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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
February 2, 2010- Vol
4, Issue 5
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Advisor Perspectives was featured prominently in an article in yesterday's Wall Street Journal: With Fund Managers, Past Is No
Predictor for Future.
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The U.S. government has botched its handling of the economy over
the last eight years, according to Nobel Prize-winning economist Joseph Stiglitz. He explained how the U.S. created the global recession - and
how we can get out of it - in a public presentation on his new book, Freefall: America, Free Markets, and the Sinking
of the World Economy.
Keith Goddard expands on ideas
developed by Joe Tomlinson in a series of recent articles on the topic
of the Shiller P/E Ratio as a predictor
of future returns in the stock market. Specifically, this
article looks at the distribution of three-year returns in the stock market
following different starting points for the Shiller P/E ratio to illustrate
that the historical distribution of
rolling three-year returns in the stock market is not random.
Dan
Richards was asked whether he
has any insights as to some great questions or strategies to get HNW prospects' attention and ultimately recruit
them as clients. He provides the answer.
The Institute
for Private Investors serves families
with over $50 million in assets. Their data show wealthy investors have increased their use of
tactical asset allocation and are positioning their portfolios
to defend against liquidity, concentration and inflation risk.
Martjin Cremers is an
associate professor of finance at the Yale School of Management. He
and his Yale colleague Antti Petajisto have conducted research that focuses
on "active share" in mutual
fund management. In this interview, Cremers discusses the
implications of his research.
Chuck Akre is the Managing
Member and Chief Executive Officer of Akre Capital Management, which he
founded in 1989. He has a track record of above-average performance over the last 20-plus
years managing mutual funds, separately managed accounts and partnerships,
and he discusses the strategy he employs in his new Akre Focus Fund.
We have two articles from investment manager and author Vitaliy Katsenelson. First, he
says Warren Buffett overpaid in Berkshire's acquisition of Burlington Northern. In the second article, he says that, despite his
free market bias, the "too big to fail" banks will benefit from
tighter regulation.
Tom Brakke writes about the
lessons in the demise of Tiger Woods
for those seeking "star" investment managers. Relying on
funds run by a single individual can be perilous.
In a letter to the Editor, a
reader responds to a commentary recently posted on our site.
Lastly, we highlight submissions to Advisor
Market Commentaries.
We welcome guest submissions from our
readers. For more information, here are our guidelines.
If you are experiencing problems
opening or navigating through our newsletters, we can send you a text-only
version. Please send an email to feedback@advisorperspectives.com requesting the "text-only" version.
If you have received this newsletter
in error, or you do not wish to receive future newsletters, please reply to this email with the word
"unsubscribe" in the subject line.
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Stiglitz: U.S. Economy Will Falter without More Stimulus
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The Obama stimulus package was too small and poorly designed, Stiglitz
said. For example, implementing a tax cut as part of the 2009 stimulus
program was a mistake.
Stiglitz: U.S. Economy Will Falter
without More Stimulus
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Return Distributions and the Shiller P/E Ratio
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The
evidence from the real-world history of asset markets suggests that market
returns are not totally random. Sometimes "Mr. Market"
removes a few red marbles from the jar, and sometimes he removes
blacks. Simple indicators like the Shiller P/E Ratio can reveal which
marbles have been removed at any given time. It is our job as
investors to pay attention and adjust our wagers accordingly.
Return Distributions and the Shiller
P/E Ratio
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A Question that Motivates HNW Prospects
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Asking thoughtful, subtly provocative questions such the one Dan Richards
recommends - not to panic or alarm prospective clients but to get them
thinking - can be helpful in advancing your cause when talking to HNW
prospects.
A Question that Motivates HNW
Prospects
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Change - The Only Constant
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As many wealthy investors have adapted and formed fresh perspectives on
risk, advisor relationships, and investing in general, an enduring lesson
has emerged: change is the only constant.
Change - The Only Constant
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Martjin Cremers on Active Management
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"The message is very simple: You want to avoid closet index
funds. It doesn't mean that all closet funds do worse than their
benchmark. It is just that if you look at all of them over a long period of
time, they underperform by 100 to 200 basis points per year.
Martjin Cremers on Active Management
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Chuck Akre on the Akre Focus Fund
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"For
many years we have been looking at business where the return on the owners'
capital [equity] was north of 20%. For the last several years we have
looked at businesses in the upper teens and higher. We are still
looking for those businesses, and we are still finding those businesses
where we think that expectation is likely to unfold."
Chuck Akre on the Akre Focus Fund
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Who will Pay for the Burlington Acquisition?
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"Though I agree with Buffett's assessment of the Kraft-Cadbury deal, I
fear that investors and media are completely ignoring Berkshire's own,
$30-billion-plus acquisition of a very cyclical, capital-intensive, not
terrifically high-return-on-capital business - Burlington Northern."
Who will Pay for the Burlington
Acquisition?
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More Government in the Financial Sector to Save Capitalism
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"A greater government involvement in the financial sector is not
something I thought I'd ever ask for, but it has turned into a necessity in
order to preserve, not destroy, capitalism."
More Government in the Financial
Sector to Save Capitalism
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Even the unthinkable happens now and again. Inching away from a
perceived winner rather than being increasingly attracted to the light of
success is prudent risk management. But it's very hard to do.
Stuck in One Dimension
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A reader responds to a commentary recently posted on our site.
Letter to the Editor
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Highlights from Advisor Market Commentaries
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Bill Gross reviews two recent analyses (the Reinhart/Rogoff book and the
McKinsey study) of the plight of economies faced with large fiscal
deficits. He says that these support PIMCO's view of the New
Normal. Based on those analyses, he recommends an investment strategy
(1) tilted toward Asian/developed economies; (2) utilizing "less
risky" fixed-income securities in those countries; and (3) not
dependent on the assumption that interest rates are heading up. He is
bullish on Canadian and German bonds and bearish on UK bonds.
"The Ring of Fire" by Bill
Gross of PIMCO
Grantham's commentary begins with his reflections on the proposed financial
reform, the "Volcker Plan," and the recent Supreme Court ruling
on corporate campaign contributions. He continues with a forecast for
the economy ("seven lean years") and the markets. "So
all investors should brace for the chance that speculation will continue
for longer than would have seemed remotely possible six months ago,"
he says. He cautions, "Equity markets almost always peak when
rates are low, so moving in desperation away from low rates into
substantially overpriced equities always ends badly." He
concludes with a summary of the past decade and a reflection on
"lessons learned."
"Stop the Presses!" by
Jeremy Grantham of GMO
Howard Marks says "the rally in financial markets worldwide has
outpaced the fundamentals," and he does not believe we are "in
the midst of a strong recovery." He expects the economy to
"sputter along." He expects widespread losses for real
estate investors, particularly in the commercial markets, and goes on to
highlight troubles in municipal finance. He is not worried about
inflation, but thinks interest rates are more likely to go up than
down. He offers a number of investment strategies consistent with his
interest rate and macro outlook.
"Tell Me I'm Wrong" by
Howard Marks of Oaktree Capital
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