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No one knows if this market will continue to move ahead or stall out. But I think it bears considering a bit of perspective on what we mean when we discuss “this market.” With a capitalization-weighted index like the S&P 500, the market can consist of deceptively few issues and provide a poor benchmark against which to measure your own results. In 2015, for instance, four S&P tech stocks – Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) (the “FANGs”) were responsible for $450 billion of growth in market cap. Pretty wonderful! You don’t remember that? You thought 2015 was a wasted year in terms of gains, with the S&P 500 finishing almost flat? You’re correct. But the four stocks above did contribute $450 billion in market cap growth. That’s because, as a group, the other 496 stocks in the S&P collectively lost even more in capitalization. If you owned just the four FANGs, you had a mighty fine year. If you owned none of them, but all the others – not so much. Let’s use AMZN as an example. Amazon’s market capitalization today is over $325 billion, larger than the combined market values of Wal-Mart (NYSE: WMT ), Target (NYSE: TGT ), and Costco (NASDAQ: COST ). These three “old economy” firms reported trailing twelve-month GAAP net income of just under $17 billion, while Amazon’s net income was… an underwhelming $328 million. Of course, I think we can all agree that we buy stocks for what we believe they will be worth in the future, and I imagine Amazon the company will show increasing revenue in the future! However… As of today, Amazon trades at 501 times earnings per share. While I believe AMZN will continue to earn more revenue every year and may translate that into earnings, if the P/E it is rewarded with for that future growth slips to only, say, 400 times earnings per share without any increase or decrease in actual earnings, that would mean a 20% drop in stock price from 626 to 501. Heaven forbid if, in a down market, it would slip to only 300 times earnings; that would take the share price in this example to 375. It gets worse. As of April 1, 2016, the aggregate price/earnings ratio for stocks in the small cap Russell 2000 index is zero; those 2000 stocks (taken as a group) effectively had no earnings over the past 12 months. On the off chance that current valuations, combined with current revenues and real earnings, might not end well, we placed roughly half our assets into the above-mentioned yield and fixed income alternatives. But of course, there is a sucker born every minute and we’ve seen greater fool markets before that lasted beyond any reasonable connection to reality. (It seems the supply of Greater Fools is bigger than anyone imagined back in, say, 1998.) So in the event this one does continue, roughly half our asset base is still long – sort of. Just as for Mr. Clinton, for whom it depended on what your definition of “is” is, our portfolio is long, depending on what your definition of “long” is. My definition consists of the following: “Flexible funds:” These are long-only funds with excellent flexibility to go to cash, select different sectors or asset classes, or choose different capitalization sizes, world markets, or cash while awaiting reasonable entry points. “Long / short funds:” These are funds whose charter allows them to go long the issues they believe offer the greatest return or defensive characteristics and simultaneously short those they believe are most vulnerable to a decline. “Liquid Alternative funds:” Liquid alternative funds come in all sizes and flavors but their basic premise and promise is that they don’t limit themselves to buying common stocks, so they are an “alternative” to the benchmark investing so in vogue these days (as it always has been after a few years of good general market appreciation.) They might invest in or short currencies, commodities, bonds, stocks, options, futures or any of a half dozen other offerings. Our favorite flexible funds are those offered by Leuthold Weeden Capital Management. These are all no-load funds, have good track records, and are helmed by managers that are both transparent and humble. By “humble” I mean lacking in hubris and quite candid about their mistakes as well as their successes. Fortunately for us, the latter have outnumbered the former. The two we have in our portfolios are Leuthold Core Investment (MUTF: LCORX ) and Leuthold Global (MUTF: GLBLX ). Here’s LCORX, in their own words, from the Leuthold Funds website: The Leuthold Core Investment Fund differs from most other mutual funds by investing in stocks, bonds, money market instruments and certain foreign securities. When appropriate, as disciplines dictate, the Core Fund may also hedge its market exposure. We adjust the proportion of each asset class to reflect our view of the potential opportunity and value offered within that sector, as well as the potential risk. Although there are no guarantees, it is our belief that successful investing demands skill both in making money and attempting to preserve any gains. Flexibility is central to the creation of a core portfolio that you can depend on in a variety of market conditions. We possess the flexibility and discipline to invest where we see value and to sell when we believe there is undue risk.” Most recently, LCORX has been 18% in various bonds, 52% in select sectors, and 17% hedged, with the rest in cash and smaller positions. In a rip-snorting bull market, I’d go more for aggressive funds like former holding Akre Fund (MUTF: AKREX ). For this market, nothing beats LCORX. Leuthold’s sister fund for global investing, GLBLX, is invested in a similar ratio, but with a global bent, holding a little less cash and a few more longs. I consider these two funds as fine bookends for a conservative defensive portfolio. Then there are funds that are long-only and equities pretty-much-only that simply refuse to buy anything unless they have great