I’m in the process of writing another book, going into great depth regarding one of the most important things discussed in my book The Most Important Thing: cycles, their causes, and what to do about them. It will be out next year, but this memo will give you a preview regarding one of the most important cyclical phenomena.
In a recent article, Larry Swedroe argued that long-term investors should avoid all levered ETFs. He based this conclusion on a 10-year ETF return sample. It turns out that this is an unrepresentative sample for making such a sweeping statement. Other studies, based on longer time periods, come to the opposite conclusion.
Forty years of behavioral science research provides a more realistic framework for viewing investors and markets than does MPT.
My firm, AthenaInvest, has conducted extensive research on the use of behavioral factors to estimate expected returns and, in turn, to make market-rotation and beta-exposure investment decisions. The following article outlines our behavioral approach and compares the results to a passive benchmark.
In my 2016 year-end review, which went only to clients, I included a discussion of the use of subscription lines by closed-end funds in areas such as private equity, real estate, distressed debt and private credit. It’s my impression that their use has become fairly pervasive in recent years, and in response to clients’ requests and market trends, Oaktree has utilized subscription lines in some of its newer funds.
After lagging the market for years, US financial stocks surged after Donald Trump’s surprising win in the US presidential election. Investors can still profit from investing in banks; in our view, many of the best opportunities now lie in the micro-cap banks the rally left behind.
The opinions of experts concerning the future are accorded great weight . . . but they’re still just opinions. Experts may be right more often than the rest of us, but they’re unlikely to be right all the time, or anything close to it. This year’s election season gave us plenty of opportunities to see expert opinion in action. I’ll start this memo by reflecting on them.
While people search the market’s behavior for logic, there really doesn’t have to be any. In “On the Couch,” I mentioned that sometimes the market interprets everything positively, and sometimes it interprets everything negatively. The market often fails to act rationally in the short run, primarily because of the role played by people in determining its course. Thus two key observations can be made based on last week’s developments.
I’m starting this memo a week before Election Day. I promise to try to stay away from the merits of the candidates and the question of who will win, and instead confine myself to the important messages that we should take away from the election and the actions we should push for as a result. The outcome of tomorrow’s election won’t change these things as far as I’m concerned.