Dave Portnoy of Barstool Sports Losing Money in Stock Market

[Pete-zza]

Here is another article that appeared today on the 60/40 matter, at a website that caters to advisors:

https://www.advisorperspectives.com/articles/2020/06/29/the-60-40-allocation-is-broken

At the same website, there was also this article about actively managed funds underperforming on a risk adjusted basis:

https://www.advisorperspectives.com/articles/2020/06/29/actively-managed-funds-underperform-on-a-risk-adjusted-basis

And today Vanguard sent me this article directed to advisors (I signed up to have them sent to me such articles even though I am not an advisor) on how large cap stocks performed better than low- and mid-cap stocks on a quality basis during the recent drop in the market:

https://advisors.vanguard.com/insights/article/qualityfactorperformanceduringthedownturnsizemattered?cmpgn=FAS%3AEM%3ANWLTR%3A223114833689

And, finally, Ben Carlson wrote this piece about stocks and bonds and their relative performances over different periods of time, at:

https://awealthofcommonsense.com/2020/06/how-often-do-long-term-bonds-beat-stocks/

Peter

[quietdesperation]

peter,

  Not sure if the author is being purposefully disingenuous but the article on the 60-40 portfolio should have tried to evaluate what would happen in today's market with similar market retreats. I suspect the bond allocation (which the author correctly points out is effectively acting as cash), still provides great downside protection for the portfolio. I don't believe chasing yield in riskier instruments is right for most investors and do believe that approach will eventually lead to disastrous outcomes.  I'm disappointed the author doesn't mention CDs or TIPS and wonder if there's a conflict of interest at play.

best,

edit: I've read various versions of the ben carlson article over the years. I'm surprised he thinks the article provides thought leadership but I suppose he has a varied audience.  Lately, I've started to believe hedging equities with long-term treasuries has been underappreciated by wealth managers. More on this over the coming weeks.

 

[Pete-zza]

peter,

  Not sure if the author is being purposefully disingenuous but the article on the 60-40 portfolio should have tried to evaluate what would happen in today's market with similar market retreats. I suspect the bond allocation (which the author correctly points out is effectively acting as cash), still provides great downside protection for the portfolio. I don't believe chasing yield in riskier instruments is right for most investors and do believe that approach will eventually lead to disastrous outcomes.  I'm disappointed the author doesn't mention CDs or TIPS and wonder if there's a conflict of interest at play.

best,

edit: I've read various versions of the ben carlson article over the years. I'm surprised he thinks the article provides thought leadership but I suppose he has a varied audience.  Lately, I've started to believe hedging equities with long-term treasuries has been underappreciated by wealth managers. More on this over the coming weeks.

QD,

In looking at articles about investing, I think you always have to ask who is saying what and why, and what is the personal interest of the authors. For example, I know that Ben Carlson and Michael Batnick and Barry Ritholtz (of RWM) are not going to tell people to jettison their stocks, or do a lot of other things that would be contrary to running a business that manages money. And they have decided to use the Internet as their chosen method of reaching people on the subject of investing. Apparently that is working because many people who read what they write are now clients of RWM. And the aforementioned guys, and especially Ben, have been recognized as having some of the best blogs on the Internet.

I also am aware of people who are perma-bulls or perma-bears, and I take that into account when I read what they write. There are conflicts of interest all over the place. In my own case, I like to read both sides of stories, and hopefully won't succumb to confirmation bias.

BTW, you are not alone in your advocacy of a combination of stocks and bonds. As an account holder at Vanguard, I read articles and watch webcast all of the time where they speak favorably of bonds as part of a portfolio. And when I look at my account and see my breakdown between stocks and bonds (and "other", whatever that might be), I also see what they think I should have as the breakdowns. And it always shows a lot of bonds.