faith in the future of a particular company and can buy it at a reasonable valuation. If they can’t, they stick to cash and cash equivalents. The best example of such a fund today is the Intrepid Endurance Fund (MUTF: ICMAX ) which is currently holding a whopping 67% in cash. They’ve experienced significant outflows, of course, because too many investors who claim they are in it for the long haul really aren’t. Indeed, today’s typical investor, institutional and individual alike, just want to beat the S&P – basically every month and certainly every quarter. The best way to do that is to not beat the S&P at all, but to at least equal it. That’s why so many gurus advise that you just buy an index fund and never sell it until you retire, at which time you can sell part of it to buy bonds. I say phooey to that hooey. Cap-weighted index funds like the S&P 500 are, by their very nature and composition, avenues to buy a chunk of whatever’s been working most recently, regardless of valuation or quality. The highest-capitalization stocks get the most money newly devoted to purchases and lower capitalization stocks, regardless of their investment value, get the least. Then we have most “professional” investors, a term that merely means that they do it from 9 to 5 every day, not necessarily that they do it more professionally or better. Their livelihood, vacations, mortgage, and children’s higher education depends on them never under-performing the index their mutual fund, pension fund or whatever is benchmarked to. See even most allegedly “active” managers never stray too far from the benchmark. As we get closer to a real bear market bottom, I’m guessing it is the managers of funds like ICMAX that we’ll be suggesting for your due diligence – because that’s when they will be buying at (finally!) reasonable valuations. Moving on to long/short funds, let me remind you about Boston Partners (Robeco) Global Long-Short ( BGLSX Institutional/ BGRSX Retail.) Since the fund publishes its largest holdings monthly (in an age of advanced information technology, why don’t more funds do this???), I can see that as of 31 March, their biggest longs were GOOG, BRK.B , AAPL , OTCQX:IMBBY and PHG . Their biggest shorts were on TSLA , CAT , BLL , OTCPK:GEAGY and NFLX . In uncertain times, I like this kind of flexibility. We also own the Boston Partners Long/Short Research fund ( BPRRX Investor class/ BPIRX Institutional class.) As of 31 March, their biggest long holdings are PE , ORCL , MSFT , XOM and JPM . The largest short positions? ITRI , NATI , TXRH , EQIX and WIT . And finally, we own another long/short fund, the AQR Long/Short Equity (MUTF: QLEIX ) This one has beaten all the benchmarks this year so far but be aware (!) of this caveat about this fund family: all classes of all their funds I own have a $1 million or $5 million minimum purchase, depending upon class of issue, unless you buy through an RIA or financial advisor with an agreement with the fund company. Fortunately, our firm has such an agreement so we can buy in quantities as low as $10,000. See if your broker or advisor can do the same. It’s important to gain this edge because my best choice in the liquid alternatives area is the “managed futures” fund called AQR Managed Futures Fund ( AQMIX institutional/ AQMNX investor.) This fund provides a liquid alternative to solely relying on US stocks for your returns. It does so by investing in a combination of stocks, bonds, commodities and currencies across a spectrum of different time frames. It provides virtually zero correlation with the S&P 500, yet it gives us the ability to profit from global macro investing trends in over 100 markets. (Indeed, this fund alone has proven so popular to our readers that we recently lowered our assets under management minimum from our standard $500,000 to $100,000, as long as we manage only mutual funds and ETFs!) Finally, we can offer, for those who prefer ETFs to funds, one long we own, the QuantShares US Market Neutral Anti-Beta ETF (NYSEARCA: BTAL ). It is basically a hedge fund, packaged as an ETF, that places the bet that boring predictable value will outperform the S&P in any down market. BTAL shorts the highest-Beta stocks (those that move in concert with or at a greater rate than the benchmark) and buys the stocks least sensitive to the benchmark move (the lowest-Beta stocks.) BTAL’s aim is to mute market moves over time and protect capital far better than simply buying an index fund. BTAL actually has a lower correlation to the S&P 500 than other typical hedges than either gold or utility stocks. You can see why I placed the word “Long” in my headline in parentheses. We’re still long. We are long some things and short others but on balance long. And we may not be in equities, but we’re still long other assets. Finally, we’re long – but not too much! And we are invested with managers we know and trust and have given them free rein to rebalance the percentage long and percentage short. This may give them some sleepless nights. Us? Between our munis, preferreds, REITs, flexible funds, long/short funds and liquid alternatives, we sleep very soundly, thank you! Disclaimer: As ​ a ​ Registered Investment Advisor, ​ I believe it is essential to advise that ​ I do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as “personalized” investment advice . Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund one year only to watch it plummet the following year. I encourage you to do your own due diligence on issues I discuss to see if they might be of value in your own investing. I take my responsibility to offer intelligent commentary seriously, but it should not be assumed that investing in any securities my clients or family are investing in will always be profitable. I do our best to get it right, and our firm “eats our own cooking,” but I could be wrong, hence my full disclosure as to whether we or our clients own or are buying the investments we write about. ​