Short week for the column and thus only two posts to share.
AllianceBernstein – Interesting post on how DC plan sponsors are considering volatility. If volatility-aware strategies become prevalent, then FAs may see increasing desire to discuss the topic with more clients.
BlackRock – This post provides helpful and timely input on the potential for irrational exuberance in today’s market
I just touched on something from Morningstar a few weeks ago, but I’ve got to go back to the well one more time.
Earlier this week the article Dodge & Cox is a Model Fund Family caught my eye, and it’s been on my mind ever since. The article’s intent is to analyze Dodge & Cox’s corporate culture as a key element in Morningstar’s stewardship evaluation for the firm. To be transparent on where I’m coming from, three initial thoughts:
In most cases, assessing culture is simply a qualitative and subjective exercise that ultimately supports preconceived notions of an organization. Dodge & Cox is a private company that has been hugely successful for 80+ years. Anyone would be hard-pressed to objectively and convincingly conclude that the culture there is one that doesn’t work.
To that end, the Morningstar article feels like a hollow exercise, and in fact one that is a bit condescending to other asset managers. The one thought that really stands out to me is this:
There are other reasons to trust the firm. It shuns marketing and advertising, has no salespeople, and has rolled out just five funds in eight decades.
Equating an aversion to sales, marketing, and product development with great culture and stewardship implies that embracing those things negatively impacts a firm. Ridiculous.
Morningstar thoughtfully updates its methodology on a regular basis. The cultural component of its assessment of funds and firms is one that I think needs to be reconsidered.
Hope all had a great Thanksgiving weekend. We thought to move the best blogs to mid-week as everyone gets back in the swing of it. We have two posts to share from the last week and a half.
Many blog posts about China this week. Aside from the China – EU treaty, I’m not sure the impetus. The best two posts this week do not include China but tangible investing strategies.
I spent some time today with GMO’s third-quarter letter (PDF) to investors, specifically the already-much-discussed thoughts from Jeremy Grantham. Mr. Grantham touches on a number of topics, but the part that piques my interest is his take on the pending stock market bubble:
…so I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions. My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999…
This take made me think about a recent Slate blog post regarding the value of bubble-related predictions. If you don’t want to click through, here’s the important take from Matthew Yglesias:
I think it’s important to recognize how fundamentally unimpressive it is to call a financial crash years in advance. If I predict to you today that the stock market is going to crash soon and people are going to lose a lot of money, and then people keep making money for the next 40 months and then the stock market crashes, that would hardly make me a genius financial forecaster.
I find that point of view extremely valid. Investment managers consistently throw out “strong” predictions, but too often those predictions are couched in an unspecific timeframe. There isn’t much value in that.
In Mr. Grantham’s case, his prediction is on a middle ground. The 20-30% appreciation is specific; the timeframe less so; and there’s no commentary on how the variables should be balanced (e.g., what if the 30% appreciation happens over the next 7 months?).
As one advisor said to me, “At some point he will be right. But there’s nothing here for me to act on.”
