Observations: 'You Can See A Lot Just By Observing' Yogi Berra - Weekly Blog # 679
Summary
- The art of investing is based on observing elements that others do not see or interpret.
- You can't cope well with problems/benefits or assets/liabilities you can't measure.
- Regardless of whether you maintain a single portfolio or multiple portfolios, you need a framework to decide whether you are accomplishing your goals, moving in the right direction or need a mid-course correction.
Investors Should Learn by Observing Others
The art of investing is based on observing elements that others do not see or interpret. One example is a comment from a young person about investing. She asked, isn't the most distressing investment Bitcoin? I saw this as a learning moment and replied that the most distressing investment is cash.
Except at the very beginning of an individual's investment career, cash should never be the predominate asset in their portfolio. However, cash whether people know it or not, sits at the very center of the concentric circles that make up an investor's portfolio. Even when one buys or sells an investment, it momentarily passes through a cash phase.
A more important point however is that when an investor contemplates their entire portfolio, they do so in terms of its cash value. Furthermore, the level of cash serves as a rough guide for the current confidence in the remaining holdings, which should include perceived liabilities.
Most investors prefer to combine their investments into a single documented portfolio. This minimizes the time and emotion of comparing current assets with future needs and desires. Just as I don't have only a single hammer in my tool kit, I also don't believe in a single investment view or portfolio.
Managing and Measuring
You can't cope well with problems/benefits or assets/liabilities you can't measure. Every element of our lives cannot and should not be measured to the fifth decimal place. Initially, the most important decisions are binary, good or bad. Only later can you attempt to analyze how good is good or how bad is bad. Some portion of concerns may revert to using cash as an imperfect measuring tool.
At this point in the development of my thinking I find it useful to divide tasks into segments, assigning problems/benefits and asset/liabilities to separate portfolios, usually based on when cash will be needed to pay for the desired result. This segmentation allows me to assign different assets to different problems, potentially suggesting the use of different assets and investment strategies.
Regardless of whether you maintain a single portfolio or multiple portfolios, you need a framework to decide whether you are accomplishing your goals, moving in the right direction or need a mid-course correction. In the next section I briefly suggest the elements to use in building a portfolio measurement approach.
Framing the Measurement
Critical end dates and periods to measure and analyze choices:
12/31/21
11/10/22 (For US Taxpayers)
12/31/31
Retirement
Estate
Multi-Generation
Most important decision centers:
Capitol Cities - Washington, London, Beijing
Capital Cities - New York, London, Shanghai
Size of loss tolerance
10%
25%
50%
100%
Cost (for long-term holdings)
Investment Policy or Critical Personnel Changes
What Yogi Might Observe Today
- This week, the normally more speculative NASDAQ market is less "bullish" than the larger cap NYSE market in terms of the percent of traded issues reaching new highs, 11.8% for the NASDAQ and 22.7% for the NYSE. Short position changes last month had the NASDAQ increasing +2% and the NYSE +1%.
- International Markets performed better than the US: Taiwan (+19.5%) was the best performer, followed by South Africa, Canada, Singapore, France, and Hong Kong. The US followed Hong Kong with performance of +11.4%. South Africa and Canada are metals and energy driven.
- T. Rowe Price's target date funds reduced their commitment to US stocks due to lower expectations.
- Robert Kaplan of the Dallas Fed thinks the Fed should recognize increased speculation by considering an increase in rates.
- Some believe the real reason for increases in government spending is to increase the deficit, in order to raise taxes on the "wealthy."
- Hunter Lewis, developer of the "endowment" model at Cambridge Associates, believes it is outmoded since most academic endowments and pension funds use it and rely on important allocations of private equity and real estate.
- Warren Buffett at the Berkshire Hathaway (*) annual meeting noted two things of general value:
- None of the 30 largest stocks by market capitalization from 30 years ago are on the list today.
- Reports from their 60 plus affiliates indicate inflation in their costs.
- (*) Owned in Private financial Services Fund and Personal accounts.
- Medina Spirit led all the way to win The Kentucky Derby. The colt was purchased for $1,000 and was the 6th most favored horse in the race. It was Bob Baffert's 7th Derby winner.
My interpretation of these observations is to be careful with short-term oriented accounts.
What do you think?
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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