Category Archives: Uncategorized

The Politicization of Everything

In last year’s letter to shareholders, Warren Buffett sagely counseled, “If you mix your politics with your investment decisions, you’re making a big mistake.”

We’ve long recognized such wisdom. As markets care little for party politics. Preferring to focus on earnings, productivity, efficiency, and other achievement-oriented metrics that rarely resonate within the political spectrum.

Unfortunately, many have ignored Mr. Buffett. Allowing politics to invade their daily lives.

The Kabuki Theater of American politics, and its interminably caustic media coverage, has become like Norway’s summer sun. Omnipresent.

We get it. President Trump is a blowhard. Lacking couth. Diplomacy. The placid demeanor expected from the Oval Office. The media abhors him. The right is terrified of him. The left detests him. And since the 2016 election, there is not a move this administration has made that has been left unscathed by critics. Continue reading

Triumph of the Optimists

The universe we inhabit is infinite. The unknown expanse of which renders our cozy little nook as a grain of sand floating in an ocean of inestimable scope.

Scientists estimate that 68 percent of the universe is dark energy. 27 percent is dark matter. The rest — everything on earth or at least capable of observation via our instruments — comprises less than five percent of the universe. Which hardly makes it normal.

To some, this great, mysterious space is frightening. To others, an exhilarating invitation. Physicists, tending to camp with the latter, embrace their ignorance by diving into the folds of the universe’s most vexing perplexities. And as most of them will admit, we know nothing. Continue reading

9/11 Reminds Us

Some people say
It’s what we deserve
For sins against g-d
For crimes in the world
I wouldn’t know
I’m just holding the fort
Since that day
They wounded New York
Some people say
They hate us of old
Our women unveiled
Our slaves and our gold
I wouldn’t know
I’m just holding the fort
But answer me this
I won’t take you to court
Did you go crazy
Or did you report
On that day
On that day
They wounded New York

-Leonard Cohen, “On That Day”

. . . . .

For a brief moment, seventeen years ago, the global tapestry was perfectly interwoven in a spirit of loss, love and commitment. Continue reading

The Camel’s in the Tent.

An ancient Arab fable features a Bedouin camel herder who allowed one of his camels to stick its nose into his tent. Gradually, the camel had half its body inside. And before long, the Bedouin herder realized that the entire camel was in the tent. And there was nothing he could do to get the camel to leave.

The “Camel’s Nose” fable became a metaphor for those situations in which the allowance of a small, seemingly innocuous occurrence opens the door for much larger, undesirable events.

Today such occurrences are called “Black Swans.” Popularized in the superb book by Nassim Nicholas Taleb. Referring to circumstances that are extremely improbable from a statistical sense, but that come to fruition nonetheless. Much to the detriment of those involved.
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Global-Macro Review

“If you mix politics with your investment decisions, you’re making a big mistake.”

-Warren Buffett, 2017

. . . . .

Today’s headlines contain more compelling stories than an Appalachian family reunion. Forcing us to sit back and scan the horizon. As we attempt to identify the risks and opportunities extant in today’s global marketplace.

So, grab a coffee, water or cocktail. And join us as we spitball through a multitude of issues and scenarios burdening the psyches of global investors…
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Tails, You Win.

Long-tail events represent those that occur on the tail ends of the statistical bell curve. Representing rare occurrences that exert a more dynamic impact on everyone and everything involved. Be that even good, or bad. These happenings represent the exception. Not the norm. They can be the two investments – out of 100 – that create one’s fortune. Or they can take the form of an unforeseen crisis. Like the Great Recession of 2008.

The following article on long-tail events was written by the ever-astute Morgan Housel. Excepted from his website, Please enjoy.

. . . . . Continue reading

The Genius and the Wolf.

Occasionally, one’s most epiphanic thoughts transpire at four in the morning. As the mind noodles through the day’s detritus. As mine did last night. Having introduced Pulp Fiction to my son. I found myself considering Tarantino’s character, Winston “The Wolf” Wolfe. Played perfectly by Harvey Keitel, Wolf is the classic fixer. Sui generis. Called upon to efficiently navigate any seemingly impossible scenario.

Musing over Keitel’s role, I was reminded that cool resolve and efficiency are often more valuable that intellect. That nerves of eight-inch coiled steel cable – the kind that tethers 300-ton ships to the harbor – can be more beneficial than genius.
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LeBron James: What the Return of the King Can Teach us About Investing

On Father’s Day, June 19th, 2016, I was gifted the impossible. LeBron James and the Cleveland Cavaliers won the NBA title. Beating the highly favored champions of yesteryear, the Golden State Warriors.

Much like this year’s championship duel, the Warriors had the better team. Set NBA records for points. Shooting. Three pointers. They had the league’s MVP — that season’s and the last. They had a talented coach who won multiple championships himself as a player. A well-rounded team with a surplus of stars. Yet, the Warriors didn’t have the one thing that would be singularly responsible for winning an improbable championship: The heart of LeBron James.

The following missive was written prior to that event. In July of 2014. A year in which the Cavaliers finished 33-49. Failing to make the playoffs by a wide margin. Because former Cavalier LeBron James was scoring 27 points per game in Miami. Yet, following that season, immediately before this piece was written, LeBron James announced his return to Cleveland. So completing his journey home. Culminating in that improbable Father’s Day title victory two years later. And the deliverance of a championship to Cleveland. Its first professional championship in 52 years.

Though LeBron James didn’t score the winning basket, he did everything else in his power to propel the Cavaliers to one of the best comebacks in sports history. Claiming an NBA title after trailing 3-1 in the Finals to a Warriors team that finished with the best regular-season record in league history. The Cavaliers became the first team in NBA history to overcome such a deficit in the Finals. 32 teams had previously tried to overcome a 3-1 margin. 32 teams had failed.

LeBron James did it all.

ESPN and the Elias Sports Bureau report that LeBron James led all players on both teams in points, rebounds, assists, steals and blocked shots. Marking the first time a player has led both teams in all those categories in any playoff series of any length.

LeBron James scored 109 points in Games 5, 6 and 7. The most by any player who was on a team that completed a comeback from a 3-1 deficit (non-championship).

In Game 7, LeBron James accrued 27 points, 11 rebounds and 11 assists. The third player to record a triple-double in Game 7 of the NBA Finals. The others? Jerry West in a losing effort for the 1969 Lakers. And James Worthy in the 1988 Lakers’ win.

LeBron James scored or assisted on 50 percent of the Cavaliers’ Finals points, his second-highest mark in a Finals, surpassed only by his 62 percent the previous season when, by the way, he was playing without Kyrie Irving or Kevin Love.

In Game 7, LeBron James scored or assisted on 52 of the Cavaliers 93 points, including 13 of 18 in the fourth quarter. In the series’ first four games, James scored or assisted on 45 percent of the Cavaliers’ points. He was responsible for 57 percent in the last three games. All victories.

In the 2015 NBA Finals, Andre Iguodala won the MVP award, in part due to his defense against LeBron James. Iguodala limited James to 35 percent shooting in the series. In this Finals, James shot 54 percent against Iguodala.

Moreover, LeBron James got it done on the defensive end. He held the Warriors to 36 percent shooting in the NBA Finals Game 7 (21-of-58). The best of any Cavs player. Stephen Curry was 1-of-7 against him. Klay Thompson was 2-of-6.

The Warriors did not make any of their seven shots against James in Game 6.

James blocked seven shots in transition. Including one on Andre Iguodala with 1:50 remaining in the fourth quarter of a tied Game 7 — the season’s signature moment. James was also the primary defender for 14 turnovers, tied for most of any player in the series.

This was James’ third NBA title. James, Michael Jordan, Bill Russell and Kareem Abdul-Jabbar are the only players to win three titles and four MVPs.

Lay low you doubters, detractors, denigrators and naysayers. The King has returned.
. . . . .

“And as I sat there, brooding on the old unknown world, I thought of Gatsby’s wonder when he first picked out the green light at the end of Daisy’s dock. He had come a long way to this blue lawn and his dream must have seemed so close that he could hardly fail to grasp it. He did not know that it was already behind him, somewhere back in that vast obscurity beyond the city, where the dark fields of the republic rolled on under the night.

Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms farther. . . And one fine morning–

So we beat on, boats against the current, borne back ceaselessly into the past.”

-The Great Gatsby, F. Scott Fitzgerald
. . . . .

Whatever heights we may ascend, we remain forever drawn to those from whence we came.

Two weeks ago, as the sports world held its collective breath, Lebron James announced his return to Cleveland.

Four years prior, James severed ties with the Cavs’ inept front office in hopes of sunnier days in South Beach. Four championship appearances and two titles later, the King will return to Northeast Ohio.

Amid the sound and fury surrounding The Decision II, we identified four correlations between the machinations surrounding the NBA’s biggest name, and the dynamics within the U.S. stock market. And so here is what King James might teach us about investing, and life.

Be Proactive Throughout the Highs and Lows
Every endeavor worth pursuing involves highs and lows. Emotionally. Professionally. The means by which one responds to those junctures, be they positive or negative, will ultimately determine an outcome’s success, or lack thereof, each and every time.

