Weekend Reads: No Alternatives and Things That Really Matter

There must be some alternative.

Jesse Felder took to Twitter on Wednesday to enumerate various “only games in town.” In no particular order, they are:

• Equities
• US corporate bonds
• US Treasuries
• Equity income strategies
• Central bankers with extraordinary powers

It would seem, at least from first examination, that supposedly choice-starved investors are more like New York City sports fans than victims of a famine. As a lifelong Yankees fan, I had fun watching the Mets lose this weekend. And though from a certain cynical point of view you could say it wasn’t much of a game, it would be hard to argue that it wasn’t one at all.

The investment industry is full of persuasive, highly analytical people. They want you to see it their way. If it’s Treasury bonds they like, Treasury bonds are it. If it’s consumer stocks, then you’ll hear about it.

The trick is to realize that when someone tells you that there is no other way to play, they are revealing more about themselves than they are about the market. I’m a Yankees fan because I’m from New York City, and my hometown team won the World Series when I was eight, 10, 11, and 12 years old. Every kid should have that experience. It never goes away.

The markets have favorites in just the same way, but it bears mentioning that a lot of wealth has been created over the past 20 years or so, in a lot of different ways. Have you looked at a monthly chart of the long bond recently? It takes a lot of discipline to find an alternative to that, especially if you’ve been riding the wave the whole way.

So do me a favor . . .

Let’s stop talking about which asset class is preternaturally disposed to turn in phenomenal returns because of some analytical angle you or others came up with. Let’s just discard the question. To get one last breath out of my sports analogy, let’s remember that there are sports played all around the world.

I quoted Miguel Fidalgo of Triarii Capital earlier this week saying, “We’re invested in Greece. It’s not the top of the business cycle there.” That laconic optimism has a place in your portfolio. “Are US Stocks Overvalued?” I’m not sure. “Are Low Rates Responsible for High Valuations?” Urban says the answer is no, but let’s zoom somewhere else for a minute.

Things That Really Matter

• A shocking claim: 68% of raw materials are produced with slave labor. A big deal if it’s only 10% true. (The Catalyst)
• The Chinese government is reported to have hacked the US Federal Deposit Insurance Corporation (FDIC), and the FDIC allegedly covered it up. (Reuters)
• South Sudan is sliding back into chaos. More than 270 died early this week in a battle involving helicopter gunships. The country appears to be heading back to war. Considering the brutality and suddenness of the fighting, it’s hard to believe this isn’t front-page news. (DW.com, Los Angeles Times)
• Profound changes appear to be in the offing for Japan. An abdicating emperor and the likelihood of substantive discussions about amending its constitution. (Nikkei Asian Review, The Diplomat)
• The United Kingdom’s new prime minister is a surveillance hawk, and once the country leaves the European Union (EU), it will write its own, possibly stricter surveillance regulations. (Independent)
• Can the positive thinking that has found currency on social media be actively harmful? (The Baffler)

The Active vs. Passive Debate

• Our CEO Paul Smith, CFA, waded into the discussion this week with a provocative post. (Institutional Investor)
• Longtime readers of Enterprising Investor are likely familiar with the excellent work my colleague, Jason Voss, CFA, has done in his Alpha Wounds series, each entry of which details various reasons why active managers underperform. (Enterprising Investor)
• It’s worth wondering whether the issue matters for individual investors. Mark Armbruster, CFA, believes true alpha does not exist for them. (Enterprising Investor)
• What would happen if everyone was a passive investor except Warren Buffett? Druce Vertes, CFA, capably explains. (Enterprising Investor)
• Career risk may be the key factor that keeps professional investors from flourishing, yet most investors never calculate it, says Rebecca Fender, CFA. (Enterprising Investor)

Other Great EI Reads

• Why you should never ever use forward P/E ratios. Ever. (Enterprising Investor)
• Low interest rates create an existential problem for banks. (Enterprising Investor)
• An inside look at the evolution of environmental, social, and governance (ESG) investing. (Enterprising Investor)
• What some national and corporate leaders had to say about the effects of Brexit. (Enterprising Investor)
• Here’s a look at the Microsoft-LinkedIn deal from Matthew Borin. (Enterprising Investor)

Fun Stuff

• Remember Dumb Starbucks? “Pokemon Go” has its own version now: Dumb Parodymon. (BuzzFeed, A.V. Club)
• It’s also attracting South Korean gamers to a town 37 miles from the North Korean border because of South Korean security regulations limiting location data. (Huffington Post)
• “61 Glimpses of the Future,” inspired by a trek through Kyrgyzstan, Tajikistan, and China’s western provinces. (Medium)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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