Peter

[quietdesperation]

peter, clearly carlson et al. saw the value of holding bonds in the past and I understand their concern in this interest rate environment. However, it's concerning when I see articles which suggest:

"For starters, they can look for alternative securities such as commodities, precious metals, preferred stocks, and convertible bonds. Those assets and a host of others are not as liquid, but offer diversification benefits. Equally difficult for most money managers, they can hedge equities with equities. This strategy may include options, short positions, and volatility strategies."

clearly, the author is calling advisors and investors to action but lacks prescriptive advice. This brings the oft-repeated investment chestnut to mind: "When you don't know what to do, do nothing".

I've enjoyed these exchanges Peter, I hope someday we can talk through our respective experience and perspectives over a good bottle of wine and pizza.

as always, wishing you the best,

[Pete-zza]

peter, clearly carlson et al. saw the value of holding bonds in the past and I understand their concern in this interest rate environment. However, it's concerning when I see articles which suggest:

"For starters, they can look for alternative securities such as commodities, precious metals, preferred stocks, and convertible bonds. Those assets and a host of others are not as liquid, but offer diversification benefits. Equally difficult for most money managers, they can hedge equities with equities. This strategy may include options, short positions, and volatility strategies."

clearly, the author is calling advisors and investors to action but lacks prescriptive advice. This brings the oft-repeated investment chestnut to mind: "When you don't know what to do, do nothing".

I've enjoyed these exchanges Peter, I hope someday we can talk through our respective experience and perspectives over a good bottle of wine and pizza.

as always, wishing you the best,

QD,

As I mentioned before, I think everyone is groping for answers and solutions. And once you decide to rule out bonds, what is left? The answer is everything else. That can include stocks, stock mutual funds and ETFs, money market funds and CDs, commodities, options, precious metals, private equity, fine art, annuities, real estate, and who knows what else? But of all of these options, the one that I have found in my reading and listening to be mentioned the most is gold. And this is not only from bears but also from conservative investors. I think the main concern that leads to this choice is not only because of COVID-19, which is bad enough in itself, but also because of the uncertainties surrounding the China situation, inflation, a potential decline in the dollar, and future earnings performance, especially now that companies are going to be gun shy about buying back their own shares to boost their earnings and offset stock options. And I would add high debt levels. US companies are sitting on something like 10 trillion in debt.

At the moment, gold is trading at about $1773. The most common projection that I have seen is around $2500.

I, too, have enjoyed our back and forth discussions on investing. The discussions have also helped me to think through my next steps. Maybe sometime we can end up sharing a bottle of wine. 

Peter

[quietdesperation]

peter,

  article in today's wall st journal on private equity funds in retirement plans:

https://www.wsj.com/articles/the-mixed-case-for-private-equity-in-retirement-plans-11593077401

"The average annual return for an index of U.S. private-equity funds after fees over the decade ended Dec. 31 was 14.35%, versus 13.44% for the Wilshire 5000 Total Market Index, according to Cambridge Associates.

But a new study from an economist at Oxford University says U.S. public pension funds earned average annual returns of 11% after fees in private equity over the past 25 years, about the same return as small- and midcap U.S. stock-market indexes."

I don't know if anyone appreciates my wall st anecdotes but the debate over returns brings to mind a project we did for a large ($1T aum) asset manager. Long before algos became mainstream, the asset manager hired a phd responsible for creating trading algos. This was very rare for a buy-side shop. The fund manager had become concerned about key-man risk and hired us to see if we could move the algo to a mainstream trading platform.

We met with the phd and he claimed the algo returned about 60 basis points to the fund over human traders. Those 60 basis points returned a huge $ component to the asset manager and the phd had become one of the best paid and most powerful employees at the company.

When we started the project, the fund manager added a newly hired math phd to our team to understand and evaluate the monetary performance of the algo. After about two months of analysis, our project had two key findings: the algos could be moved to a 3rd party trading platform and it lost about 20 basis points year over year to human traders. So our recommendation was to drop the algo.

Politically, this was a complete disaster for the fund manager and the creator of the algo. In fact, the use of the algo appeared is some promotional literature for the company and was well-known in the industry. Our report was buried, the math phd fired and we never got near another front-office project at the fund manager. But, about two years later, the aglo phd was quietly pushed out and the algo retired.

Someone at the fund manager must have appreciated our analysis as they increased our presence in middle and back office projects and they eventually became our largest client.

best,

[Pete-zza]

QD,

Thanks for the link to the WSJ article. The article is behind a paywall but I used the title in a Google search and found a website that purloined the article in full.

I am not holding my breath on private equity as a potential part of my portfolio, but I found the correlation of returns from private equity to small and midcap indexes to be quite enlightening. Actually, the last couple of days I have been looking more and more into small equity value. And what surprised me is that the P/E ratios for two Vanguard small cap value funds are around only 12.5-13.5 whereas it is around 22+ for the S&P 500.

I also found your foray into the project that you pursued for the asset manager to be very interesting. Increasingly, I have been reading more and more about how AI (artificial intelligence) and algorithms and robo-advisors are attempting to replace people in the field of investing. I think even some RIAs are getting nervous about being replaced in some areas with algorithms.

To add to the above, today I read an interesting article that you might enjoy as much as I did. It is an article by a fellow named Louis-Vincent Gave. Louis is French but live in China, so he has a good handle on what goes on in China. I regularly read Louis' articles but I enjoyed this one the most. It is at:

https://blog.evergreengavekal.com/towards-more-of-the-same/?pdf=10558

I should add that Evergreen Gavekal has been negative on the market for the past couple of years. In fact, one of the principals (David Hay) at Evergreen, which manages money for high net worth individuals, has been bearish to the point of proclaiming that the market before the Coronovirus attack was a bubble of major proportions. He calls it Bubble 3.0 and has been blogging on his thesis for the past two or three years. He even plans on writing a book on the matter. I personally welcome both sides of the issues, including the negative ones.

I will be looking forward to and reading the second and third articles by Louis, and especially the one that suggests that "investors are acting on the premise that cash may become worthless in the coming years". That piques my interest.

And I will also be interested in seeing what happens to Dave Portnoy and the like as the market progresses (I think that Louis may have been thinking of Dave when he wrote the above article). Recently, Dave has been critiquing frozen pizzas where he lives. I would cite the YouTube where he does his analysis but it is replete with profanities. I am not used to that. I may be an old fuddy-duddy (our younger members may have to look that up  ) but I grew up in a household where I never heard my mother say even "damn". In the old days, Dave's material would have been rated X.

Peter

[quietdesperation]

Peter,

  I've been busy finishing a project, now find myself retired again and have time to think deeply about our investments. A recent WSJ article posited sharply higher tax rates were biden to win the upcoming election. Intuitively this makes sense so we've decided to make IRA/SEP withdrawals to the top of the 24% bracket and rollover into a roth.

  Covering some of the points made in your last post, we found the two top-of-mind issues for traditional asset managers to be uptake of roboadvisors by millenials and withdrawal of assets by the baby boomer generation. We worked on the launch of a robadvisor platform for one of these firms and it was almost comical how hard it was to launch their platform.  Companies like wealthfront developed their platform with new technology and agile development methods while our client had to make changes to aged, brittle sytems which crossed technology and poliitcal boundaries. We had daily calls with over 100 team members to discuss and implement changes accross their platform.  In the end, the launch of the platform was a wake-up call for the asset manager that they needed to make a large capital investment to refresh their platform.

peter, on your point around language, I doubt I've said more than 20 cuss words in my life (including damn). It's just how I was raised, my brothers are the same way but sadly, I don't beleive our kids have followed our example.  I don't much care for portnoy, his shtick, his language but there's no denying his success as an entrepreneur.

best,

[Chicago Bob]

21....

[erickso1]

My family didn't really swear at all.  But......as a product of jobs I've had, fish processor In Alaska, ad inserter in newspaper, auto collections in philly, fixed income am, I've picked up a few things that come quicker to the tongue these days.  I try to filter between the personally targeted words (avoidance) and the more generic colorful words.  Like spices in your food, when properly used they add flavor. Portnoy is likely a product of his community and culture, and while his elders might disagree with his language, I can almost guarantee someone in his family had the same mouth.

[Chicago Bob]

You my kind...

[quietdesperation]

I worked on a wall st trading floor, many of the traders couldn't complete a sentence without cursing. I guess I never saw the point and above all, it was important to hold my emotions in check under stress.

Early in my career I worked for a hardware manufacturer and a trader tossed our workstation through a window and started cursing at me. It was tempting to get angry but I realzed that everyone on the 200 person trading floor was looking to see how I'd react. I calmed him down and had him running on a new workstation in 15 minutes. A week later, the client tried to hire me but I'd come to realize trading floors were toxic on many levels and endeavored to spend as little time as possible on phyisical trading floors over the course of my career.

[erickso1]

I hear you about the desk.  I've heard some war/horror stories.  One involving a head traders hatred of red pens.  One got left on his station on accident.  He destroyed the entire station, monitor and all.  Our desk is a little more subdued, but I'd rank it tied for second behind the fishing boat for just general language use.  Auto collections was a whole different animal with the bulk of the language being directed at me. 

[Pizza_Not_War]

Combine high stress, money & drugs and you get trouble. Cussing is the far far least of the problems. I witnessed way too much crap downtown NYC in a few short years to last a lifetime.

[Pete-zza]

I want to be clear that I am not unmindful of how the spoken and written word has changed over the years. And it does not bother me even though I personally refrain from using words outside of my normal vocabulary. But to show how what was once frowned upon is now de rigueur, I invite the members to do a search of books at Amazon whose titles include the F-word in one form or another. I did that out of curiosity today and got 75 pages of hits. I did not look at all 75 pages, and there were a few hits that did not include the F-word, but the message was clear: It is OK to use the F-word, whatever its form. And it is not limited to the ignorante. I see the F-word used by educated and highly successful people on Wall Street in their blogs and articles all the time, both in written form and as spoken word in podcasts. They are perhaps catering to the Millennials and Gen Zs who have grown up with the current ways of expressing themselves, not the milieu that I grew up with.

I might add that years ago, when I was asked to be a Moderator, I was able to substitute innocent symbols whenever a member used a foul word in a post. I set up the translation and the forum's software did it automatically. So, the F-word might have appeared as #*%* in a post, or something like that. Eventually, the forum's software changed and my protocol on the matter was no longer available to me. 

Peter

[parallei]

Oh dear, foul language! Goodness me. Third generation Army Vet here, and all of us went on to MS's or PHD's and successful academic or professional  carriers.

The most eloquent in his use of foul language was my maternal grandfather who did his undergraduate degree at the University of Texas, Austin. Then taught, and practiced, the fine art of machine gunning in WW1. He went on to get a MS and PHD from Colombia and then was a Professor of Economics at Cal Berkeley until he retired. He did think using "sh#t" lacked imagination, but thought "f..k", in its many variations, was just fine.

[Hanglow]

Scottish here, so I don't really think there is anything foul about language, it's just words and inflection is much more important with regards to your meaning of them 

It is much more difficult for many to convey what we mean through written language of course as there is no vocal inflection, a good example of modern technology helping  with that is the simple emoticon   

[quietdesperation]

I've long thought Isaac Asimov's quote "violence is the last refuge of the incompetent" could be fashioned into the statement "Foul language is the last refuge of the unimaginative".

[texmex]

"Foul language is the last refuge of the unimaginative".

Expletives and coarse language are among the most imaginative of all dialogue.  Every society across the world has a creative way to scorn others. Cockney rhyming insults and of course, other slang are rich with imagination.

[Pizza_Not_War]

Figure I need to add this to the discussion, a local restaurant http://www.phokinggood.net