. Markets are down. That’s what triggered the redemptions that brought down Madoff and others.
  2. The SEC is now making Ponzi schemes a high priority.

However, most Ponzi schemers don’t register with the SEC, said Markopolos. That helps them to stay hidden from the SEC. Markopolos said the SEC typically finds out about Ponzi schemes through tips. The many poor-quality tips submitted to the SEC make it hard to sort out the good from the bad. 

If you’d like to learn more about Markopolos’ perspective, check out his book. Many BSAS members lined up after the talk to have him sign their books. He’s a hometown favorite and past president of the BSAS.

Related post
* Tweets on talk by Harry Markopolos, Madoff whistleblower


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Copyright 2010 by Susan B. Weiner All rights reserved

Tweets on talk by Harry Markopolos, Madoff whistleblower

Here are my tweets on today’s talk to the Boston Security Analysts Society by Harry Markopolos, the Madoff whistleblower and author of No One Would Listen.

  • “This case was a global tragedy” said Markopolos. “It was beyond evil.”
  • Madoff case is only in its 2nd innings, said Markopolos. There’ll be more arrests due to cooperating witnesses.
  • CFA# Code of Ethics is important to Markopolos. “It’s about investors and doing the right thing,” he said.
  • CPAs, is this true? CPA code of conduct lacks affirmative duty to report fraud.
  • Lesson #1 for Madoff victims: 0-25% is proper allocation to hedge funds, said Markopolos
  • Lesson #2 for Madoff victims: Never put all of your eggs in one basket, said Markopolos
  • Markopolos book is a good road map for conducting due diligence, said Sam Jones of the CFA Institute’s board of governors.

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in April. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Technical analysis of stocks can boost the power of your fundamental research

You can use technical analysis in combination with your firm’s fundamental equity analysis to help decide when to buy or sell stocks. This is the message I took away from “Applying Technical Analysis to a Fundamental Investment Strategy,” a March 23 presentation to the Boston Security Analysts Society by David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. 

Technical analysis is not voodoo science, throwing darts at a board, or even a prediction of the future, said Keller. Rather, it’s a way to analyze supply and demand using patterns, he said.

Fundamental research and technical analysis tackle different parts of the decision to trade a stock. Here’s how Keller described them.

  1. Fundamental research analyzes the company for the what and why of buy and sell decisions.
  2. Technical analysis analyzes the stock, looking purely at market activity for when and how to buy or sell

These two approaches overlap, in the opinion of Keller and the Fidelity portfolio managers who use his team’s research. Technical research helps to identify the best time to execute a fundamental strategy, he said. You can think of technical analysis as a trigger, he said.  

When the results of technical analysis diverge from those of fundamental research, portfolio managers should pay attention, according to Keller. He referred to point and figure charts as “a gut check on how I look at individual stocks.”

Relative strength indicators are among the most important technical indicators, Keller said. They can be warning signs, he added.

Keller’s message was warmly received by members of the audience, most of whom raised their hands when asked if they regularly consulted technical indicators. 

Related post
* Fidelity’s head of technical research addresses “Where will the stock market go from here?”
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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in April. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Question re: client portals–is there a way to capture your emails to clients?

It’s tough to separate investment communications from technology, especially given the strict retention guidelines of the SEC and FINRA. That’s why my ears pricked when an investment manager said that client portals can’t retain emails sent through them. I took that as a challenge.

I discovered that at least one client portal, FamilyOfficeNetwork (FON), satisfies this retention need. 

“FamilyOfficeNetwork does retain messages sent within our portal and they meet the SEC’s retention requirements. We can also have any notification email sent from our system BCC to any email address a firm desires,” wrote FON’s Aaron Pickett in response to my inquiry.

Bill Winterberg, I must thank you again for helping me find an answer to a technology question.

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in April. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Fidelity’s head of technical research addresses "Where will the stock market go from here?"

Will the bull market continue? 

Investment professionals are always curious. So naturally the question came up during a Q&A session with David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. The question followed Keller’s March 23 presentation to the Boston Security Analysts Society on “Applying Technical Analysis to a Fundamental Investment Strategy.”

The bottom line: It appears that the market is in an uptrend and the offensive sectors will outperform their defensive peers. 

However, Keller framed his comments cautiously, saying that there is little evidence that the stock market is not in a sustained uptrend. Nor does he see evidence that the market is overbought.

“I can’t say,” replied Keller, when asked to identify his favorite sector. He’s looking at groups that are traditionally considering offensive. “But it’s not as clear cut as in the past,” he said.

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The next session of “How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors” will start in April. For more information, sign up to receive “Information on upcoming classes, workshops, and other events” as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved