“A lot of people are not psychologically suited to buy stocks that bump around all the time.”
Warren Buffett (CNBC Oct 2, 2014)
Last week it was Dalio, Bloomberg, Dudley, Cooperman, Robertson and Conway as well as Julian Robertson’s “we have created two bubbles that will bite us” (referring to both the stock market and bond market bubbles). This week I share a few notes from the John Bogle vs. Cliff Asness debate (Bogle is his usual straight-forward and strong self while Asness is perhaps a bit too kind).
I thought about the two polar ends of the investment mindset and for some reason religion entered my mind. (Politicians entered my mind as well but that made my stomach turn.) Far right, far left, my way is right, your’s is wrong, etc. Bogle is steadfast in his “buy-and-hold at the lowest fee possible” mindset and Asness focuses on years of academic research and real life performance experience that reveal the advantages of price momentum and relative strength.
Asness’s belief (and mine) is that price momentum can identify market leadership and that the proper positioning of leadership can enhance returns and, importantly, better preserve your principal in periods of market dislocation. Bogle can sit tight and has the steadfast belief to do so. I’m not sure most people can hold his depth of conviction when crisis comes. Both approaches require a systematic, disciplined process and belief.
As you may know, I favor combining both together. For the Bogle piece, inexpensively hedging that risk exposure when risk is high simply makes sense. It costs a little more but so does fire insurance on your house. It is all about keeping your clients fixed to their investment plan. Another -50% is coming, yet no one knows when. What we can measure are levels of risk. Today risk is high.
At the end of each month I like to take a look at the most recent valuation charts, which are based on actual reported earnings, and I also like to keep an eye on Buffett’s favorite valuation measurement. The first shows the market overvalued, the second, Buffett’s measure, shows the market in bubble territory. You’ll find the charts in the full piece (link below).
Forget the coffee this week; grab your favorite calming medication (a nice red wine or some warm tea for me). You may just need it when you read The Secret Goldman Sachs Tapes by Michael Lewis.
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.