Tag Archives: adsense-down

Alternate Current: The Power Of Diverse Return Sources

By Christine Johnson After a long period of calm, global markets now face tumbling oil prices, geopolitical risks and monetary policy changes. Investors looking for new ways to diversify in this uncertain environment should take a long look at investments that don’t take their cues from stock or bond market movements. The Key: Un-Stock-Like Return Patterns Alternative investments have that name for a reason: they don’t act like traditional investments. Adding alternatives thoughtfully to a portfolio may lower its sensitivity to the stock market and interest-rate fluctuations. Alternatives also have the potential to enhance long-term returns and reduce risk. Investors may be surprised to learn that over the last 25 years, alternatives have produced higher returns than stocks, bonds or cash – with less than half the volatility of stocks (Display). A big part of the equation? Managers’ use of flexible investment approaches, and their ability to act opportunistically to exploit mispricings within and across asset classes. How Do Alternatives Handle Stress? On average, alternative investments haven’t been up as much as stocks in bull markets, but they also haven’t been down as much as stocks in bear markets. By losing less than traditional equity strategies during times of market stress, alternative strategies have historically preserved investors’ capital. In 2001 and 2002, as markets struggled to recover from the dot-com bust, alternatives provided more downside protection than stocks. In 2008, alternatives also lost less than stocks. Alternatives in the Portfolio Context Investors want more diversification in their portfolios; we think investments that don’t track stock and bond markets as closely as traditional investments offer that potential. Many alternative strategies provide returns driven more by a manager’s skill in decision making than by broad market movements. And there’s a lot of variety among alternatives. Investors can choose narrowly-focused alternative strategies – nontraditional bond or long/short equity, for example. Or they can opt for a more diversified strategy like multi-manager. This offers exposure to diverse approaches – and even diverse managers. A manager’s investing skill is integral to alternative investing, and the returns of individual strategies can vary greatly. A diversified strategy may prove valuable. Challenging market periods turn up unexpectedly, and a diversified investing approach that incorporates alternatives may help portfolios’ performance across diverse market conditions. Not all strategies will be in or out of favor at a given time. This point is particularly relevant in terms of US stocks. The lofty returns of the last couple of years won’t last indefinitely – so it makes sense to look for strategies whose return patterns offer something different from those of the broad market. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. Christine Johnson is Managing Director of Alternative Investments at AB (NYSE: AB ).

Wisconsin Energy (WEC) Q4 2014 Results – Earnings Call Webcast

The following audio is from a conference call that will begin on February 11, 2015 at 02:00 AM ET. The audio will stream live while the call is active, and can be replayed upon its completion. Are you Bullish or Bearish on ? Bullish Bearish Neutral Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague

Critiquing Klarman

Seth Klarman wrote a very good piece for the FT yesterday on the 12 things he’s learned from Warren Buffett. Only an idiot would disagree with Klarman so, like any good idiot, I wanted to write my own version/critique of Klarman’s thoughts: 1. Value investing works. Buy bargains. CR here – Yes, value investing works. I embrace value investing where appropriate . But it’s also tremendously difficult. As Buffett has stated on several occasions, you’re probably better off not trying to do what he does. You’re better off buying low fee index funds. More importantly, you should think of “investing” as your primary source of income. The thing most people call investing is actually a reallocation of savings. Treat it like savings and avoid the gambler mentality that leads so many astray. 2. Quality matters, in businesses and in people. Better quality businesses are more likely to grow and compound cash flow; low quality businesses often erode and even superior managers, who are difficult to identify, attract, and retain, may not be enough to save them. Always partner with highly capable managers whose interests are aligned with yours. CR here – Couldn’t agree more. As Buffett has stated, surround yourself with people who are smarter than yourself. If you’re me, just surround yourself with other people. 3. There is no need to overly diversify. Invest like you have a single, lifetime “punch card” with only 20 punches, so make each one count. Look broadly for opportunity, which can be found globally and in unexpected industries and structures. CR here – I think this is great advice in your personal life. I always talk about how real “investments” are made in our primary source of income. Don’t diversify there. Do one thing and do it well. Your savings, however, should be treated like savings. Diversify it broadly across many asset classes so it protects you from purchasing power loss and permanent loss, but don’t take so much risk here that it creates instability in your ability to plan for your financial future. 4. Consistency and patience are crucial. Most investors are their own worst enemies. Endurance enables compounding. CR here – Brilliant. You are own worst enemy. Educate yourself, create a process/plan and get out of the way. 5. Risk is not the same as volatility; risk results from overpaying or overestimating a company’s prospects. Prices fluctuate more than value; price volatility can drive opportunity. Sacrifice some upside as necessary to protect on the downside. CR here – Risk is the potential that we won’t meet our financial goals. Most of us don’t need to waste time looking at individual firms that have already been scoured by the smartest investment bankers and investment managers on Earth. If we beat inflation and do so without creating excessive permanent loss risk then we are beating most of the people engaged in the investment world. 6. Unprecedented events occur with some regularity, so be prepared. CR here – In other words, diversify so that you protect yourself not only from the unknown, but from your own stupidity. 7. You can make some investment mistakes and still thrive. CR here – you won’t just make some mistakes. You will make consistent mistakes. The goal is to engage in a strategy that exposes you to high probability of positive outcomes. Losses are part of the process. Learn from them and improve the odds of your future processes. 8. Holding cash in the absence of opportunity makes sense. CR here – as Buffett says, think of cash like a call option. A little bit of cash provides you with flexibility, permanent loss protection and the ability to contribute consistently to a broader plan. Your savings portfolio needs to be fed. Feed it consistently so it gets nice and fat. 9. Favour substance over form. It doesn’t matter if an investment is public or private, fractional or full ownership, or in debt, preferred shares, or common equity. CR here – think macro, not micro. Different asset classes are a function of differing legal structures and behaviors. When pieced together correctly they should complement one another even if they don’t always agree with one another. 10. Candour is essential. It’s important to acknowledge mistakes, act decisively, and learn from them. Good writing clarifies your own thinking and that of your fellow shareholders. CR here – in other words, write a financial site where you critique people who are much smarter than you are. 11. To the extent possible, find and retain like-minded shareholders (and for investment managers, investors) to liberate yourself from short-term performance pressures. CR here – if your investment manager doesn’t eat his own cooking then maybe they shouldn’t be cooking for you. 12. Do what you love, and you’ll never work a day in your life. CR here – don’t do what you love. Do something other people will love you for doing. Good capitalists serve themselves best by serving others.