After leading the Cavs to four playoff appearances including a trip to the finals in which they lost to the Spurs, Lebron grew tired of Cav’s owner Dan Gilbert. Tired of Gilbert’s lack of vision and inability to provide the complimentary pieces necessary to win a title.

For seven years, Lebron succeeded while carrying a cast of characters more reminiscent of the Washington Generals than an NBA championship team. Gilbert, putting all of the team’s hopes on the shoulders of his star, never delivered so much as a back-up scoring threat. Frustrated, Lebron analyzed the situation, appraised his options, and chose to be proactive in dictating his future circumstances.

James could have played the hometown hero. Always falling just short because of the ineptitude of those around him. But, that wasn’t his style. Even at his emotional nadir, he knew his value. So, he opted to play for a more capable, savvy and experienced management team in Miami. Led by the legendary Pat Riley.

Likewise, investors were collectively depressed and traumatized by the events of 2008. On the advice of their advisors, many had simply held on to portfolios that didn’t stand a chance. Failed to get proactive as financial markets deteriorated. Watched stoically as their nest eggs were eviscerated. Even as advisors admonished them to “stick with the plan.”

Problem was, there was no plan — at least not one to benefit investors. There were, however, empty words and a “buy-and-hope” methodology meant to simplify the lives of the advisors. Help advisors to avoid tough decisions. To avoid the creation of a genuine investment process.

Much like Dan Gilbert’s plan enhanced his financial circumstances without improving the team’s championship odds, advisors had adopted a lackadaisical course that prioritized their needs above those of clients.

Create and Execute a Plan
When Miami Heat general manager Pat Riley first approached James in 2009, he had no intention of obsequiously fawning over the NBA’s best player in order to woo him to South Beach. It was immediately obvious that Riley, a proven champion in his own right, had a plan. One that entailed building a compliment of experienced, talented role players willing to integrate their skills with, and defer their egos to, Lebron’s pursuit of NBA championships.

Impressed, Lebron bought in. He had never played within a strategic framework. His high school team, AAU team, even his seven-year stint with the Cavaliers — had all entailed one simple idea. Feed the ball to Lebron so that he could score and win.

Problem was, when James’ teams came up against talented, disciplined, tactically minded squads, they often employed strategies focused on shutting Lebron down. For they knew that if Lebron was held in check, the compliment of players around him were not capable of winning.

Consider the 2007 NBA championship pitting the Cavaliers against the Western-champion San Antonio Spurs.
Coming into the game, everyone knew that James would be the best player on the court. Accordingly, he would likely lead the Cavs to their first championship. But, Spurs coach Greg Popovich new better.

The Spurs employed a systematic offense that highlighted the talents of their three stars, Tim Duncan, Tony Parker and Manu Ginobili. Further, they employed a crushing defense designed to prevent Lebron from taking over games. It proved effective. The Spurs slowed down Lebron. The other Cavalier players failed to step up. And the Spurs routed the Cavs in four straight games.

In Miami, Riley assured Lebron that he would be able to trust upon his team to win games. That he would no longer be a one-man show. Riley laid out his plan. As well as the strategies and tactics designed to win championships. Lebron loved what his saw. Joined the Heat. Won two championships in four years. Because Pat Riley had a plan.

Similarly, investors must have a plan catering to their personal circumstances and designed to achieve their personal objectives. A plan that they adhere to. In all market environments.

Following the 2000 to 2002 bear market, the Wall Street Brokerages recognized the need to change their business models. They would no longer train brokers to customize each individual relationship to meet the personal needs of each client. Instead, they would retain the appearance of personalized relationships, while training brokers to employ generic, turn-key strategies that fit each and every client.

These mass-production strategies appeared effective as markets rose. Brokers were able to allocate client capital to a set array of mutual funds or money managers which would track the market. Enabling Wall Street’s sales force to frenetically market its wares to potential new clients, attract new assets under management (AUM), while paying scant heed to the attainment of real, personalized life goals of existing clients.

Clients, realizing that personal finance was not a strength, accepted the idea that allocating capital to a handful of investments and hoping for the best was a plan. That was, until the 2008 credit crisis revealed the ugly truth.

Process is Paramount
Throughout 15 years of competitive basketball, Lebron had acclimated to being the offensive and defensive centerpiece for every team on which he played. His coaches, realizing the vastly superior talent he possessed, knew that they would win, so long as Lebron was on the floor. Quite simply, when superhuman talent competes against human ability, little strategy is required.

Skipping college and going directly to the NBA, Lebron was still dominant. His physical strengths and on-court skills were simply that good. Yet, James quickly realized that he could no longer single-handedly determine a game’s outcome in the NBA. The competition was too tough.

Cavalier’s coach Mike Brown attempted to develop an offense that took some of the pressure off Lebron. But, the portfolio of players around him was simply not up to the task. Time and again, Lebron and the Cavs fell short of their championship dreams.

The Miami Heat, however, were coached by Pat Riley protégé Eric Spoelstra, who recognized that the greatest of NBA players had required a system that enabled teams to leverage that greatness, while providing complimentary assistance along the way.

That in mind, Spoelstra developed an offense predicated on explosively attacking the lane. This permitted the team’s sharp shooters to spread the offense out, and stretch defenses thin. Accordingly, James, Dwayne Wade, Chris Bosch, or any of the Heat players could drive to the basket and choose to take the shot or, if the defense collapsed on them, kick the ball out to a compliment of sharp shooters waiting on the wings.

Combined with the league’s most tenacious defense, the Heat had a recipe for success that overwhelmed the average opponent. Permitting them to play in four NBA championships in four years, winning twice, and fulfilling Lebron’s championship ambitions.

Yet, process and methodology are not strictly the fare of professional sports. Every walk of life is enhanced by a proven process capable of minding the details, endeavoring towards the attainment of goals, and mitigating risk whenever possible.

In 2008, as advisors pleaded with clients to “stick with your plan,’ investors increasingly saw that their plans were nothing more than ploys. Plans that worked in good times, not in bad. That enabled the broker to collect an annual fee for doing little more than outsourcing client capital to third-party managers, then discussing the merits of these funds or managers twice per year.

As stocks plummeted, and client portfolios dropped dollar for dollar, investors realized that their brokers had no more an investment process than they did a means of protecting their clients’ downsides.

Suddenly, all the pithy aphorisms long used by brokers sounded like suicide pacts.

“I don’t know where stocks will be in three months, but in three years, if we patiently ride this out and stick to our plan, you will be fine.”

Only, these suicide pacts were one-way agreements, as the brokers were often investing their own capital in ways completely different than the auto-pilot portfolios utilized for clients.

There were no risk mitigation strategies. No alternative investment classes with little to no correlation to the stock market. No means of preserving capital in desperate, panic-driven markets. Just empty words on a phone line that did nothing to preserve the nest eggs cobbled together during the course of a lifetime.

Management guru Dr. W. Edwards Demming often said, “If you can’t describe what you are doing as a process, then you don’t know what you’re doing.”

By January 2009, investors realized that their brokers had little real idea as to what they were doing from an investment standpoint. Unfortunately, the damage was done.

Reversion to the Mean
Following the 2013-14 NBA season, and a soul-crushing loss in the finals to the San Antonio Spurs, Lebron James contemplated change.

Miami had been good to him. He loved playing with close friends Wade and Bosch. The Heat’s leadership, Riley and Spoelstra, possessed excellent basketball minds as well as big hearts. James had fulfilled his championship aspirations.

Yet, James’ family, friends and heart remained in Northeast Ohio. His Miami experience had enabled him to grow. As a player. And a human being. He now realized that the fulfillment of his ultimate ambitions did not involve winning more championships in South Beach. But bringing one to his hometown.

He would return to the place he’d begun. His life. And his career. Even given the difficult circumstances under which he’d departed Cleveland, the wounds had healed. He could go home.

Lebron’s decision to return to Cleveland underscored a central tendency in all established yet complex systems: reversion to the mean.

History. Psychology. Mathematics. Science. Each discipline is littered with examples of this principle. Similarly, the history of asset investment is replete with tales of mean reversion. Asset prices go up. Asset prices go down. Markets serve as a pricing mechanism for the underlying assets therein. All the while, investors are driven by the perpetual cycle of fear, ignorance, hope and greed.

When markets burn white hot, investors jump in head first. Committing capital at the most inopportune times. When markets plummet, and fear permeates every motive, investors avoid assets that can, at last, be purchased for reasonable prices.

Yet, eventually every high and low reverts to the mean. The S&P 500 returns to its traditional price-to-earnings ratio of 15x. Apple’s price-earnings-to-growth ratio normalizes to 2.25. Students of the market understand this. Which enables them to think calmly when markets rise parabolically. To remain sanguine when hysteria reigns. To avoid the poor decisions that doom investors to repeat the same poor decisions over and again. From the days of bartering in the markets aside the Roman Coliseum, to today’s trading pits within The New York Stock Exchange.

Everything eventually returns to its proper historical place. That neighborhood, trend line or birthplace at which one was meant to reside. The place to which prices, valuations or the human heart must return.

Be it a stock price, an index, a political system, or a young boy from Akron Ohio.

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